The Current State of Financial Literacy in America: Be Afraid

We are a nation of financial dunces.

For proof, try answering this question.

Why should want to improve your credit score?

  1. To save money when purchasing a car with a loan.
  2. To earn more interest on investments.
  3. To help you get a job, because employers check their prospective employees’ credit.
  4. Both “1” and “3”.

That’s not exactly the toughest financial question you’ll ever face. But if you’re a typical consumer, you got it wrong.

The correct answer is 4.

The question came from a national financial literacy test conducted in 2017 by the National Financial Educators Council. More than 17,000 people took the test and only 48% got a passing grade.

In a second financial literacy study, the TIAA Institute-GFLEC Personal Finance Index, only 16% of those surveyed answered three-quarters of the questions correctly, meaning they have a high level of personal finance understanding.

Adults 18-30 fared the worst, with just 30% able to answer one-quarter of the questions correctly. If this financial literacy data doesn’t scare you, it should.

The questions were about saving, investing, earning, borrowing, consuming and insuring. You know, the basic stuff that dictates whether you’ll lead a life of luxury or eat cold kidney beans from a can every night for dinner.

How to Save Ourselves from Financial Ignorance

So how can you improve your financial literacy and pass that vital knowledge along to your kids?

There are a variety of ways, though all require some learning effort. Unfortunately, America’s school system is not set up to provide much help, and neither are most parents.

Only 17 states require students to take a high school course in personal finance, and according to the NFEC, only 20% of teachers feel competent to teach it.

And remember when parents were only skittish about talking to their kids about S-E-X? Well get this, 72% of parents now say they are reluctant to talk to their kids about M-O-N-E-Y.

That’s basically because they don’t know what to say. They are products of the same education assembly line that has produced generations of financial illiterates.

“Nationwide testing demonstrates that the average person lacks the basic financial knowledge he or she needs to make qualified financial decisions,” said Vince Shorb, the head of the NFEC.

Schools require kids to take courses like chemistry, which will come in handy if you plan on becoming a chemist. Yet they ignore finance courses which would educate you about things that pop up every day of your life, like how an 18% credit card interest rate can cost you thousands of dollars.

According to the Council for Economic Education stats, 75% of college students with a credit card were unaware of late payment charges or high interest rates. One in four adults doesn’t pay their bills on time.

Almost 44% of millennials say they have used payday loans, pawnshops and rent-to-own stores, all of which are financial black holes.

They are also blind to the benefits of savings. Of the 30 questions on the NFEC test, the one with most incorrect answers was: If I invest $100 per month starting at age 21, and that money earns a 7% annual return, how much will I have after 70 years?

The test required only a ballpark figure, not a precise number. Yet a mere 29% of respondents correctly wrote “More than $1.5 million.”

Of course, you would be 91 years old by the time you got to $1.5 million, but nevertheless, the point is that saving a little every month can get you a lot.

That’s due to the power of compounding, where you rack up interest on the interest you’ve earned with your investments. But since the average American doesn’t know compounding from composting, how are they going to be motivated to save that $100 a month?

Where to Find Free Financial Literacy Education

There is a wealth of free financial literacy education online, much of it free at websites like But experts say there’s a difference between learning something like chemistry and learning finance.

“Unlike other subject matter taught in school, financial literacy requires more than just understanding content,” Shorb said. “It requires learners to be able to adjust their daily financial behaviors and have enough knowledge to make confident financial decisions.”

That’s one goal of debt management programs, where certified counselors tailor programs that will erase the fallout of poor financial decisions. Ideally, of course, consumers become knowledgeable enough to avoid such decisions before their debt starts piling up.

Though the thought of figuring out interest on a mortgage can be daunting, you don’t have to become a CPA to be financially literate. Teach your kids, and even yourself, the basics of banking. You’d be surprised how many people don’t know the difference between a checking and a savings account. Show kids how putting just a little in a retirement fund every month can eventually make them a millionaire.

You’d also be surprised how many young people don’t know about taxes. They need to learn that a $10-an-hour job does not mean they will actually get $10 an hour.

A simple rule for credit cards is “Avoid them if possible.” But since that’s often not possible, avoid high-interest cards and try to pay off your balance every month.

That leads back to our first topic – credit scores. Getting a good one is not complicated. All you really need to do is pay your bills on time.

Learning just a few basic principles isn’t hard, and it’s well worth the effort. If you don’t care for the taste of cold kidney beans, financial literacy is one test you do not want to flunk.

Joey Johnston has more than 30 years of experience as a journalist with the Tampa Tribune and St. Petersburg Times. He has won a dozen national writing awards and his work has appeared in the New York Times, Washington Post, Sports Illustrated and People Magazine. He started writing for InCharge Debt Solutions in 2016.

We have many resources available to help teachers teach financial literacy with their students.


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    1. (Oggero, N., Yakoboski, P., Lusardi, A.) (ND). The TIAA Institute GFLEC Personal Finance Index. Retrieved from
    2. (NA)(ND). National Financial Literacy Test Results. Retrieved from
    3. (Thaler, R.)(2013, Oct. 5). Financial Literacy, Beyond the Classroom. Retrieved from