Advanced Essay #2 Luke Watson-Sharer Financial Literacy

Financial Literacy

By Luke Watson-Sharer

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As the United States loses its resume as a financial have, it is important to understand why. Is it because of multi-national corporations, banks, or the people? The lack of instruction in basic financial literacy has contributed to the destabilization of the United States. A basic economic literacy lesson is focusing on fiat currency, banking and the, minimum wage. To become financially literate, you must understand these topics. “Economics is everywhere, and understanding economics can help you make better decisions and lead a happier life”- Tyler Cowen.

One reason financial literacy is low is because people do not make enough effort understand basic economics. The nightly news broadcasts the Dow, S and P, etc. stock markets but we do not know the importance of theses institutions and ratings. To few high schools offer an class in economics, banking or anything to promote financial responsibility and literacy. This hurts our next generation especially when the up and coming currencies such as the bitcoins emerge. In the following paragraphs, I will discuss necessary components of basic financial literacy.

Fiat Currency has a daily effect on our lives and is significant to U.S. history since 1968. Fiat Currency is money that has no commodity. Commodities can be anything from precious metals, such as gold and silver, to food. Now you’re thinking, sweet, we get free money. Well, it’s the other way around. Fiat Currency only favors those with a lot of money.  When you have fiat currency you can create money from nothing. Therefore, every next dollar makes every other dollar worth less. This hurts your money big time. Workers are already taxed a lot but this serves as a “hidden tax.” This also allows unlimited credit and loans. So some will say, “cool more free money”. The word credit is Latin for credere which means “to believe.”  By creating money through loans and credit, the money supply increases and therefore, money has less value. Citizens need to be aware of what devalues our currency. Knowing the basics of fiat currency is a step towards financial literacy.“At the end fiat money returns to its inner value—zero.” - Voltaire

Another component of financial literacy we must understand how to be financially responsible. Knowing how to bank is required in a “free market” society. Banking consist of a few essential things: credit (covered above), saving, and profits. Credit is when a bank provides a loan. Loans are lending money from one institution or person to another institution or person. Loans must be repaid usually with interest. Savings are money a person or institutions saves or does not spend. When money is in our savings, it is reinvested by a bank as a loan to another person.  For example, the other person may buy a car, home, or pay for college. This means that the interest pulled from the credit on loans is how banks profit as a business. Saving money is important because it enables the banking system to work.  Without money from savings, banks could not be make loans and be profitable.  Understanding interest, credit and savings is another step towards financial literacy. “Typically, students slide into debt through the extension (by credit card companies) of unaffordable credit lines.”- Robert Manning

        The following scene explains the basics of banking.

Client 1: “Hello clerk, I’d like to deposit ten dollars.”

Clerk: “ Certainly would you like this in your savings or checking?”

Client 1: “Savings please.”

The bank can now reinvest your ten dollars.

Client 2: Can I borrow ten dollars for a shirt?”

Clerk: “Certainly.  The interest rate is 6%”

Client 2:” Fine by me”

1 month later he must pay the bank back. But must pay them an extra 6%.

Clerk: “Good afternoon.  Are you here to pay your loan?”

Client 2: “Sure. Ten bucks.”

Clerk: “Sorry, sir. Ten bucks plus 6% interest.”

Client 2:  “Oh, yea.”

Financial literacy also requires understanding the minimum wage. The minimum wage is the lowest legal wage one can employ labor at in the U.S., adjusted by states. The minimum wage was created in 1938. As indicated by the chart, the minimum wage has not kept up with the rate of inflation.


Minimum Wage

Wage worth in today’s money


.25 cents



.75 cents














Source:  Pew Research

Many say the minimum wage isn’t for a family. Well, I agree it isn’t but it wasn’t meant to be. It was intended to be for younger workers and to raise the working age. Yes, it’s too low, but it was meant to be the minimum rather than a going rate. It’s important to understand the use of the minimum wage but also to restore it to a relevant wage of at least $12 an hour.  Since 2009, the minimum wage has lost about “8.1% of its purchasing power to inflation.” (Pew Research, 2015).  This reality is acknowledged by the twenty-nine states that have set a higher minimum wage. While workers need to know the minimum wage, more importantly, they need to know how to work for a fair or living wage. Understanding labor rights are just as important as understanding civil rights; they are connected. “I do not support raising the minimum wage, and the reason is as follows. When the minimum wage is raised, workers are priced out of the market. That is the economic reality that seems, at least so far, to be missing from this discussion”.- John Sununu

In conclusion, as we are not teaching our students financial literacy, we may potentially will lose our savings, become overly indebted, and not demand equity in pay.  Without basic financial literacy, citizens will not be able to challenge those who control capital and make policy. Because basic financial literacy has not been taught, the U.S. goal to become “middle class” has become less attainable.  To change this trend, basic economic literacy, including discussing fiat currency, basic banking and minimum  

wage, needs to be infused into the curriculum.  Financial literacy should be added to “reading, writing and arithmetic” in all schools.


A History Of The Minimum Wage." YouTube. YouTube, 3 Mar. 2014. Web. 24 Nov. 2015. by Time Magazine:

White, Lawrence H. "Inflation." : The Concise Encyclopedia of Economics. Econlib, 2008. Web. 24 Nov. 2015.: