A report by the National Council of Financial Educators shows that 38% of people in a recent survey said their lack of financial literacy would cost them at least $500 in 2022, and 15% said it would cost them at least $10,000. This is about 11% more in 2021.
The majority (68%) of respondents said that poor financial literacy costs them between $0 and$499.
According to the October survey, the average cost was $1,819.23 5.00 until December among about 3,000 adults across the country. The 2022 figure is almost $500 higher than the 2021 average of $1,389,
“Many people leave [school] without being thoroughly taught financial literacy,” said certified financial planner Denis Poljak, a partner at the Poljak Group. asset management at Steward Partners in Shreveport, Louisiana.
“They just stop… learning from their mistakes,” said Poljak.
American adults have serious gaps in financial literacy.
Research shows that many American adults lack financial literacy, which generally means understanding money-related topics such as income, budgeting, saving, investing, how interest rates work, and the importance of a credit score.
For example, adults answered an average of 50 percent of 28 basic money questions correctly in the 2022 TIAA Institute-GFLEC Personal Finance Index, the sixth annual financial literacy barometer. Worse, the percentage of respondents (23%) who could not answer more than seven questions correctly is higher than in any other year of the survey.
The problem, experts say, is that a lack of information can affect everything from how much you save—whether for an emergency or for the long term (i.e., retirement)—to how much debt you take on and on what terms.
Some important financial decisions can be made before or shortly after reaching adulthood. Just to name a few: deciding on college tuition; managing a credit card or car loan; improving your credit score; doing your taxes; and starting to save for retirement, even though it’s decades away.
Financial literacy is a “key tool in the toolbox.”
Financial literacy advocates say instruction should begin before a teenager reaches high school graduation. As of last year, 24States require personal finance courses in the 12th grade, according to the nonprofit Council on Financial Education.
“Good data shows that people make better decisions when they are financially literate,” said Nan Morrison, CEO of CEE.
For example, Morrison said, if you have personal finance skills, you’re more likely to get a better loan and lower loan payments. A 2015 study by the Investor Education Foundation, a financial industry regulator, shows that three years after implementing personal financial education in Georgia, Texas, and Idaho, all three states saw significant crime reductions and credit score increases.
In addition, those who scored above the median on the seven-question financial literacy survey were more likely to make ends meet, according to the FINRA Foundation’s latest Financial Literacy Survey. In particular, they spent less of their income (53% vs. 35%) and had higher levels of three-month emergency funds (65% vs.42%).
They were also more likely to calculate their retirement savings needs (52% vs. 29%) and open a retirement account (70% vs.43%), according to the survey.
“The bottom line for me is that in order to live the life you want to live, you have to understand how to manage money,” Morrison said. “It’s not the only important thing, but it’s a key tool in the toolbox.”