Why lack of financial literacy is costing US employees
Not only are Americans stressed about their finances, they’re also losing money simply due to a lack of financial literacy.
More than 40% of adults in the US are considered financially illiterate, and the National Financial Educators Council foundation estimates that lack of education cost individuals an average of $1,819 (£1,450) in 2022.
This cost represents a significant increase from the year before, when the average cost of financial illiteracy was put at $1,389 per person.
The problem of financial illiteracy in the US is worse among women, younger generations and Black and Hispanic Americans. While men answered 53% of questions correctly on a financial literacy test from the TIAA Institute and the Global Financial Literacy Excellence Center at Georgetown University, this figure dropped to 43% among women.
And while White people and Asian Americans answered more than half of questions correctly, Black Americans answered 34% of questions correctly and Hispanics, 38%.
When people lack financial education, they commonly make money mistakes like racking up credit card fees and interest, overspending on luxury items, paying overdraft fees, becoming victims to fraud or identity theft, and incurring unnecessary car costs like vehicle towing or impounding.
These events can be incredibly stressful: more than 90% of Americans responding to a Thrive Global and Discover survey say money has impacted their stress levels. And as a result, research shows those with lower levels of financial literacy and higher levels of financial stress tend to struggle more with mental health and physical health issues. These often include insomnia and emotional disorders.
So it’s clear financial literacy in the US needs work – and that the effects are far reaching. But beyond the impact a lack of financial literacy has on people themselves, these issues also tend to trickle down to today’s youth.
Children and financial literacy
Younger generations similarly struggle to excel when it comes to financial literacy.
When given a financial literacy exam, high school seniors were only able to answer 48% of the questions correctly, according to the American Public Education Foundation’s report card on financial literacy.
Children often have limited access to personal finance education. Instead, many rely on their parents to teach them about money. The TIAA Institute reports that more than half of Generation Z say they want to learn more about money and 84% of Gen Z say they rely on family members for money management tips and education.
However, with one in four parents reporting they were unable to afford food or housing from September to October 2022 according to the latest Pew Research Center Report, children may start off with a difficult relationship with money.
Financial education not only provides peace of mind to adults, but also help individuals avoid costly financial mistakes and have a positive effect on the way children understand money.
When people have access to financial education and a strong level of financial literacy, their overall wellbeing improves. This is true across genders, ethnic groups and generations.
Find out more about the positive impact of financial education in Nudge’s 2023 Financial Wellbeing Report.
In partnership with Nudge
A leading financial wellbeing benefit using behavioural science & technology to help employees.
