Unfortunately, when it comes to money matters, what you don’t know can hurt you – and according to recent data, numerous Americans are not as financially literate as they could be.
Financial literacy refers to how well an individual understands money topics such as saving, investing, budgeting, income, interest rates, and spending habits. When a person is even somewhat financially illiterate, it can lead to numerous pitfalls. Those can include poor credit, bankruptcy, unsustainable debt burdens, and housing foreclosures through lack of long-term financial preparation or poor spending decisions, for example.
According to the 2023 TIAA Institute-GFLEC Personal Finance Index, U.S. adults correctly answered less than half of 28 basic money questions in their annual financial literacy survey. These findings, amongst others, are concerning, especially considering the current challenging economic conditions.
In light of financial literacy month (April), CivicScience took stock of financial literacy in the U.S. in 2023. Here’s where things stand today:
How People Rate Their Financial Literacy
According to recent CivicScience data, 1-in-10 U.S. adults say they are ‘not at all financially literate,’ while the majority claim they are ‘somewhat financially literate.’ Over a quarter feel they are ‘very financially literate.’
How has financial literacy changed within the last few years? Looking at yearly averages, a larger percentage claim to be financially illiterate this year (10%) compared to 2021 (9%). In addition, more people have said they are only somewhat financially literate during this same period of time. However, a growing percentage of U.S. adults (29%) claim to be very financially literate, although still a lower percentage than in 2021.
The findings suggest a decrease in financial literacy over the past two years, but a slight uptick from 2022. Overall, there is room for improvement as most people are only somewhat confident in their financial knowledge and abilities. The need for improvement becomes even more evident when looking at disparities in financial literacy across demographics, in particular:
- Gen Z and Millennials: Among Gen Z (18-24) adults, 13% say they are not financially literate, which is greater than older age groups. Alternately, 31% of young Millennials (25-34) say they are ‘very’ financially literate, outpacing adults over age 35.
- Men and Women: 8% of men and 11% of women are not financially literate, whereas 32% of men are ‘very’ financially literate, compared to 23% of women. These numbers have improved since 2019 for both genders.
- Income: 13% of those who earn less than $50K annually are not financially literate, more than twice that of those earning over $100K per year. Likewise, 21% of lowest-earning households ($50K or less) are ‘very’ financially literate, compared to 39% of top earners ($150K+).
Learning Financial Literacy Skills in School Is Up
Many wonder if the current state of financial literacy in the U.S. is due to how people learn financial literacy skills. In recent years, it’s become a hot topic among the younger generation – especially Gen Z women – who call for these vital skills to be taught from a young age in schools and elsewhere. In addition, there are a growing number of states in the U.S. that have financial literacy class requirements, but many are pending legislation.
Interestingly, CivicScience data from this month show that 21% of U.S. adults who say they’ve acquired financial literacy skills (such as managing and investing) did so in school – up from 18% in 2021. However, learning from friends and family remains the most common way Americans acquire financial skills, at 30% (n=2,677).
Cross-referencing how people learn financial literacy skills with financial literacy beliefs offers deeper insight into how different learning sources impact financial literacy development.
Unsurprisingly, a high percentage (50%) of those who feel financially illiterate say they never learned any financial skills. Among those who did learn skills:
- Financial illiteracy (feeling ‘not at all financially literate’) is highest among those who learned skills in school, and lowest among those who learned from books or the workplace.
- Those who learned from school or the workplace are also the most likely to feel ‘very financially literate’ – perhaps making the case for more education courses and employer-sponsored financial wellness programs.
- Meanwhile, those who learned skills primarily from family/friends or online have the lowest rates of feeling ‘very’ financially literate, and are the most likely to feel just ‘somewhat’ literate.
Use of Financial Advisors and Fintech Tools Is Stagnating
Investing and planning for the future are key components of financial health and wellness. CivicScience tracking of the use of financial advisors suggests a large percentage of Americans choose to handle their finances themselves. As of 2023, 47% of respondents say they have never met with a financial advisor (the same as in 2022), while 29% last used one more than a year ago. One-quarter have used a financial advisor in the past year (n=64,353).
Budgeting is also considered an essential financial skill, but according to sources, only 32% of U.S. households compile a monthly budget. Most U.S. adults aren’t turning to fintech tools to manage expenses, such as personal budgeting apps Acorn and Mint. Those who have used or intend to use these kinds of apps decreased from 26% in 2022 to 25% in 2023. More than a third (36%) have never heard of budgeting apps that could help with personal financial tasks and goals, while 39% have not used these apps and aren’t interested (n=21,035).
How Financially Secure Do Americans Feel Right Now?
When looking at how people view their overall financial health, CivicScience data show slightly positive change between 2022 and 2023. April findings reveal 68% of people feel at least ‘somewhat secure’ in their overall financial situation, compared to 66% last year, which represents a small improvement.
Young Millennials aged 25-34 are the most likely to say they don’t feel secure in their financial standing right now (41%), close to last year’s numbers (42%) and showing the least amount of year-over-year improvement among all age groups.
Overall, the data show some minimal gains in several areas over the last year, including in financial literacy and feelings of financial security. That said, there are still significant differences among age groups, genders, and income brackets. Many Americans are not utilizing or adopting financial tools or services for financial planning and budgeting. Initial findings suggest learning skills in formal settings such as school and the workplace could potentially have the biggest impact in helping to improve feelings of financial literacy and confidence.
The CivicScience InsightStore will continue to monitor these and other key financial trends. For a deeper look at consumer financial health and how it impacts consumer choices, get in touch.