The basic financial skills American adults need in order to succeed in life aren’t often taught in a classroom. For many people, there are no lesson plans and no standards for minimum financial literacy. They are just sent out into a world overflowing with opportunities to get into debt. At best, their financial sensibilities may come from lessons passed down from family members (sometimes the hard way), anecdotes from friends, and the occasional Google search.
- Basic financial skills are generally not taught in classrooms in the United States.
- A lack of financial education has led to Americans having inadequate household and retirement savings and high levels of credit card and student loan debt.
- As of 2022, 23 states require that high schools teach financial literacy—Florida will be the 24th starting in 2023—and 25 states require a high school economics course.
- A survey of Investopedia readers found the greatest interest was in credit- and debt-related topics in the states where people are suffering the most financial hardship.
Americans Are Barely Passing
If letter grades were given out for financial literacy, the United States would get a C+ at best. Globally, the nation ranked 14th in the world for basic financial skills as of 2014 (the year of the most recent statistics available), with only 57% of adults considered financially literate, according to Standard & Poor’s Global Financial Literacy Survey. Australia, Canada, Denmark, Finland, Germany, Israel, the Netherlands, New Zealand, Norway, Sweden, and the United Kingdom had financial literacy rates of 61% or higher. Meanwhile, as of 2022, the U.S. was in the top four for highest debt per capita.
It’s well documented that a lack of financial education can lead to serious money problems down the road, and many are teetering on the edge.
- As of 2021, more than 30% of U.S. adults didn’t have enough in savings to cover a $400 emergency, according to the most recent statistics from the U.S. Federal Reserve. The most common response to how they would deal with such an expense was to cover the cost with a credit card.
- As of 2020, the median retirement savings for Americans between ages 55 and 64 was $134,000, which provides an annual income of about $7,500 per year (about $625 per month) for men and $6,975 for women (about $581 per month).
- As of 2021, the average household credit card balance for those who carry debt month to month was $5,525, which was a considerable drop from 2019’s figure of $6,494.
- As of 2022, total student loan debt was at $1.75 trillion, nearly double what it was a decade prior. The 2022 average was $40,274 per borrower.
A Lack of Education
It’s not just a millennial problem. The cycle of debt begins at a young age for most Americans, inciting and feeding their reliance on student loans and credit cards. Poor money management skills beget decisions made in haste, desperation, and anxiety, leading to more debt, creating more stress-induced decision-making, and so on.
Rather than teaching the skills that could prevent—or at least mitigate—bad money habits, some college campuses welcome credit card companies onto their grounds. They’re more than eager to sign up an 18-year-old to a high-interest account.
Who’s making sure they understand how interest rates work? How to manage debt? How long it takes to pay off a credit card bill if they only make the minimum payments? Not the credit card company. Not the school. Most students graduate with more debt than they can handle and at least one credit card.
Making Financial Literacy the Law
Every few years, the Financial Industry Regulatory Authority (FINRA) issues a five-question test as part of its National Financial Capability Study, which measures consumers’ knowledge about interest, compounding, inflation, diversification, and bond prices. Since 2009 (when the first test was given), the average number of correct responses has steadily decreased by 14%, which suggests that the basic economic and financial principles that underpin these problems are widespread.
Perhaps in recognition of the situation, financial illiteracy, or at least the lack of education that enables it, may soon be against the law, at least in parts of the U.S. In North Carolina in 2019, lawmakers passed legislation that requires high school students to take a financial literacy course before they graduate. House Bill 924 created an economics and personal finance (EPF) course to provide basic instruction on fundamental economic principles, including how to manage a credit card, the basics of borrowing money, and how to get a mortgage.
North Carolina is one of 23 states that require financial literacy in high school as of 2022. A total of 25 states require an economics class. These efforts come as Americans rack up a record amount of credit card and student loan debt, much of it owed by 18-to-35-year-olds. This often leads to a debilitating cycle of overspending and little if any saving or investing. According to Charles Schwab’s 2019 Modern Wealth Index Survey, 59% of Americans said they were living paycheck to paycheck. Due to the 2020 COVID-19 recession, the number of Americans who exist financially on a week-to-week or month-to-month basis has increased to 63%.
What Americans Are Reading on Investopedia
We looked into our data from 11 million monthly U.S. readers to see which states looked up which personal finance topics and how that compared with their average ratio of debt-to-household income—as well as whether or not those states were pushing for financial literacy requirements. Here’s what we found:
The Southeast, Southwest, and Rocky Mountain Regions
These are the three areas suffering the most financial hardship. In the Southeast region of the country, states such as Maryland, Virginia, North Carolina, South Carolina, and Florida have high debt-to-income ratios, and Southeast residents were the most active seekers of information about managing their finances. The top terms and topics they searched for included managing credit, building credit, and loans and mortgages, checking them out 42% more often than the rest of the country does.
In the Southwest and Rocky Mountain regions of the country, states such as New Mexico, Colorado, Arizona, Utah, and Nevada also have high debt-to-income ratios, and our readers there also focused heavily on credit-related stories and mortgage-related terms, the latter in Utah especially.
Both the Southeast and Rocky Mountain regions showed strong interest in the topics “How to get out of debt” and “How to save more,” suggesting that people are trying to close the gaps in their own financial education. It’s good to see that many of the states in these three regions, such as North Carolina, are making some form of financial literacy education mandatory in high schools.
The Northeast and Midwest
Northeastern states such as New York, Pennsylvania, New Jersey, Rhode Island, Massachusetts, and Vermont—and Midwestern states such as Ohio, West Virginia, Kentucky, Indiana, Michigan, Illinois, Wisconsin, Iowa, and Missouri—all have low debt-to-income ratios. Readers in these regions, who are generally financially secure, were more interested in retirement and banking topics and searched far less often for stories related to credit or debt.
What Is Financial Literacy?
Financial literacy is the ability to understand and use a variety of financial skills, including money management, budgeting, and investing. Financial literacy is the basic foundation of your understanding of all things related to money.
Where Can I Go to Improve My Financial Literacy?
Start with a basic understanding of what financial literacy is, including the main areas of income, spending, savings, investing, and protection. Then study each area to find out what role each plays in personal finance. Online classes, such as those listed in Investopedia's Best Personal Finance Courses, provide an easy way to get up to speed with the least fuss.
What Are the Main Areas of Personal Finance?
The five main areas of personal finance are:
- Income—the amount of money you receive from all sources including your job, investments, savings, and gifts
- Spending—the funds you use to pay bills and cover expenses
- Savings—money you set aside, with or without interest, for future needs
- lnvesting—funds intended to be put to work to earn income
- Protection—spending designed to protect you from financial risk including annuities, life insurance, and health insurance
The Bottom Line
In a nation where movies such as The Wolf of Wall Street and TV shows such as Billions dominate pop culture, we’re often surprised by how many readers come to Investopedia for information on the most basic financial concepts. Queries for such topics as “What is a stock?” “What is the importance of a credit score?” and “How do I start investing?” lead to some of our most popular articles, even among a readership that stretches from 18 to 80+ years old.
Most Americans aren’t getting the financial education they need and are left to create a DIY patchwork of tips and tricks for money management. When financial trouble hits, a lack of knowledge makes working through and out of it even more difficult. We’re watching the effects of this financial literacy deficit manifest themselves through a swelling debt that continues to tighten its stranglehold on millions of Americans, many of whom come to us for help.
To be sure, high school should not be the only place where we learn financial literacy. But it’s a good place to start.