“The number one problem in today’s generation and economy is the lack of financial literacy.”

– Alan Greenspan

Being able to make informed decisions that impact budgeting, saving, investing and borrowing is critical to the financial well-being of every individual. Since financial products are becoming more and more complex and readily available to a wide range of individuals, financial knowledge has become increasingly more important. Access to complex financial services without fully understanding the product can result in a detrimental financial outcome. Disappointingly, the ‘Financial Literacy Around the World’ study conducted by Standard and Poor’s brings to light that only 57% of Americans had a passing grade when asked basic questions relating to personal finances.

Financial literacy rates differ in important ways when it comes to attributes such as gender, income, and age. In the U.S. 62 percent of men are financially literate, compared with only 52 percent of woman (Financial Literacy Around the World, 2015). This 10-point gap is significant considering woman control the majority of household spending. In addition, on average woman live longer than men, generally make less than them and receive smaller social security checks. This implies that they need to save more for retirement yet they do not have a strong financial education to help them achieve that goal.

Not surprisingly, wealthy adults, most likely those with some financial literacy training, scored better on the S&P test (64% passed) compared to those living in challenging socio-economic conditions (47% passed). While financial literacy education can offer tools to potentially help the poor escape poverty by building savings and growing assets, they typically have limited access to these services. Saving money is the basic foundation for good financial preparedness. Some studies show that saving even a dollar or two a week can lead towards good money management habits. Yet those struggling to make ends meet, faced with buying bread or paying rent, saving for ‘a rainy day’ or retirement can seem completely out of reach.

U.S. adults between the ages of 35 to 54 had the highest percentage of passing grades (65% passed). Individuals between 15 years old and 34 years old, as well as those age 55+ both averaged 57 percent with passing grades. While the results are the same for these two groups the strategy to fix the problem may need to be very different. According to a 2014 survey by H&R Block 75 percent of teens indicate that their parents are their most important source of financial information; 62 percent of teens view their parents as good money management role models. While younger adults may be relying on their parents for knowledge there is evidence that older adults are self-reliant. A study conducted by the Americans Society of Aging, respondents scored low on financial literacy, however they gave themselves high ranking scores when asked to assess their own level of knowledge compared to their peers.

When looking at the problem of financial illiteracy it is important to understand that many efforts have been made by both the government and the private sector to increase the number and availability of financial education classes. However little evidence exists that these services are having a great impact. The basis of most financial education and counseling programs is that consumers lack financial information and that they will make “better” financial choices given exposure to added information. However, simply gaining knowledge does not ensure individuals will make different or better financial choices. Consumers may lack self-control or exhibit other behavioral biases that education and counseling may not enable them to overcome (“Financial Education and Counseling – Still Holding Promise”, 2010). In other words, it may be simple to teach basic principles of finances but not necessarily easy for the intended audience to implement them. To realistically address financial illiteracy, the approach must be holistic in nature and diverse in implementation.


Collins, J. Michael and O’Rourke, Collin, Financial Education and Counseling — Still Holding Promise (2010). Journal of Consumer Affairs, 44(3), 483-498.. Available at http://ssrn.com/abstract=1529422 or http://dx.doi.org/10.2139/ssrn.1529422
&R Block Dollars & Sense, A Conflicted Optimism: Teens and Their Financial Future (2014). Available at: http://investors.hrblock.com/phoenix.zhtml?c=76888&p=irol-newsArticle_Print&ID=1913313
Klapper, Leora, World Bank Development Research Group, Lusardi, Annamaria, The George Washington University School of Business, Van Oudheusden, Peter, World Bank Development Research Group, Financial Literacy Around the World (2015) Insights from the Standard & Poors Ratings Services Global Financial Literacy Survey. Available at:
Lusardi, Annamaria, American Society on Aging, Financial literacy and Financial Decision Making in Older Adults (2012). Available at: http://www.asaging.org/blog/financial-literacy-and-financial-decision-making-older-adults