A March 2022 survey by Capital One and The Decision Lab found that Americans are very worried about their financial future, including “not having enough money to retire (68%), keeping up with the cost of living (56%), and managing debt levels (45%).”
Even though practically everyone is worried about their finances, America faces an epidemic of financial illiteracy. Four in seven Americans are financially illiterate, reports Possible Finance.
Thankfully, once you understand the situation, you can take actions today to improve financial literacy—both for yourself and your loved ones.
What Is Financial Literacy?
Being financially literate means you’re confident in your understanding of various financial concepts—such as savings and debt—which can lead to an overall sense of economic well-being, according to the Experian credit bureau.
“Financial literacy is the foundation of your relationship with money, and it [will take] a lifelong journey of learning. The earlier you start, the better off you will be because education is the key to success when it comes to money,” Investopedia says.
Among other things, financial literacy can better equip you to:
- Create a budget
- Save money
- Cut back on unnecessary purchases
- Evaluate lending terms
- Prepare your tax returns
The State of Financial Literacy in America
The 2020 TIAA Institute-GFLEC Personal Finance Index sheds light on the state of financial literacy in America.
In this 2020 survey, an average of 52% of American adults correctly answered personal finance questions—an increase of 3% since the Institute’s 2017 survey.
“The resulting 3-percentage point increase between 2017 and 2020 is statistically significant. This finding hints at a slow increase in financial literacy levels over time,” according to a report about the survey results.
Despite signs of improvement, experts say the financial literacy rate in America shows room for improvement.
A 2021 survey for the National Financial Educators Council also underscores this opportunity for more financial literacy in America.
In the Council’s survey of 3,389 U.S. adults, the average one-year monetary loss attributed to lack of financial literacy totaled $1,389. If those results had represented all U.S. adults, financial illiteracy would have cost people more than $352 billion in 2021.
“The economic environment people have to navigate today is incredibly complex,” says Vince Shorb, National Financial Educators Council CEO. “That makes it even more critical to help people get the financial knowledge they need to make real-life decisions. This survey underscores how important financial education has become to our nation.”
To address the knowledge gap in personal finance, seven states now require high school students to take at least one semester of a personal finance course, according to Forbes Advisor. In addition, Iowa is implementing the requirement, and Florida, Nebraska, Ohio, and Rhode Island are gearing up to do so we well.
The Benefits of Financial Literacy
Financial literacy provides a bounty of benefits. According to the personal finance section of the OppU website, these benefits include an improved ability to:
- Create and stick to a budget
- Save for retirement
- Buy a home
- Purchase a car
- Reduce expenses
- Save money for kids’ college education
- Properly manage debt
- Properly use credit cards
How to Improve Financial Literacy
Financial literacy is not a one-and-done lesson. Instead, it’s a skill that we continue to improve throughout our lives. So no matter how financially literate someone is, they can always pick up (and then pass along) new knowledge.
Here are eight ways to help improve financial literacy:
- Use free tools. Several tools are available, particularly online, to help increase financial literacy. For instance, banks and credit unions provide resources on their websites to help boost financial literacy.
- Inquire about workplace programs. Some employers offer financial wellness education as part of their employee benefits packages.
- Do some homework. Several reputable organizations supply information, courses, and other resources aimed at lifting people’s financial IQ. The organizations include the Consumer Financial Protection Bureau and the National Federation for Credit Counseling.
- Listen to personal finance podcasts or read personal finance books or blogs.
- Visit with a financial professional who can assist with budgeting, retirement planning, and other money matters.
- Encourage local schools to add personal finance education to their curriculums to support the next generation.
- Create a budget that tracks your income and expenses. Budgeting is a cornerstone of financial wellness.
- Regularly check your credit reports and credit scores to get a complete picture of your finances.
U.S. Money Reserve offers a library of free information for you to review and share with others. From videos to white papers to podcasts, materials are available for all types of learners. Explore these complimentary materials and learn more about the state of the economy, different types of assets, retirement accounts, and more.
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