Key Findings
- Only 57% of adults in the United States are financially literate.
- Missouri, Utah and Virginia boast the best financial literacy rates, while Alaska, Washington, D.C. and South Dakota have the worst financial literacy rates.
- Over 40% of Americans are unfamiliar with Roth IRAs, money market accounts and high-yield savings accounts, but nearly 70% of Americans familiar with 401(k)s don’t use them.
What is Financial Literacy?
Financial literacy refers to the knowledge you have about money and the options you have for saving and investing it. It’s the imaginary toolbox you reach into to achieve a particular financial goal, such as:
- Saving for a large purchase
- Funding a college education
- Preparing for retirement
- Buying a house
- Paying off debt
- Investing for your future
Organizations may measure financial literacy in different ways, but they generally involve survey questions about economic and personal finance topics. The Federal Reserve, for example, defines someone as financially literate if they can answer questions surveyors pose about interest, inflation and risk diversification. The Financial Industry Regulatory Authority (FINRA) has a seven-question quiz about savings accounts, probability and investments.
Financial Literacy Demographics
Understanding how financial literacy compares among U.S. citizens of differing ages, races, genders and education levels can reveal what factors may inhibit higher literacy rates.
Financial Literacy by Age
Older generations tend to be more financially literate. According to a MarketWatch Guides survey, baby boomers are the most likely to be familiar with saving and investment products like 401(k) and Roth IRA retirement accounts, money market accounts and CDs.
At the same time, more than half of Generation Z members were unfamiliar with CDs, high-yield money market accounts or Roth IRAs.
Financial Literacy by Gender
Women tend to have lower levels of financial literacy than men, according to a 2022 study from the Federal Reserve. That figure is based on having more incorrect or “don’t know” answers than their male counterparts on a three-question survey.
Financial Literacy by Race
There are also differences in financial literacy by race, as estimated by a FINRA report. High financial literacy is associated with better money habits, like saving for retirement.
FINRA found that 65% of Asian/Pacific Islanders over 55 years old in the U.S. have a retirement account, compared to 57% of whites in the same age group. Black/African American and Hispanic/Latino populations were less likely than whites or Asians/Pacific Islanders to have a retirement account.
Financial Literacy by Education
Higher education also correlates with greater financial literacy, the FINRA report found. Over 70% of college graduates have established an emergency fund and opened a retirement account. Only a third of high school graduates reported possessing a retirement account, while 38% reported setting aside emergency funds.
Financial Education Requirements By State
Despite the importance of financial literacy, U.S. states are inconsistent in how they teach these concepts to public school students. The Nation’s Report Card rated each state’s financial literacy educational requirements, giving a letter grade as follows:
- A: Offers financial literacy in each grade, K-12, as well as a standalone personal finance course in high school.
- B: Requires a course that includes financial literacy to graduate high school or has financial literacy standards for both high school and K-8 grade levels.
- C: Has financial literacy standards for high school and some K-8 grade levels.
- D: Lacks financial literacy instruction in either high school or K-8 grade levels.
- F: No financial literacy instruction.
Only three states – Missouri, Utah and Virginia – consistently earned a perfect score in terms of financial literacy education
Three other areas – Alaska, Washington, D.C. and South Dakota – earned “F” grades through the duration of the study. Roughly half of U.S. states earned “B” grades.
How Financially Literate are Americans?
Fifty-seven percent of American adults are considered financially literate, according to a survey from credit rating agency Standard & Poor’s (S&P). And our research found varying degrees of familiarity with key savings vehicles like 401(k)s and CDs.
Americans Are Missing Out on Wealth-Building Tools
A MarketWatch Guides survey also found that:
- More than 40% of Americans are unfamiliar with money market accounts, Roth IRAs and high-yield savings accounts.
- Nearly 70% of adults are familiar with 401(k)s but don’t use them.
- Over 46% of the U.S. adult population knows of CDs, money market accounts, 401(k)s, high-yield savings accounts and Roth IRAs, but doesn’t use them.
- More than half of the Generation Z population doesn’t know what a Roth IRA is.
