The Cost of Financial Literacy

The COVID-19 pandemic exposed many flaws in American society, such as gaping holes in the supply chain and a lack of equitable internet access. Yet perhaps one of the most significant pain points came from the financial instability caused by the economically devastating effects of COVID- 19.

While the pandemic exacerbated many citizens’ financial woes, overall, Americans were not experiencing overwhelming high levels of financial security before COVID-19. A 2019 study by the Financial Health Network found only 29 percent of Americans were fiscally healthy, while 54 percent were only coping financially and 17 percent were economically vulnerable. While many factors can lead to financial instability, a lack of emphasis on financial education and literacy has undoubtedly contributed to American’s monetary concerns.

Despite boasting the world’s largest economy, America ranks 14^th in Standard & Poor’s Global Financial Literacy Survey. As reported by Market Watch, there was an eight percent decline in the number of people who could correctly answer basic financial questions, which included topics such as interest rates, inflation, bond prices, financial risks and mortgage rates, from 2009 to 2018. The same study found a decrease in young adults’, ages 18 to 34, ability to correctly answer financial literacy questions. While young adults’ grasp of pecuniary concepts dropped from 30 to 17 percent, adults ages 55 and above remained relatively constant in their financial knowledge, showing only a 3 percent decrease. Individuals who exhibit financial illiteracy are more at risk for ill-advised behaviors, including poor saving and spending habits, overuse of credit cards, imbalanced debt to income ratios and speculative investments. 

According to a study conducted by FINRA, 53 percent of Americans are anxious about their financial situation, and 44 percent say discussing their finances is stressful. Young adults feel the burden of monetary instability more acutely, with 63 percent indicating high levels of stress and 55 percent showing increased anxiety due to the state of their finances. Among those who experience financial strain, some common themes emerge. Forbes reported student loan debt hit $1.56 trillion in 2020, and according to NPR, the Federal Reserve Bank determined Americans’ credit card debt surpassed $1 trillion. The NFCC 2019 Consumer Financial Literacy Survey found less than 20 percent of adults are secure in their saving habits. As reported by The New York Times, an analysis from JPMorgan Chase revealed about 66 percent of Americans do not have an emergency fund.

An individual’s fiscal knowledge is not only crucial for their personal finances, but it also has an impact on their professional lives. A survey conducted by the National Financial Educators Council determined five percent of respondents had been turned down for a position due to their lack of financial knowledge. A report from PwC found 47 percent of employees admit monetary stress impacted their productivity at work. Employees who experience high financial stress levels disclosed spending at least three hours a week dealing with personal money problems. According to the International Foundation of Employee Benefit Plans, 80 percent of employers reported personal financial issues impact job performance. As stated by Forbes, American employers lose $500 billion annually due to a loss of productivity from employees’ financial stress.