Tracking current financial literacy trends in the U.S.
Financial literacy: A insanely necessary skill that you may not even know you need.
When it comes to understanding key financial topics, most people unfortunately fall short. Formal personal finance education doesn’t really exist in most places. And when it does exist, it’s often extremely outdated. For instance, most of our staff who received at least some education in finance say they learned things like how to balance a checkbook… Not exactly a useful skill these days.
Financial Literacy is the ability to understand basic financial tools and processes that you need to be successful. The articles below track current consumer literacy trends in the U.S. to see how different groups fare. Below the articles, you can find more information about what financial literacy is, why it matters and what it looks like today.
What is financial literacy?
If you’re financially literate, it means that you understand a wide range of key consumer finance topics. You:
- Know how basic checking and savings accounts work and how to avoid things like overdrafts and account closures.
- Understand general rules for financing and loans, so you can get approved to meet major life goals.
- Recognize the importance saving and have at least a basic grasp of investing to achieve better growth.
- Can manage debt effectively to minimize the risks of financial distress, repossession, bankruptcy and foreclosure.
- Understand how credit works and what steps you need to take to achieve and maintain a high credit score.
You don’t have to be a financial expert to be financially literate; you just need to know enough that you can manage your money day to day without causing problems. When it comes to personal finance, knowledge really is power. The more you know, the more likely you are to be successful.
5 Key Financial Literacy Statistics from 2017
#1: Less than one in five Americans give themselves an “A” for education
According to an 2017 Mintel study published through Experian, most Americans aren’t confident about their financial knowledge. Only 19% of Americans would give themselves an “A” for financial literacy. The rest of us fully admit that when it comes to solid money management, we know that we don’t know.
The same study found 21% of Americans are “not at all confident” that they can achieve their retirement goals. That makes sense, because if you don’t know how to strategically manage debt and invest wisely, you can save effectively.
#2: The average score on the National Financial Capability Test is 63
The National Financial Educators Council offers a National Financial Capability Test that measures your financial IQ. They created the test for 15-18 year-olds to see whether or not young adults are prepared for financial independence. Last year, that age group scored an average grade of 60.
However, the test is also open online to adults of all ages. They don’t score much better at 63.17, on average. In fact, only 48% of the over 17,200 people that have taken the test received a passing grade.
If you have some time, we recommend following the link above to take the test. It can be a good way to figure out if and where you lack key financial knowledge. Then you can come back here to start studying up in our Education Center.
#3: New Hampshire has the highest literacy rate, while Louisiana has the lowest
WalletHub conducted a WalletLiteacy Survey this year to see which states had the highest and lowest levels of financial literacy in the U.S. The scores measured everything from Financial Literacy Test grades for high school students to the number of adults with savings.
New Hampshire scored the highest at 72.26, while Louisiana scored the lowest at 57.10. Still, it’s not saying much when the highest score is barely a “C”; it just goes to show how far we all have to go before we can really claim to have a high literacy rate.
#4: 69% of Millennials say they’ve received no form of financial education
If you think grade-school educators are any more engaged with personal finance education now than they were when you went to school, think again. According to a National Association of Federally-Insured Credit Unions study, almost 7 in 10 Millennials admit they haven’t received any education.
Oddly, the same study revealed that 3 out of 5 Millennials reported they were “extremely” or “very” knowledgeable about financial products. You may be able to chock that up to the inexperience of youth. Unlike the adults polled in #1, Millennials haven’t had time to make enough mistakes to realize they don’t know enough.
#5: For every $1 spent on financial education, $25 get spent on marketing
Without classroom courses to learn, most people learn by encountering financial products in their daily lives. However, given that 25 times more money gets spent on marketing than on basic education, most people only encounter financial products when someone is trying to “sell” them a product. That’s according to a CFPB study of spending by financial institutions.
That’s not exactly a recipe for financial success. Without a basic knowledge of financial products outside of an up-sell marketing message, people don’t know what to use and what to avoid. For example, let’s say you overspend on credit and end up $10,000 in debt. Your mailbox is likely to be filled with offers for debt consolidation loans, balance transfer credit cards and settlement offers. How do you know which option to use to actually get out of debt successfully?
If you just read that question and don’t know how to answer it, start here. However, it shows just how dangerous a marketing culture without education can be.