Economic Literacy: The Next Frontier for Consumers

Economic Literacy: The Next Frontier for Consumers

With the first quarter of 2024 coming to a close, earnings season will soon be here. And while economists, market watchers and the business press will expend barrels of ink – both actual and virtual – talking about the results, most Americans will pay little attention. Even those with investment portfolios are more likely to take a cursory look at the status of their holdings than any kind of detailed examination of where they are financially.

This is not surprising, given the average American’s limited financial literacy. We are in an era where the simple act of balancing a checkbook is fast becoming a lost art and where students graduate from high school with little experience at the basics of money management. And while there have been efforts in recent years to change that reality with financial literacy programs, there are still a lot of people who get confused at the difference between a credit card and a debit card.

Some of the blame lies with the educational system, which historically did not make financial education a priority. Beyond teaching elementary school children the value of coins and paper money, financial literacy was too often seen as the purview of the family and not the school. And while organizations like Next Gen Personal Finance are working hard to incorporate personal finance courses into basic education requirements – along with financial literacy programs at a variety of government agencies from the Federal Reserve Board to the Office of the Comptroller of the Currency – there is still more work to be done.

But financial literacy is only the beginning. While understanding the basics of opening a checking and savings accounts is important for personal financial health, there is a bigger knowledge gap that gets far less attention: economic literacy.

Being able to balance a checkbook and understand how compound interest works are important skills, along with budgeting and financial planning. But the fundamental lack of knowledge most consumers have regarding basic economics is troubling at best.

This is apparent in consumer attitudes about the economy over the past couple of years.

While the post-pandemic inflationary shock took many consumers by surprise, it shouldn’t have. And even as the economic ship of state righted itself and strong job creation and consumer spending – along with Fed monetary policy tightening – brought inflation down to near-normal levels, consumer attitudes about the state of the economy did not reflect reality. In surveys, Americans expressed confidence in their personal financial situations, yet continued to view the overall economy in deeply negative terms.

This disconnect, called the “vibe economy” by pundits, represents not only a disconnect between perception and reality when it comes to the state of the economy but a lack of appreciation for how economies work.

While it is too much to expect the average American to be able to comprehend the statistical maze that is economics, understanding basic economic concepts such as supply and demand, opportunity cost, scarcity, comparative advantage and GDP would provide consumers with the ability to look beyond the doom-and-gloom reporting of economic news and see the bigger picture of the global economy.

Getting people to spend the time to learn simple economics is like asking Americans to eat their vegetables. Many know it is something they should do, but they would rather spend their time with life’s desserts and scroll through their social media feeds and relax. Still, it would be a worthwhile effort and would bring those bad economic vibes everyone is feeling more in line with what is actually happening.