While general knowledge of finance essentials is lacking for all age groups, emerging evidence suggests Millennials in particular struggle with misunderstandings of their personal money matters. April is Financial Literacy Month, so we’re asking the question: how financially literate are you? And in the age of automated investment bots and blockchain systems, is “traditional” financial literacy even that important?
The State of Affairs
A recent study by Investopedia found that about 61% of Millennials feel confident in their overall financial knowledge. A similar number, 63%, say they know more than their friends and peers. Good, right?
Well, another report by the TIAA Institute indicates that confidence might be a little misplaced. When presented with three “fundamental” questions testing financial literacy, only 16% of Millennials were able to answer them all correctly.
61% of Millennials feel confident in their overall financial knowledge
but only 16% of Millennials were able to answer three “fundamental” questions correctly
Millennials are one of the most highly educated groups of people in America today, and yet they have one of the lowest levels of financial literacy. This is likely due to the fact that financial literacy is simply not a curricular priority. Most college programs do not require courses in finance of any kind. And while many states now require financial literacy to be taught in high school, this single class is the only exposure most students have to these concepts. And as we all know, everyone remembers everything they learn in high school.
The Costs of Illiteracy
Financial illiteracy is not just an academic issue; it has real-world effects on people’s’ pocketbooks and lives. Last year, the National Financial Educators Council asked Americans how much they felt a lack of financial literacy cost them in 2022. While a majority (62%) claimed less than $500 in losses, a significant amount claimed much more: 15% of respondents said poor financial literacy cost them $10,000 or more throughout the year.
The NFEC report doesn’t elaborate on the nature of people’s losses, but they aren’t hard to imagine. Decisions around managing credit card debt, paying for college, and investing and saving all have the potential to significantly impact a person’s finances for better or worse. And the likelihood of making a poor financial choice is (unsurprisingly) greater if a person lacks essential financial knowledge.
Perhaps this helps explain another aspect of the Investopedia study, which indicated that notwithstanding their overall confidence in their financial knowledge, three in four Millennials are at least somewhat stressed about managing their finances. Basically, Millennials generally feel confident in their financial know-how but actually have significant holes in their financial education, making them more likely to inadvertently make poor choices that lead to increased stress about their financial future.
What to Do?
The good news is there are all kinds of online resources available to help people increase their financial savvy. One place to start is the Consumer Financial Protection Bureau. There you can find tools for everything from basic budgeting and tax filing to retirement planning and buying a home. You can also find answers to common financial questions about loans, credit and other topics.
If you are working toward a specific financial goal, speaking with a financial advisor could be a good option. There are also many free or low-cost budgeting and finance tracking apps available. And of course, if you’re working toward purchasing a home, your local PRMI mortgage pros can help you understand your potential financing options.
The bottom line is knowledge is power. The more literate you are with your finances, the better you’ll be able to build the life you want for yourself and your family. Get out there and learn something new!