- Over three-quarters of Baby Boomers and the Silent Generation know of 401(k)s but don’t use them, compared to two-thirds of Millennials.
The Cost of Financial Illiteracy
Americans lost an average of $1,506 in 2023 due to financial illiteracy, according to the Financial Educators Council. This includes losing money due to:
- Credit card interest and fees
- Overspending
- Overdraft fees
- Fraud
Financial Literacy Impacts Savings
Individuals with higher financial literacy are more likely to live within their means, have three months’ worth of income in an emergency fund and have at least one kind of retirement account, according to the FINRA report.
Only 35% of Americans with lower financial literacy rates reported spending less than they earn. Forty-two percent had saved the equivalent of three months’ income, while only 43% had a retirement account.
How to Improve Financial Literacy
Like any other form of knowledge, your financial literacy can grow with practice. Start by putting your money to work, taking control of your spending habits and using money as a tool.
Learn about Financial Options
Exploring how to use financial tools to your advantage can improve your financial literacy and help you establish a fiscal safety net.
“Imagine playing a game your entire life without ever learning the rules,” said Delyanne Barros, a financial mentor who operates the business Delyanne the Money Coach. “How can you expect to succeed? How can you expect other players to not take advantage of your ignorance?
Barros said that upping your knowledge of financial topics can help you avoid scams and create a “safety net” for yourself in case of emergency.
“Money will no longer be this mysterious force in your life, but a tool that you will know how to expertly use to your advantage,” she told MarketWatch Guides.
Make Your Money Work For You
Increasing your savings and diversifying your investments can help you apply your financial literacy toward achieving the goals of stockpiling funds and compounding your earnings for a future nest egg.. If you’re looking for a safe way to invest, online banks offer some of the best CD rates since they lack traditional overhead costs. You can also find some of the best high-yield savings accounts from online financial institutions to help boost your emergency fund.
Create a Budget
Multiplying your savings with safe investments can help grow your income, but your budget represents your most valuable financial literacy tool. Creating a budget enables you to understand where you earn, spend and save to prevent running out of money at the end of each month. Instead of living paycheck to paycheck, you gain control over your finances by knowing exactly where your money goes.
Plan a budget for the upcoming month by totaling your income and fitting your expenses within that limit. Review your progress at the end of the month to see how well you managed your money.
The Bottom Line
Financial literacy allows the average American to make more informed monetary decisions to obtain greater financial security. Yet many states struggle to provide students with the foundational education necessary to develop this critical tool. While a lack of financial literacy can result in tangible economic loss, you can take control of your finances to improve your spending and saving habits.
Expert Tips and Insights
Director of the Center for Financial Excellence, Howard University School of Business
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What are some common barriers to becoming financially literate?
Financialliteracy education should start in 5th or 6th grade, but we often don’t provide that curriculum at the right life stage. By the time you’re an adult, you almost need financial proficiency – the ability to create your own strategies for sound financial management – not just financial literacy, or a basic, rudimentary understanding of financial numbers and strategies. The barrier is our education system’s mismatch between when financial education happens and when it’s actually needed. This disconnect means many adults are playing catch-up, trying to acquire critical financial skills when major money decisions have already started.
How can financial literacy education help people improve their economic situation?
For the general American population, being financially literate prevents making uninformed decisions. But being financially literate doesn’t necessarily help if the system itself blocks economic mobility. For some groups in America, no amount of financial knowledge can overcome systemic barriers to building wealth. However, literacy lays the groundwork – it’s the baseline to avoid major financial missteps that may be out of line with life goals and could really set you back. But proficiency is likely needed to truly get ahead economically.
What would you recommend as the first step toward improving financial literacy?
Read financial publications to learn the language of finance and to understand financial markets and the macro- and micro-environments. Next, identify your specific financial goals, then attack them. Determine what is needed to reach these goals – budgeting, saving, investing, tax planning, etc. There is no need to learn everything if your financial goals are specific. Acquiring basic literacy lays the groundwork.
