Your Personal Economy: Achieving Financial Literacy is a Lifelong Journey

New TD Economics report highlights key moments in the life cycle of financial decision-making

Nov 14, 2011, 09:43 ET from TD Bank

CHERRY HILL, N.J. and PORTLAND, Maine, Nov. 14, 2011 /PRNewswire/ -- All financial decisions involve a tradeoff – spend money now or save it for later – that figures prominently in financial decision-making. A new report by TD Economics, (, an affiliate of TD Bank, America's Most Convenient Bank®, considers the risk-reward of spending versus saving, stressing the importance of a lifelong commitment to sound financial literacy beginning as young as possible and continuing throughout adulthood.


With the continued crisis in the United States job market and huge debt burdens saddling millions of Americans, gaining knowledge about finances and putting those lessons into practice have become increasingly necessary to not only plan for the future, but to remain financially fit today.

According to TD Economics Chief Economist Craig Alexander, "Both borrowing and saving have their upsides. Borrowing for education or to finance a home can lead to greater personal wealth in the future. Saving money allows us to maintain in retirement the standard of living we enjoyed while working."

Any financial decision-making should begin with an understanding of one's borrowing and saving goals and should not be taken lightly.

"Any financial decision involves risk, but having the knowledge and tools to minimize or manage those risks helps us achieve short-term and long-term financial goals," continues Alexander. "A great example is student loans. You have to weigh the financial burden student loan debt will have in the future versus the increasing demand for other career paths that do not require a college degree. The cost of admission into some career paths is not as cumbersome as it is with others."

In fact, tuition fees have increased by more than 30% in the last decade, according to the U.S. Department of Education. At the same time, high unemployment and low incomes during the economic crisis and recovery have led to a spike in student loan default rates – from 4.6% in 2005 to 8.8% in 2009, the most recent year rates were measured.

While the decision to invest in and start to pay for education begins relatively early in adulthood, many short and long-term financial decisions are presented around this time. One such decision is whether or not to use credit cards. Understanding the pros and cons of using credit cards – and how to use them wisely – will have a tremendous impact on future spending and saving decisions.

A recent study asked adults to estimate how long it would take to pay off a credit card with a 1% interest rate by making a $30 minimum payment on a $3,000 starting balance. Only a third of adults recognized that the minimum payment was exactly equal to the monthly interest charge. By simply paying $30 each month, the principle would never go down. Lacking financial education and not having a grasp of basic financial concepts such as credit card interest can have lasting ramifications throughout adulthood.

As a person's career progresses and earning power increases, major financial decisions such as buying a home and setting up a retirement plan come into focus. And having a sound understanding of their financial capability -- and limitations -- becomes paramount.

"While it is impossible to quantify just how much inadequate financial literacy contributed to the housing crisis, not knowing the financial risks and obligations likely played a large role," says Alexander. "What we do know is that more than 5.6 million mortgages are currently either delinquent or in foreclosure. That can't be blamed entirely on over-aggressive lending."

Meanwhile, working adults must also make important decisions about saving for retirement. Building a nest egg for retirement helps individuals maintain the same standard of living in retirement that they enjoyed while working. In addition to foresight and advanced planning, a clear understanding of saving and investment concepts like compound interest and risk is necessary to adequately save for retirement.

However, studies show that a lack of long-term savings is likely hurting many Americans' ability to retire. According to one study by economists at Boston College, the 401(k) account of a typical worker nearing retirement age in 2007 with annual earnings of approximately $50,000 had only $73,000. This figure would need to be closer to $320,000 for this hypothetical worker to maintain the same standard of living in retirement, according to the authors.

All these financial decisions and factors beg the question: What can be done to better prepare people for the financial decision-making life cycle?

The gateway to financial stability, TD Economics concluded, is a lifelong commitment to financial literacy to help guide consumers from their first paycheck through the golden years of retirement.

Additionally, several online and in-person tools are available to begin learning about saving, budgeting and the value of money at an early age, including TD Bank's WOW!Zone ( The TD Bank WOW!Zone is a free, interactive financial literacy program for grades K–12 that features both an in-school and online component. TD Bank works with local schools and youth organizations to provide valuable information including an introduction to saving, understanding lines of credit and the stock market.

"There is a significant need for financial literacy lessons at a young age so today's children grow up to be financial responsible adults," says Brian Haier, Executive Vice President and Head of Regional Retail Banking and Direct Channels for TD Bank. "Tools like WOW!Zone are designed to help kids gain an early understanding of money, providing a solid base of knowledge and enabling them to make good financial decisions throughout their lives."

TD Economics provides analysis of global economic performance and forecasting, and is an affiliate of TD Bank, America's Most Convenient Bank.

The complete findings of the TD Economics report are available online at:

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