April is Financial Literacy Month, a time to highlight the importance of financial literacy and encourage Americans to learn and establish healthy financial habits. This month, many corporations, government agencies and financial institutions will promote resources and launch educational initiatives aimed at improving Americans’ financial health — and many people could use the help.

Understanding finance is more important than ever. Over the past five to six years Americans have lived through the worst financial crisis since the Great Depression, experienced the worst chronic unemployment in six decades, and collectively lost $16 trillion in household wealth. These realities have only emphasized why learning about personal finance is a necessity.

A recent study by the education technology company EverFi and sponsored by Higher One found that students who were taught financial literacy education in high school scored significantly higher than their peers on financial knowledge questions and are more responsible when it comes to money.

More than 65,000 first-year college students across the U.S. took the survey on banking, savings, credit cards, school loans as well as answered questions designed to assess students’ financial knowledge. Results indicate that financial literacy education in school has a big impact on students’ attitudes towards money and their money management behaviors beyond the high school years.

“These results show the need to start financial literacy education in the K-12 setting and for institutions to provide educational programs early on in a student’s college experience,” said Mary Johnson, director of Financial Literacy and Student Aid Policy at Higher One, in a press release. “It’s critical that young adults receive a sound financial education as they make long-lasting decisions about college and how to finance their education.”

Currently, only 17 states require high school students to take a course in personal finance, according to the Council of Economic Education. Financial literacy advocates are pushing more states to improve their coverage and requirements. Last year, nearly 20 states enacted legislation or adopted resolutions regarding financial literacy.

California required its state board of education to integrate financial literacy into existing curriculum. Kentucky adopted a resolution encouraging its board of education to require financial literacy courses in every school. Florida revised requirements for high school graduation to include financial literacy and an industry certification program of study. But only four states — Missouri, Tennessee, Utah, Virginia — actually require high school students to take a personal finance course in order to graduate.

Why are many Americans not financially savvy?

While states continue to make strides to implement financial literacy courses into school curriculum, more must be done to improve Americans’ financial competency. Unfortunately, despite the fact that Americans have spent millions of dollars trying to improve financial literacy, many people lack financial capability. Part of the problem is that many of the resources and initiatives that have been launched to improve Americans’ financial literacy are financed by big financial institutions whose intentions might be questionable. Many of these institutions sell complicated financial products that are harmful to confused consumers. And given the partisan environment in Washington, lawmakers who have pushed financial literacy education might be motivated more by politics than meaningful change.

As we have seen from the recent financial crisis, the rug can be pulled from under you at any time. Misunderstanding the basic concepts about money, debt, compound interest, and many other financial topics can have severe financial consequences. Increasingly, more Americans are borrowing money from risky, high-interest payday loan businesses, not saving enough for retirement, and piling on student debt. As consumers face a more complex financial environment, it’s essential for Americans to focus on financial literacy.

10 Sobering discoveries about Americans and finance

If there was any doubt about the sad reality of America’s financial literacy, consider these 10 sobering findings:

