The Financial Literacy Crisis
Imagine driving a car without a basic understanding of the rules of the road or even how to operate it. Scary thought.
Here’s another scary circumstance – one that is all too real. Many Americans are making financial decisions with minimal financial knowledge of investing, budgeting, and credit. The TIAA Institute conducted a survey on U.S. financial literacy, asking 28 basic questions about retirement saving, debt management, budgeting, and other financial matters. The average respondent answered only about half of the questions correctly.1
Another study, conducted by Pew Research, found that one in four Americans say that they won’t be able to pay their bills on time this month.2
It has been said that knowledge is power, and if that’s true, then too many Americans lack the power to control their financial futures. Financial success rarely happens by accident; it is typically the outcome of a journey that starts with education.
One of the obstacles to greater financial literacy is the so-called “Lake Wobegon effect.” In other words, we all consider ourselves above average, and based on that belief, it only follows that our financial understanding is above average. Unfortunately, this assumption has a flaw: it may discourage us from learning as much as we need in order to continue adapting to an ever-changing financial landscape.
The more informed we are, the more informed our financial decisions may become. Fortunately, we can consult a wide range of resources in pursuit of greater financial knowledge.
If you are committed to increasing your financial literacy, think about turning to financial professionals with your questions or visit a U.S. Treasury-sponsored website, mymoney.gov, which was created for that very purpose.3
2. PewResearch,org, 2020
3. MyMoney.gov, 2021