The Financial Literacy Gap

The financial literacy gap is a problem. At least that is the agreed upon sentiment from financial advisors.

A recent study showed that 78% of advisors agreed with the statement “Financial Literacy is an issue in our country.”  It’s also no secret that improving your financial education will increase your ability to manage your money well. The stats speak for themselves.

The average American household income is approximately $75,000, but the average American household also has over $132,000 in debt, while only 18% of Americans contribute to an IRA. These statistics show that a high percentage of Americans are not within reach of financial wellness.

Steps are being taken to counteract this unsettling trend though. According to the Financial Educators Council, three years after implementing a financial education mandate in Georgia, Idaho, and Texas, all three states saw increased credit scores and lower delinquency rates on credit accounts. 

There are programs and initiatives in place across the nation where advisors can volunteer to help improve the financial literacy of selected age groups. Elementary school programs and local libraries offer valuable educational resources to young learners and can get them started on a trajectory of financial literacy, setting them up well for their financial future.

For older kids, there are career days and financial literacy courses available through high schools and community colleges. They can take part in paid internships for peer-to-peer literacy counselors or take advantage of pro bono advice.

As a matter of fact, of the advisors who are involved in financial literacy initiatives, it is interesting to note that the activity which topped the list is pro bono work. 

Financial habits are affected by the ability to understand and apply basic principles, or conversely, the lack of knowledge about them. In other words, if you don’t understand basic principles in a subject, then your habits regarding that subject will be based on flawed reasoning.

By learning high quality, non-complex information and facilitating the best use of available resources in real-life situations, financial decision making is positively affected. 

Financial literacy is not just knowing how to write a check or creating a budget. It involves knowledge about credit management, wealth accumulation, and savvy financial practices.

Understanding how to make sound financial decisions when it comes to money is the thing that separates the wealthy 1 percent from the rest of the population. It is simply not possible to earn and keep your money if you are financially illiterate. And a concerted effort is being made by advisors to close that financial literacy gap, or at least make a dent in it.

 

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David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC