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When it comes to money matters, what you don't know can hurt you.
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. That's up from about 11% in 2021.
The majority (68%) of respondents said poor financial literacy cost them somewhere from zero to $499.
The average cost was $1,819, according to the survey, which was conducted Oct. 23 through Dec. 5 among about 3,000 adults across the country. That 2022 figure is nearly $500 higher than the average $1,389 in 2021.
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"A lot of people come out of [school] without having been taught financial literacy in any detail," said certified financial planner Denis Poljak, a partner with the Poljak Group Wealth Management at Steward Partners in Shreveport, Louisiana.
"They end up just … learning from their mistakes," Poljak said.
U.S. adults have big gaps in their financial knowledge
Financial literacy — which generally means understanding money topics ranging from income, budgeting, saving and investing, as well as how interest rates work and why credit scores matter — is lacking among many U.S. adults, studies show.
For instance, adults correctly answered, on average, 50% of the 28 basic money questions in the 2022 TIAA Institute-GFLEC Personal Finance index, the sixth annual barometer of financial literacy. Worse, the share of respondents (23%) who couldn't correctly answer more than seven is higher than its been than any other year in the survey.
The problem, say experts, is the lack of knowledge can affect everything from how much you save — whether for emergencies or the long term (i.e., retirement) — to how much debt you take on and under what terms.
Some important financial decisions can emerge before you reach adulthood or soon after. To name just a few: deciding how to pay for college, managing a credit card or auto loan, boosting your credit score, paying taxes, and starting to save for retirement despite it being decades away.
Financial literacy is 'a key tool in the toolkit'
Advocates of financial literacy say the teaching needs to start before teens reach their high school graduation. As of last year, 24 states require personal finance coursework by grade 12, according to the nonprofit Council for Economic Education.
"There's good data showing people make better decisions when they have financial literacy," said Nan Morrison, CEE president and CEO.
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For example, Morrison said, you'll likely have a better credit score and be less likely to default on a loan if you have some personal finance know-how. A 2015 study from the Financial Industry Regulatory Authority's Investor Education Foundation bears that out: Three years after personal finance education was implemented in Georgia, Texas and Idaho, all three states saw severe delinquency rates go down and credit scores rise.
Additionally, in 2021, individuals who scored above the median on a seven-question financial literacy quiz were more likely to make ends meet, according to the FINRA foundation's latest financial-capability study. Specifically, they spent less than their income (53% versus 35%) and had three months' worth of emergency funds at higher levels (65% versus 42%).
They also were more likely to have calculated their retirement savings needs (52% versus 29%) and to have opened a retirement account (70% versus 43%), according to the study.
"To me, the bottom line is that to live the life you want to live, you need to understand how to manage money," Morrison said. "It's not the only important thing, but it's a key tool in the toolkit."
FAQs
Lack of financial literacy cost 15% of adults at least $10,000 in 2022. Here's how the rest fared. The share of people who said not being financially literate cost them more than $10,000 is up from 11% in 2021, according to a new report. Most respondents say it cost them under $500, if at all (O'Brien, 2023).
Does lack of financial literacy cost 15% of adults at least $10000 in 2022? ›
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. That's up from about 11% in 2021.
How much does lack of financial literacy cost? ›
Generalizing the results to represent the the finances of approximately 258 million adults in the U.S., NFEC calculated that financial illiteracy cost Americans a total of more than $388 billion in 2023, an issue CEO Vince Shorb says starts with lack of attention to finances in early education.
How could a lack of financial literacy be costing you thousands? ›
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.
How many adults lack financial literacy? ›
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.
Why is the US literacy rate so low? ›
The burden of poverty places significant constraints on individuals' educational opportunities. Limited access to books, educational resources, and enrichment activities can hinder literacy development, perpetuating the cycle of low literacy rates within families and communities.
What is the downside of financial literacy? ›
Financial literacy can have negative effects on individuals' financial behaviors and attitudes. People with high levels of financial literacy tend to take too many risks, overborrow, and hold naive financial attitudes, which can lead to reckless behavior in certain financial aspects .
How can I save money in financial literacy? ›
The 50-20-30 method: This method involves setting aside 50% of your take-home income for your needs, 30% for your wants and 20% for savings. The zero-based method: Monthly expenses and savings are subtracted from your take-home income and should reach zero so every dollar is used with intention.
How poor financial literacy can affect your current or future career? ›
Financial literacy helps boost productivity
The result is a dip in productivity, frequent absenteeism, sloppy work, pay dissatisfaction, lack of engagement, and decreased commitment to the organization.
Why is the lack of financial illiteracy considered an epidemic? ›
Over 38% of individuals said their lack of financial knowledge cost them more than $500 in 2022, while 23% reported losing over $2,500, and 15% said it set them back by $10,000 or more, according to the NFEC's latest financial illiteracy survey.
A 2019 survey showed that only 57% of adults in the United States are financially literate. This means that a significant percentage of the population lacks a basic understanding of financial concepts, which puts them at risk of making poor financial decisions.
What percent of Gen Z is financially literate? ›
Financial literacy is the ability to understand and use financial concepts, including topics like budgeting, saving, investing, and credit. According to a Financial Industry Regulatory Authority (FINRA) survey, only 24% of Gen Z respondents could correctly answer four out of five financial literacy questions.
What causes financial illiteracy? ›
Many education systems (including grade school and college) don't teach students practical financial skills, leaving young people ill-prepared to become savvy or responsible adults in this regard.
What are the literacy rates in 2022? ›
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.
Is everyone struggling financially 2022? ›
The 73 percent of adults doing at least okay financially in 2022 was down 5 percentage points from 2021 and was among the lowest observed since 2016 (figure 1).
How much does illiteracy cost the US? ›
A new report estimates that illiteracy costs the U.S. approximately $300.8 billion per year. According to the “Economic Cost and Social Impact of Illiteracy” report, 21% of people in the U.S. have low level literacy skills.
What is the financial literacy rate in the US? ›
Financial literacy in the US
The index explores eight functional areas across finance, such as earnings, savings, insuring and comprehending risk. Data from the 2024 index reveals how financial literacy in the US has hovered around 50% for eight consecutive years, with a 2% drop in the past two years.
