How much does lack of financial literacy cost?
A report from the National Financial Educators Council shows that 38% of individuals in a recent survey said their lack of financial literacy cost them at least $500 in 2022, including 15% who said it set them back by $10,000 or more.
The effects of a lack of financial literacy can include: Not enough emergency savings, which could cause financial hardship in the event of a job loss, a big medical bill or a pricey car repair. A credit card balance you can't pay off each month, which incorporates interest charges.
Being financially illiterate can lead to many pitfalls, such as being more likely to accumulate unsustainable debt burdens, either through poor spending decisions or a lack of long-term preparation. This, in turn, can lead to poor credit, bankruptcy, housing foreclosure, and other negative consequences.
3,001 people responded to the survey between October 23rd and December 5th, 2022. The average estimated amount of money that lacking knowledge about personal finances cost people was $1,819.
A report from the National Financial Educators Council shows that 38% of people surveyed said their lack of financial literacy cost them at least $500 in 2022, including 15% who said it set them back by $10,000 or more.
In the two previous years' surveys – 2021 and 2022 – Americans said they lost $1,389 and $1,819, respectively, due to lack of personal finance knowledge.
Just under two-thirds of Americans (64%) are financial literate, while over one in three (36%) are not. Financially literate Americans are led by Baby Boomers (71%), Gen X (63%), and Millennials (59%) while Gen Z (42%) trails behind.
People with higher financial literacy scores are more likely to plan, save, invest in stocks, and accumulate more wealth. They also have been shown to be less likely to have credit card debt and more likely to pay off the full amount each month.
Only 57% of adults in the United States are financially literate. Missouri, Utah and Virginia boast the best financial literacy rates, while Alaska, Washington, D.C. and South Dakota have the worst financial literacy rates.
Financial literacy is the cognitive understanding of financial components and skills such as budgeting, investing, borrowing, taxation, and personal financial management. The absence of such skills is referred to as being financially illiterate.
How does financial literacy affect?
Financial literacy helps you manage your money wisely, make sound financial decisions, and achieve financial stability in life. On top of this, financial literacy also helps you get through the unexpected moments in life – like a medical emergency or a sudden loss of employment.
High schools might avoid teaching personal finance due to several reasons, including the perceived lack of relevance to students' current lives, the gap between financial literacy and financial responsibility, and the practical constraints of traditional teaching methods.
The high cost of living, wealth inequality and job market uncertainty have all contributed to financial vulnerability, even among wealthy families. Concerns about personal debt, including credit card, auto loan and medical debt, are significant sources of financial stress.
Anxiety. Money can be a safety net; without it, you may feel vulnerable and anxious. And all the worrying about unpaid bills or loss of income can trigger anxiety symptoms such as a pounding heartbeat, sweating, shaking, or even panic attacks.
The reasons that most people struggle financially will vary on the individual case but can include a lack of financial literacy, a scarcity mindset, self-esteem issues leading to overspending, and unavoidable high costs of living.
Key Takeaways
Managing debt is crucial for financial success. Avoid consumer debt, pay off education before making large purchases like a home, and recognize the difference between productive and wasteful consumer debt. A shared financial outlook and planning in marriage can contribute to financial stability.
Financial literacy is not only important for individuals, but also for the society as a whole. It can support economic growth, poverty alleviation, and financial inclusion, especially in a country like the Philippines where many people face challenges in accessing and using formal financial services.
The unfulfilled basic needs and poor management of wealth lead to crimes driven by economic needs. Less financial education follows more crime. People with inferior financial education and literacy skills find it more difficult to obtain the financial discipline that is required to progress economically.
A new GOBankingRates survey of more than 1,000 adults found that 28% of people have nothing saved for the future, 39% aren't contributing to a retirement fund and another 30% don't think they'll ever be able to retire. While these numbers worry the experts, they don't shock them.
With financial literacy, students can understand their situation and make positive or negative financial choices. Financial literacy has a material impact on individuals, as they aim to buy a home, pay their children's fees, balance their budget, and save for retirement.
How much of the world is financially literate?
Based on this definition, 33 percent of adults worldwide are financially literate.
Whether it's investment strategies, spending habits or confidence in their financial knowledge, each generation differs from one another when it comes to their finances. However, among all of the generations, it's Gen Z that is proven to have the lowest financial literacy levels.
Zippia notes that “[o]nly 36% of Gen Z are financially literate.” Older generations fare better, with 48% of Gen Xers and millennials considered financially literate and 59% of baby boomers. The disparity in financial literacy between men and women is also concerning.
The Ohio State University's National Student Financial Wellness Study found that 72 percent of college students experience financial stress stemming from the fear of being unable to meet tuition costs (60 percent) and meet monthly expenses (50 percent).
Nationwide, on average, 79% of U.S. adults are literate in 2022. 21% of adults in the US are illiterate in 2022. 54% of adults have a literacy below sixth-grade level. 21% of Americans 18 and older are illiterate in 2022.
