How 8 Billionaires Show the Importance of Financial Education

By Dan Kadlec

January 20, 2017

Do the rich, like Bill Gates, have too much?

Income inequality is a scourge that threatens the global economy as it erodes the middle class. What to do about it is a vexing question. But financial education can certainly be part of the solution.

The world’s eight richest people now have as much wealth as half the global population combined, according to a report from Oxfam that was released ahead of this week’s gathering of business and world leaders in Davos, Switzerland. The report is based on wealth estimates from Forbes and was reported in The New York Times on Monday.

Calling the wealth disparity “obscene,” Oxfam notes that just eight multi-billionaires led by Bill Gates and including Warren Buffett, Jeff Bezos, Mark Zuckerberg and Michael Bloomberg have as much money as 3.6 billion people altogether. “Inequality is trapping hundreds of millions in poverty; it is fracturing our societies and undermining democracy,” the report concludes.

The report makes an important point, even if calling out a handful of self-made billionaires is a tad sensational. The fact is hundreds of millions of people have zero net worth, or negative net worth. In the U.S., for example, 15.1% of households have zero net worth or less, the New York Fed found. Other estimates have put the percentage as high as 50%.

Screen Shot 2017-01-16 at 11.33.37 AMThat means if you have $10 in your pocket and no debt you have more wealth than at least 19 million U.S. households combined. Feeling rich yet? The number grows exponentially if you extend the analysis globally. Oxfam might just as well have called out everyone with a job and manageable debts. There are that many people with nothing.

The situation has grown worse since the 1970s. Some people have joined the elite 1% but far more have slipped into poverty as the middle class has shrunk. A vibrant economy needs a healthy middle class to produce and consume. It is in everyone’s interest to reverse this trend.

Politicians will debate how to achieve a thriving middle class through tax policy and various programs to create jobs. But one thing we know helps keep people out of poverty is more education, especially financial education. A third of those in the U.S. with a negative net worth were pushed there because they owe more on their credit cards than they have in savings or other assets. Basic money skills could prevent much of that.

Higher education helps. Among workers eligible for a 401(k) plan, those with a college degree are 20% more likely to enroll in the plan than those who graduated high school but not college, according to a study out of the University of Kansas. Further, those with a college degree save an average 26% more each year. As the less educated contribute less to their plans and the more educated contribute more to theirs the chasm between rich and poor will only widen.

Still, even the college-educated do not save enough. That’s where financial education can fill some gaps—for those with or without a college degree.

The Oxfam report lays this on both governments and private employers to fix, suggesting they encourage and adopt benefits that help their workers get ahead—not just focus on shareholders. At one level that means decent pay so there are fewer poor. But it also means helping workers through financial wellness programs, which are popping up all over corporate America and seem like the next big thing in company benefits.

Financial education that starts in schools is another point of attack, one Oxfam does not address. Income inequality is a sweeping issue. Focusing on billionaires calls attention to the issue. But there is plenty we can do to address the problem just by helping ordinary wage earners do a better job handling their credit and other day-to-day money decisions.

More on income inequality:

Why Workers Want to Learn About Money at the Office

How Financial Education Can Narrow the Wealth Gap 

The Next Big Thing in Workplace Financial Education

Workplace Financial Education Solves Retirement Crisis

Posted in Policy, Workplace on January, 2017