By Susan Tanaka, Senior Policy Advisor, The Peter G. Peterson Foundation
As someone who has spent most of her professional life analyzing, developing, and understanding the budget of the United States government, I applaud efforts to improve the financial capability of Americans. While there are, of course, significant differences between individual finances and the nation’s fiscal affairs, there are enough principles in common to recognize that a more financially capable population would also bring significant civic benefits. People who take charge of their own finances will be better prepared for the budget and fiscal questions facing our nation. And unfortunately, there are major questions that must be answered.
This year, federal spending represents about $11,400 per American, while federal revenues – taxes, mostly — are about $9,900 per person. The difference between those two figures – $1,500 per person – will be added to the more than $40,000 in public debt already borrowed on behalf of each of us. In 10 years, if our policies don’t change, annual deficits will continue and debt/person is projected to grow to nearly $61,000.
These are large numbers. Because the United States has the world’s largest economy and vast resources, we’re okay for the time being. However, the real challenge is coming. Those who understand basic finances know that when debt rises faster than income, it quickly becomes a serious problem as interest costs compound and grow. (There’s a reason why compound interest has been called the most powerful force in the universe!) In fact, according to Congressional Budget Office estimates, interest costs alone are on track to rise to $5.6 trillion over the next 10 years, becoming the third largest federal ‘program’ – that’s fully three-fourths of the more than $7.2 trillion in projected deficits over the next 10 years. If we don’t change course, in 20 years, interest will claim more than 22 cents of every dollar the federal government collects in revenues—up from 8 cents today. Surely there are better uses of those funds!
Becoming financially savvy allows each of us more control over our personal finances. The same is true in our role as citizens. As informed voters, we should understand where the government gets its money, where those funds go and why growing debt matters. Eventually, there will be serious consequences to our budget and economy if we continue to urge our elected representatives to keep federal spending high but our taxes low. As citizens, we can take charge over the nation’s financial future, helping to ensure that our economy remains strong and able to provide resources for future national needs.
When it comes to financial problems, denial hardly ever works. That’s as true for the federal government as it is for individual wallets. Understanding the facts, acquiring budgeting skills and exercising financial discipline will help ensure that our scarce resources are used to take better care of our nation, our communities, our families and ourselves—now and in the future.
Happy Financial Literacy Month!