  1. In describing what getting ahead means for them, nearly two-in-three Americans mention financial indicators, like financial stability, savings, retirement, covering bills, providing for a family, and other monetary items. — All State-National Journal Heartland Monitor Poll, 2012
  2. Forty-one percent of U.S. adults, or more than 92 million people living in America, gave themselves a grade of C, D, or F on their knowledge of personal finance. — National Foundation for Credit Counseling’s Consumer Financial Literacy Survey, 2014
  3. Less than half of the participants in a survey of 5,000 people could correctly answer eight basic financial literacy questions. — National Association for Retirement Plan Participants Study, 2014.
  4. Less than one in five U.S. adults consider themselves a Highly Disciplined financial planner – i.e., they know their exact goals, have developed specific plans to meet them, and rarely deviate from those plans. — Northwestern Mutual Planning and Progress Study, 2014
  5. In a survey of 25,500 participants in 28 countries, the U.S. ranked dead last when it came to the question: “To what extent would you say teenagers and young adults in (Country) are adequately prepared to manage their own money?” And 70.5 percent of respondents said American teens don’t understand money management basics. – Visa’s International Financial Literacy Barometer, 2012
  6. For every dollar spent on financial education, $25 is spent on financial marketing. — Consumer Financial Protection Bureau, 2013.
  7. A survey of 25,000 Americans adults found that 61 percent do not compare offers or collect information from more than one company when shopping for credit cards. — FINRA’s National Financial Capability Study, 2012
  8. Investors have a weak grasp of elementary financial concepts and lack critical knowledge of ways to avoid investment fraud. — Securities and Exchange Commission’s Study Regarding Financial Literacy Among Investors, 2012
  9. A survey of 1,000 individuals over 25 found that more than half of workers report they and/or their spouse have less than $25,000 in total savings and investments. — Employee Benefit Research Institute’s Retirement Confidence Survey, 2013
  10. A survey of 9,523 individuals found that 28 percent of respondents had taken on credit card debt to keep up with student loan payments. — Young Invincibles’ Borrower in Distress: Survey on the Impact of Private Student Loan Debt, 2013

To help improve your financial literacy, talk with a financial planner, explore free online tools, and check out these government websites and resources.

Related Articles
  1. Retirement

    The World's Most Luxurious Retirement Destinations

    If money is no object (or if you would just like to dream), these five spots are the crème de la crème.
  2. Professionals

    How to Protect Elderly Clients from Predators

    Advisors dealing with older clients face a specific set of difficulties. Here's how to help protect them.
  3. Professionals

    Social Security 'Start, Stop, Start' Explained

    The start, stop, start Social Security strategy is complicated. Here's what retirees considering it need to consider.
  4. Retirement

    Strategies for a Worry-Free Retirement

    Worried about retirement? Here are several strategies to greatly reduce the chance your nest egg will end up depleted.
  5. Professionals

    Your 401(k): How to Handle Market Volatility

    An in-depth look at how manage to 401(k) assets during times of market volatility.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    How to Build a Financial Plan for Gen X, Y Clients

    Retirement is creeping closer for clients in their 30s and 40s. It's a great segment for financial advisors to tap to build long-term client relationships.
  8. Professionals

    Top Social Security Issues for Divorced Women

    What female divorcees need to know about the twists and turns of figuring out Social Security benefits.
  9. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  10. Retirement

    Maxing Out Your 401(k) Is Profitable: Here's Why

    It's shocking, but most American workers (73%) have no 401(k) retirement funds. Start saving now to anchor your retirement.
RELATED TERMS
  1. Dynamic Updating

    A method of determining how much to withdraw from retirement ...
  2. Possibility Of Failure (POF) Rates

    The likelihood that a retiree will run out of money prematurely ...
  3. Safe Withdrawal Rate (SWR) Method

    A method to determine how much retirees can withdraw from their ...
  4. Financial Singularity

    A financial singularity is the point at which investment decisions ...
  5. Mandatory Distribution

    The amount an individual must withdraw from certain types of ...
  6. Auto Enrollment Plan

    An employer’s decision to sign employees up to have a percentage ...
RELATED FAQS
  1. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>
  2. Are spousal Social Security benefits retroactive?

    Spousal Social Security benefits are retroactive. These benefits are quite complicated, and anyone in this type of situation ... Read Full Answer >>
  3. Why are IRA, Roth IRAs and 401(k) contributions limited?

    Contributions to IRA, Roth IRA, 401(k) and other retirement savings plans are limited by the IRS to prevent the very wealthy ... Read Full Answer >>
  4. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    With a few exceptions, early withdrawals from traditional or Roth IRAs generally incur a tax penalty equal to 10% of the ... Read Full Answer >>
  5. What is the Social Security administration responsible for?

    The main responsibility of the U.S. Social Security Administration, or SSA, is overseeing the country's Social Security program. ... Read Full Answer >>
  6. What are Social Security spousal benefits?

    Social Security spousal benefits are partial retirement or disability benefits granted to the spouses of qualifying taxpayers.  Qualifying ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!