Equity, Diversity and Inclusion

It’s financial literacy month: From schools to the workplace, let's take action

Someone is crunching numbers with their phone and sheet of paper with charts: Financial literacy month – one in three adults is financially literate globally.

Financial literacy month – one in three adults is financially literate globally. Image: Unsplash/Firmbee.com

Annamaria Lusardi
Academic Director, Initiative for Financial Decision-Making and Global Financial Literacy Excellence Center (GFLEC), Stanford University
Andrea Sticha
Research Director, Initiative for Financial Decision-Making and Global Financial Literacy Excellence Center (GFLEC), Stanford Graduate School of Business
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Fairer Economies

  • Americans generally perform poorly on understanding key financial concepts; this deficiency in financial knowledge extends globally, affecting economic and personal outcomes.
  • Financial education should be implemented throughout life’s stages –from schools to the workplace – with mandatory financial literacy courses for high school and college students.
  • Financial literacy is a lifelong learning journey and fintech will likely impact and support consumers in making informed financial decisions.

April is Financial Literacy Month in the United States and newly released data clearly show that there is an urgent need to focus on financial literacy.

The consequences of low financial knowledge are costly and sweeping, affecting families, their employers, communities and even the economy as a whole. Yet, our TIAA Institute-GFLEC Personal Finance Index (P-Fin Index), released on 17 April, gives Americans a failing grade when it comes to understanding the concepts that underpin decisions about saving for retirement, managing debt or insuring against risks.

On average, Americans can answer only about half of the 28 questions we designed to measure personal finance knowledge.

This lack of financial literacy is not just a US problem but a global issue. Our study shows that worldwide only one in three adults is financially literate, which is very low, given the many financial decisions that individuals are asked to make.

In this global study, we measure financial literacy using questions assessing basic knowledge of four fundamental concepts in financial decision-making: knowledge of interest rates, interest compounding, inflation and risk diversification. Among the survey respondents, women, low-income adults and individuals with less education are more likely to suffer from gaps in financial knowledge. These correlations hold true in developing countries and those with well-developed financial markets (figure 1 below).

Figure 1 – Percentage of financially literate adults.
Figure 1 – Percentage of financially literate adults. Image: S&P Global Financial Literacy Survey, 2014

A recent global comparison of financial literacy in the 2023 issue of the Journal for Financial Literacy and Wellbeing confirms these findings. These studies used questions very similar to those used in the global survey to measure financial literacy. They found that financial literacy levels are low from Peru to Italy and Singapore to Japan. Too many people lack the basic financial knowledge they need to build financially secure lives and that does not bode well for families, their communities or countries.

Also underscoring the need to address this challenge is that financial literacy is especially low among young generations. That is a troubling disconnect since young people represent a significant labour market share. Even more, they are about to make or already have made significant and consequential financial decisions that impact their lives and the overall economy – now and into the future.

Despite their influence on our economy, they are held back by one important roadblock: not being taught financial literacy in school. We need to empower young people with knowledge before they make life-changing financial decisions so that they can begin their careers on a solid footing. Mandating a personal finance course for high school graduation or providing one in college would ensure they are better positioned for a secure financial future.

But we cannot stop there. Their parents, too, are weighed down by poor financial literacy. The global data tells us that knowledge is low even among older respondents who have already made many financial decisions with far-reaching consequences. Experience could make a better teacher when it comes to money management. Put another way, practice does not engender financial literacy.

Have you read?

Multi-stage financial literacy programmes

That is why we need to elevate financial learning as a lifelong journey. We can do this through financial wellness programmes at the workplace and local communities. The added advantage of those programmes is that they can be tailored to match the needs of the groups they serve, helping to raise women, people with low-income levels and others whose financial literacy lags behind.

These programmes are within reach. In this paper in the Cornell Law Review, “Defined Contribution Plans and the Challenge of Financial Illiteracy,” we discuss three requirements – self-assessment, minimum substantive components and timing – that a workplace financial wellness programme should incorporate.

The economic landscape and labour markets that employees face today have changed substantially – and will most certainly continue to change. It is time to step up efforts to equip workers with the knowledge and skills to make informed decisions in the 21st century.

As the financial technology or fintech sector revolutionizes financial practices and reshapes the financial landscape, the financial industry is positioned to support users by providing knowledge and resources to make savvy decisions. People do not have to become financial experts but we need to equip them to choose good financial advisors or identify the tools that can help them in making informed decisions.

Our research shows that financial literacy greatly benefits fintech users. Those with high levels of financial literacy, for instance, are less likely to engage in costly money management. In other words, financial literacy and fintech produce good financial outcomes when they go hand-in-hand.

Financial literacy matters and it is time to become serious about acknowledging the costs of low financial knowledge. People with poor financial literacy could spend as many as 12 hours per week – the equivalent of a full day and a half of work worrying about and dealing with personal finance issues.

Of these 12 hours, seven occur in the workplace. For people with high financial literacy, the time spent worrying about financial matters drops to four hours per week, with only one of those hours encroaching on work time (figure 2 below, report).

Figure 2 – Average hours per week spent thinking about and dealing with issues and problems related to personal finance.
Figure 2 – Average hours per week spent thinking about and dealing with issues and problems related to personal finance. Image: TIAA Institute-GFLEC Personal Finance Index, 2024

Pure and simple, financial illiteracy is costly. It uses up much of our time. It affects workplace productivity and our economic wellbeing. Let’s take stock this year and step up the effort to accelerate financial education. And next April, we can report and celebrate our progress.

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