Would You Pay 500% on Your Debt?

One thing that has become clear during the financial crisis of the past year is that Americans are spending more, saving less, and generally making poor financial decisions. The average American's savings rate is far lower than those in other industrialized nations, such as France and Germany at about 10%. In addition, according to a report conducted by public policy organization Demos-USA, the average indebted young adult spends nearly $0.25 of every dollar on debt payments.

If you think that's bad, a new survey from the Federal Deposit Insurance Corp. on Americans' access to banking services found that about 17 million Americans don't even have a bank account. The primary reason was lack of funds, and according to the survey, nearly 18% of all U.S. households have relied on payday lenders, pawn shops, or check-cashing outlets at least once in the past five years. As the article goes on to explain, some of these borrowers end up paying the equivalent of an annualized interest rate as high as 500%. 

For me, though, the statistic that really stood out was that almost a quarter of all households headed by someone who didn't finish high school were considered "unbanked."

Not surprising.

Obviously, there's a direct correlation between education and making smart financial decisions. Unfortunately, most high schools do not offer financial literacy courses. That's why the Fool is continuing our annual Foolanthropy campaign to spread financial education. And we're in good company because JPMorgan Chase (NYSE: JPM  ) , Charles Schwab (Nasdaq: SCHW  ) , McGraw-Hill (NYSE: MHP  ) , Allstate (NYSE: ALL  ) , and Ford (NYSE: F  ) have also had philanthropic efforts focused on financial education.

What are we doing this year? The Fool has "adopted" a local public charter school, located in one of D.C.'s most impoverished neighborhoods, by pledging to make a generous donation and teaching financial literacy workshops to students and parents. And we're asking the community at large to help, too.

For every article comment, blog post, blog comment, and discussion board post throughout the campaign, The Motley Fool will donate $0.10 to our adopted school (up to $20,000). So let us know what you think! Use this opportunity to share your thoughts on financial literacy, volunteerism, and what you're doing in your own community.

Claire Stephanic does not own any of the stocks mentioned. Charles Schwab is a Motley Fool Stock Advisor recommendation. The Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (23)

Comments from our Foolish Readers

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  • Report this Comment On December 03, 2009, at 4:48 PM, thetucket wrote:

    I applaud the Fool for volunteering both time and money to educating young people, especially on the topic of financial literacy. This is a great, and timely cause.

    Part of the American dream is the promise that hard work, responsible saving and wise financial practices can lead to a path of steady upward mobility throughout the generations of any given family. Hard work, responsible saving and committed investing can allow any family to improve it's financial health, provide a better education for its next generation, and lead to even better saving, investing and spending habits so as to build family wealth.

    That's a difficult cycle to begin, however, when a lack of education begets low-wage work and a lack of discretionary funds, and a lack of such funds makes it seemingly impossible for someone to think about saving and investing anything. Of course, you and I know that's not impossible: anyone can and should save something (at the least), and hopefully invest a little more for the future; and that's where the Fool comes in. Even a simple lesson on the wonders of compound interest can do a young kid a lot of good!

    Now if we could only start a volunteer campaign to spend a couple of days in DC teaching our elected public officials a little something about financial literacy and fiscal responsibility writ large...

  • Report this Comment On December 03, 2009, at 4:58 PM, thetucket wrote:

    I applaud the Fool for volunteering both time and money to educating young people, especially on the topic of financial literacy. This is a great, and timely cause.

    Part of the American dream is the promise that hard work, responsible saving and wise financial practices can lead to a path of steady upward mobility throughout the generations of any given family. Hard work, responsible saving and committed investing can allow any family to improve it's financial health, provide a better education for its next generation, and lead to even better saving, investing and spending habits so as to build family wealth.

    That's a difficult cycle to begin, however, when a lack of education begets low-wage work and a lack of discretionary funds, and a lack of such funds makes it seemingly impossible for someone to think about saving and investing anything. Of course, you and I know that's not impossible: anyone can and should save something (at the least), and hopefully invest a little more for the future; and that's where the Fool comes in. Even a simple lesson on the wonders of compound interest can do a young kid a lot of good!

    Now if we could only start a volunteer campaign to spend a couple of days in DC teaching our elected public officials a little something about financial literacy and fiscal responsibility writ large...

  • Report this Comment On December 03, 2009, at 6:56 PM, richie54 wrote:

    It's nice to see The Fool do the right thing by trying to help those less fortunate. Bravo!

  • Report this Comment On December 03, 2009, at 7:41 PM, xetn wrote:

    What the FDIC is overlooking in their assessment of the number of "Americans" without bank accounts is a result of the illegal aliens and the underground economy. The FDIC is not being completely honest since it gets its so-called insurance premiums based on the amount of deposits, so it would naturally like to have more accounts.

    As for the campaign to provide an economics education, it would be much easier to just go to http://mises.org/literature.aspx?action=author where you can download hundreds of books for free. Or you could read Henry Hazlett's Economics in One Lesson available on line (for free).

    Reading Murry N. Rothbard's "What Has Government Done to Our Money" or "Mystery of Banking".

    Also try reading the Austrian Theory of The Trade Cycle.

  • Report this Comment On December 03, 2009, at 7:46 PM, xetn wrote:

    The FDIC's assessment of the lack of bank accounts overlooks the effects of illegal aliens and the underground economy. Without SS numbers and proper ID, you cannot open a bank account.

  • Report this Comment On December 04, 2009, at 9:52 AM, money4eds wrote:

    A company with a true heart. Wow!

  • Report this Comment On December 09, 2009, at 1:07 PM, FoolsWeR wrote:

    Thanks Motley Fool. America will be stronger if every individual is supported, not taken advantage of. Good for you guys.

  • Report this Comment On December 14, 2009, at 4:11 PM, astewboy2 wrote:

    Thanks for doing this. I work in public education and truly this is needed. I have a Master's degree and went to school for 6 years, but the one course that has made the biggest difference in my life is a family finance class that taught the basics in the different types of insurance, investing, budgeting, etc. I stumbled across it by accident, I wish more could understand this. Here's another dime for my thoughts!!!!!

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