Tax day looms, as does financial illiteracy

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As it is, with the tax code's complexity and more than half of Americans now investors in stocks and bonds, six of 10 taxpayers are forced to hire an accountant to finish their IRS returns.

Making a mistake on one's tax return is still far too easy, resulting on average in an overpayment of taxes by otherwise honest citizens. All too often, fines are enforced on confused taxpayers who, not understanding their own finances or IRS forms, and make inadvertent mistakes. Such penalties damage the IRS's credibility.

The agency does constantly look for ways to assist people who can't afford a tax preparer. One former IRS commissioner, Sheldon Cohen, suggests that high schools teach rudimentary aspects of the tax system.

But Americans need far more financial help than just at tax time.

The percentage of personal savings set aside from disposable income is near zero or negative compared to 9.4 percent more than 35 years ago. Only 42 percent of US adults have calculated how much money they will need for retirement. Only about half of full-time workers participate in their employer's retirement-savings plan.

And too many people rely on equity in their houses for their later years: For low-income homeowners, 80 percent of their net worth is in their home. That's too many eggs in one investment basket.

As savers, consumers, investors, taxpayers, workers, and participants in a global economy, Americans cannot afford either financial or economic illiteracy. "The American economy is the eighth wonder of the world," said Arthur Levitt, former chairman of the Securities and Exchange Commission. "The ninth is the economic ignorance of the American people."

A regular financial-literacy test of more than 5,000 high school seniors conducted since 1997 reveals a worsening knowledge of personal finance basics, such as credit card debt. (Only a little more than half usually pass.) Such illiteracy has spurred measures in Congress and state legislatures to offer more training on economics and personal finance in public schools. A 2003 federal act set up a Financial Literacy and Education Commission to coordinate financial education efforts. One good reason: People under 25 are the fastest growing group filing for bankruptcy.

Congress could encourage such training for children by passing a bill called "KIDS Account" that would provide every child with a savings account worth $500 from birth.

Many more federal and state actions, such as President Bush's Health Savings Accounts, are shifting the burden of coping with financial data onto the individual. Just as government expects every driver to have learned the basics of the road, it is likewise compelling Americans to act in their own best interest - as consumers in a money-complex economy - and bone up on financial basics.

Come tax time again, they will notice the difference.