Financial

Lack of financial literacy cost 15% of adults at least $10,000 in 2022. Here’s how the rest fared

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When it comes to money matters, what you don’t know can hurt you.

A report from the National Financial Educators Council shows that 38% of individuals in a recent survey said their lack of financial literacy cost them at least $500 in 2022, including 15% who said it set them back by $10,000 or more. That’s up from about 11% in 2021.

The majority (68%) of respondents said poor financial literacy cost them somewhere from zero to $499.

The average cost was $1,819, according to the survey, which was conducted Oct. 23 through Dec. 5 among about 3,000 adults across the country. That 2022 figure is nearly $500 higher than the average $1,389 in 2021.

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“A lot of people come out of [school] without having been taught financial literacy in any detail,” said certified financial planner Denis Poljak, a partner with the Poljak Group Wealth Management at Steward Partners in Shreveport, Louisiana.

“They end up just … learning from their mistakes,” Poljak said.

U.S. adults have big gaps in their financial knowledge

Financial literacy — which generally means understanding money topics ranging from income, budgeting, saving and investing, as well as how interest rates work and why credit scores matter — is lacking among many U.S. adults, studies show.

For instance, adults correctly answered, on average, 50% of the 28 basic money questions in the 2022 TIAA Institute-GFLEC Personal Finance index, the sixth annual barometer of financial literacy. Worse, the share of respondents (23%) who couldn’t correctly answer more than seven is higher than its been than any other year in the survey.

The problem, say experts, is the lack of knowledge can affect everything from how much you save — whether for emergencies or the long term (i.e., retirement) — to how much debt you take on and under what terms.

Some important financial decisions can emerge before you reach adulthood or soon after. To name just a few: deciding how to pay for college, managing a credit card or auto loan, boosting your credit score, paying taxes, and starting to save for retirement despite it being decades away.

Financial literacy is ‘a key tool in the toolkit’

Advocates of financial literacy say the teaching needs to start before teens reach their high school graduation. As of last year, 24 states require personal finance coursework by grade 12, according to the nonprofit Council for Economic Education.

“There’s good data showing people make better decisions when they have financial literacy,” said Nan Morrison, CEE president and CEO.

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For example, Morrison said, you’ll likely have a better credit score and be less likely to default on a loan if you have some personal finance know-how. A 2015 study from the Financial Industry Regulatory Authority’s Investor Education Foundation bears that out: Three years after personal finance education was implemented in Georgia, Texas and Idaho, all three states saw severe delinquency rates go down and credit scores rise.

Additionally, in 2021, individuals who scored above the median on a seven-question financial literacy quiz were more likely to make ends meet, according to the FINRA foundation’s latest financial-capability study. Specifically, they spent less than their income (53% versus 35%) and had three months’ worth of emergency funds at higher levels (65% versus 42%).

They also were more likely to have calculated their retirement savings needs (52% versus 29%) and to have opened a retirement account (70% versus 43%), according to the study.

“To me, the bottom line is that to live the life you want to live, you need to understand how to manage money,” Morrison said. “It’s not the only important thing, but it’s a key tool in the toolkit.”

Source: https://www.cnbc.com/2023/01/19/heres-how-much-people-say-lack-of-financial-literacy-cost-in-2022.html

Donovan Larsen

Donovan is a columnist and associate editor at the Dark News. He has written on everything from the politics to diversity issues in the workplace.

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