Opinion | Scott M. Estill: Financial illiteracy can control your life
Challenges, Choices, Changes
With the upcoming school board elections a few days away, I decided to take a look at the course offerings for students at Summit High School. While the usual suspects were well represented — math, science, history, etc. — I was happy to see that the school offers a course in personal finance. But after digging a bit, I became less enthused. It turns out the class is not a requirement for graduation. In the United States, fewer than 17% of students are required to take at least one semester of personal finance.
The average person today has a very limited amount of financial literacy, or an understanding of budgeting, investing, credit, taxes and personal-financial management. In fact, it has been estimated that 66% of American adults are financially illiterate. Who wins the financial game when it involves a person with no monetary education versus a bank, credit card company or other sophisticated lenders? Even my Chicago Bears can (probably) win a football game if the other team doesn’t know the rules or has never played the game.
The game is perhaps even more difficult to win for us who live in a tourist-driven economy and thus have a high cost of living. Having a basic financial education is imperative to being able to survive and get ahead in the rat race we sometimes find ourselves living in. And like many problems today, the solution begins with education.
The process is simple enough to begin, yet how many people set up and follow a budget? Do you know where your hard-earned paycheck funds disappear to each month? Do you know who is making money off you and how much?
Nearly everyone takes on some debt at some point in their lives, yet few understand the financial implications of credit. A variance in a credit score can cost a potential borrower thousands of dollars over the life of a loan due to the increased rate of interest the lender can and will charge. A good first step would be to obtain a free copy of your credit report. This can be done for free through April 20, 2022, at AnnualCreditReport.com.
In looking at the real estate for sale in a recent Summit Daily News edition, it is apparent that few people can afford any of the listings. A nice but small 1,247-square-foot Breckenridge property was listed for $779,000. With a 10% down payment and a mortgage debt of $700,000, it would equate to a monthly payment of more $4,000 per month. A household would need to make at least $12,000 per month to be able to afford this modest house. And this is for someone with an excellent credit history; you can add another $1,000 per month or more for someone with less-than-stellar credit.
Even if one can meet the monthly payment demands, saving for the down payment is often an insurmountable task. How many people have actually learned how to invest for both income today and a future retirement? If you asked the majority of homeowners in Breckenridge (this would be for second homes or other investment properties) how they acquired the property, they would likely acknowledge that a significant portion of their wealth came from investment activities if not via inheritance. Yet, how often do you think about how investments could make a difference in your life between just getting by and building a nest egg?
As a tax attorney, I won’t even begin to mention taxes and how much of an expense they really are. Someone making $15 per hour would gross $600 per week but bring home only $470 or so. The rest goes to the taxman. The money in your pocket then gets hit with more taxes, including sales taxes — Breckenridge and Dillon are 8.875%, so perhaps shopping in Silverthorne or Frisco where the rate is 8.375% makes sense — property taxes, automobile taxes, sin taxes (alcohol, tobacco, weed, etc.), and the list goes on.
So what is one to do? The answer once again is education. There are many free online resources available, including from the University of Florida, Credit.org, many excellent TED talks and numerous other Google suggestions. You can also take a course at Colorado Mountain College in Vail to learn how to control money and not have it control you.
As with any other education, it is up to you to take the first step. Your financial well-being is depending on it.
Scott M. Estill’s column “Challenges, Choices, Changes” publishes biweekly on Thursdays in the Summit Daily News. Estill is an attorney, author and public speaker who lives in Dillon when not traveling or attending to legal matters in Denver. Contact him at email@example.com.
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