A National Financial Educators Council survey revealed that in 2022, 38% of people believed a lack of financial knowledge cost them a minimum of $500. Of these, 15% claimed losses of $10,000 or more, an increase from 11% in 2021. While 68% said they lost between $0 and $499 due to poor financial literacy, the average loss in 2022 was $1,819. This is almost $500 more than the 2021 average of $1,389. The survey included 3,000 adults and was conducted between Oct. 23 and Dec. 5.
Certified financial planner Denis Poljak, a partner with the Poljak Group Wealth Management at Steward Partners in Shreveport, Louisiana says ““A lot of people come out of [school] without having been taught financial literacy in any detail, they end up just … learning from their mistake.”
Many U.S. adults lack financial literacy, meaning they don’t fully understand topics like budgeting, saving, investing, interest rates, and the importance of credit scores. In the 2022 TIAA Institute-GFLEC Personal Finance index, adults only answered 50% of basic money questions correctly. Alarmingly, 23% couldn’t answer more than seven questions right, the highest rate in the survey’s history. This lack of knowledge can impact savings, debt accumulation, and financial planning for events like retirement.
Financial literacy should begin before high school graduation, advocates suggest. Currently, 24 states mandate personal finance classes by 12th grade. Nan Morrison, CEO of the Council for Economic Education, highlighted the benefits of financial education, stating it leads to better financial decisions. Supporting this, a 2015 study found that after introducing personal finance education in Georgia, Texas, and Idaho, these states experienced improved credit scores and fewer loan defaults. In 2021, a study by the Financial Industry Regulatory Authority’s Investor Education Foundation showed that individuals with higher financial literacy scores were better at managing their finances. They consistently spent below their income and had more savings for emergencies. Moreover, they were more proactive about retirement planning and savings.
Morrison summarized the importance of financial literacy by emphasizing that while money management isn’t everything, it’s a crucial skill for living a desired life.
Analysis
Financial literacy is crucial for young adults as they start managing their own money and face important financial decisions. Moving from dependence on family to handling expenses like student loans, credit cards, and investments, a good understanding of finances helps avoid debt and other financial troubles. With the increasing complexity in banking and investments, having early financial education helps young adults make better choices. Studies have shown that those educated in finance make smarter decisions, resulting in better credit scores and savings. In today’s uncertain economy, financial literacy isn’t just about handling money; it’s about securing a stable future.
O’Brien, Sarah. “Lack of Financial Literacy Cost 15% of Adults at Least $10,000 in 2022. Here’s How the Rest Fared.” CNBC, CNBC, 19 Jan. 2023, www.cnbc.com/2023/01/19/heres-how-much-people-say-lack-of-financial-literacy-cost-in-2022.html.
