Today's Paper Latest The Article Story ideas Coronavirus Newsletters Obits Puzzles Archive iPad Core Values Weather

The ripple effect

Financial choices’ impact wide by Robert Hopkins Special to the Democrat-Gazette | April 20, 2017 at 3:05 a.m.

April is Financial Literacy Month, which makes it a good time to discuss how our collective personal finance decision-making can affect the economy as a whole.

Personal decisions about spending, credit, saving and other financial matters not only affect an individual's circumstances but also ripple throughout the overall economy--both the good choices and the bad ones. To see this, consider the macro and micro consequences of an individual's decision to save. At the macro level, saving is the lifeblood of investment, and investment is a key driver of increases in our nation's standard of living. Inadequate personal saving collectively affects the amount of loanable funds available to businesses to borrow and expand. Similarly, inadequate personal saving also impairs an individual's ability to purchase a house.

While decision-making has both macro and micro consequences, the largest, longest-lasting effects are, arguably, at the micro level. Consider the decisions we make throughout our work life to save for retirement. Research shows that large percentages of working individuals near retirement age are woefully ill-prepared for retirement based on their accumulated savings. In short, saving--or lack thereof--can thus affect economic growth in important ways. When viewed through this lens, informing individuals about the economic consequences of their personal decision-making becomes paramount.

So, how solid is our personal financial decision-making?

According to a 2017 study by WalletHub, Arkansas has room for improvement when it comes to being a financially literate state, ranking 41st out of 50 states and the District of Columbia. In creating the ranking, the personal finance website analyzed financial education programs, consumer habits and responses to the website's WalletLiteracy Survey.

Financial Literacy Month is a good time for each of us to consider what we can do to build financial literacy in ourselves and those around us.

The St. Louis Fed has many free resources designed to help improve financial decision-making skills for people of all ages. For example, beginning at the early elementary level, students can use an online, interactive storybook called Once Upon a Decision. For older students and adults, there is a great course called The Art of Decisionmaking.

In both courses, users define their problem and identify solutions and alternative solutions, all the while keeping aware of what they give up when making their choice.

Learning what is given up, the opportunity cost, is the most important lesson in personal finance and economics because it represents the consequences of a decision.

For the baby boomer who spent all of his income while working, the opportunity cost of this spending is the foregone purchasing power in retirement. Similarly, for the individual who maxed out his credit card, the opportunity cost is increased debt that must be paid for by spending less in the future.

The St. Louis Fed's online Econ Lowdown program offers hundreds of free lessons about economics, personal finance, and money and banking. There are videos, online courses, podcasts and more for classrooms from pre-K through college, as well as for parents and other consumers. There were more than 1 million enrollments last year in the online teacher portal, Similar free resources are available to the general public at

As former Federal Reserve Chairman Ben Bernanke said, the Great Recession of 2007-2009 "demonstrated the critical importance of financial literacy and good financial decision-making, both for the economic welfare of households and for the soundness and stability of the system as a whole."

Decisions matter, and the effects of decisions--good ones and bad ones--spill over to a great number of us.


Robert Hopkins is a senior vice president and the regional executive of the Little Rock Branch at the Federal Reserve Bank of St. Louis.

Editorial on 04/20/2017

Print Headline: The ripple effect


Sponsor Content