November 23 2023 | Team nudge
UK Autumn Budget 2023
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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 U.S. are considered financially illiterate, and the National Financial Educators Council foundation estimates that lack of education cost individuals an average of $1,819 in 2022. This costs represents a significant increase from the prior year, when the average cost of financial illiteracy was estimated to be $1,389.
The problem of financial illiteracy in the U.S. worsens among women, young 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 correctly answered 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 obvious the state of financial literacy in the U.S. needs work – and that the affects of this trend 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 formal education on personal finances. Instead, many children rely on their parents to teach them about money. The TIAA Institute reports that more than half of Gen Z kids 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 to money.
Financial education can not only provide peace of mind to adults, but also help individuals avoid costly financial mistakes and have a positive effect on the way today’s children understand money.
When people have access to financial education and a strong level of financial literacy, their overall wellbeing improves. This fact holds true across genders, ethnic groups and generations.
Find out more about the positive impact of financial education in our recent report, 2023 Financial Wellbeing Report.