Dr. Curtis Kidd Telemaque currently serves as the director of the Center for Financial Excellence at the Howard University School of Business. He oversees initiatives aimed at enhancing diversity in the financial services industry, particularly in areas such as private equity, investment banking, and wealth management. Telemaque is an adjunct faculty member teaching courses in economics, global management consulting and African systems of thought. He holds a Bachelor of Arts in economics from the University of Michigan, as well as a Master of Business Administration (MBA) in finance and a doctorate in public policy and economic development from Howard University.
Associate Professor of Practice, Personal and Family Financial Planning, University of Arizona
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What are some common barriers to becoming financially literate?
Financial literacy is difficult to achieve because it requires skills from a diverse set of areas. First you need the basic knowledge. It can be pretty dry to study, even when you are interested. Second, you need some basic math and numeracy skills in order to analyze decisions. Third, you need the ability to be introspective and to study your own emotions to understand how they are affecting your behaviors. Finally, you need the patience and creativity to step back from any given situation and consider possible alternative situations.
How can financial literacy education help people improve their economic situation?
One of the great tricks of finance is that there is often a conflict between affordability and cost. What does that mean? Affordability is the ability of your monthly budget to support the payments you are considering. Cost is how much you pay in total. To our natural instincts, these two should be inseparably correlated – the most costly thing should also be the one with the highest monthly payment. But that is simply not the case. In many instances, the most affordable monthly payment option is the one with the highest overall cost. Being able to identify areas in which you are paying a lot but only getting a little is critical to your ability to get as many of the things that truly make your life better. In other words, efficient financial decisions can save you hundreds of thousands of dollars over a lifetime, and that savings translates into security, stability and overall increased quality of life.
What would you recommend as the first step toward improving financial literacy?
Find a reputable source and take some classes. There are many wonderful financial literacy programs being offered by states, cities, universities and nonprofits at little to no cost. Having a community and a teacher can empower our studies and help us remain motivated and active as we work through these often challenging subjects. Social media accounts offering advice can be an easy way to ease into learning – but be careful. Most social media accounts that offer financial advice are actually quite bad and offer advice and information that ranges from strongly biased to flat-out wrong. If you are unsure, seek out the literacy programs I mentioned before. Their materials will be vetted by those with proper credentials and no conflicts of interest.
Dr. Patrick Payne holds a Ph.D. in personal financial planning from Texas Tech University, an MBA from Utah Valley University and dual B.S. degrees in finance and economics from Utah State University. His academic teaching journey has included positions at Texas Tech University, as a post-doctoral research associate, and at Western Carolina University as an assistant professor of finance. His extensive academic experience is complemented by his licensure as a certified financial planner (CFP).
Associate Professor and Economist at the Haile College of Business, Northern Kentucky University
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What are some common barriers to becoming financially literate?
Our financial options have become more complex. While more options are good, learning to make informed choices requires more knowledge. One common barrier to becoming financially literate is knowing where to go for good financial education.
How can financial literacy education help people improve their economic situation?
Financial education empowers individuals with a comprehensive understanding of the options available to them. This knowledge equips them to make the best decisions for themselves and their families, thereby taking control of their economic situation. Financial education also aids in identifying personal desires and devising strategies to achieve their goals.
What would you recommend as the first step toward improving financial literacy?
The first crucial step towards improving financial literacy is to find a reliable source of information. It’s essential to be vigilant of biased financial education or clickbait social media content. Opting for educational programs provided by academic institutions or nonprofits with a mission to enhance economic well-being is a responsible choice. These programs will connect you with credible resources and information.
Dr. Abdullah Al Bahrani is an economist at the Haile College of Business at Northern Kentucky University. His research examines the role of financial education and its impact on economic well-being. He is a nationally recognized and award-winning educator on a mission to make economics and financial education accessible to everyone.
Assistant Professor of Finance in the College of Business, University of Central Florida
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What are some common barriers to becoming financially literate?
I believe there are two main culprits. First, the financial world is perceived as being complicated and heavily reliant on math. People do not like complicated things or math. Second, becoming financially literate is like any other learning; it takes time and people are busy with day-to-day life.
How can financial literacy education help people improve their economic situation?
The main way is that people will stop making clearly suboptimal choices. Things like not taking advantage of employer retirement matches, not using dependent care or regular flexible spending accounts (FSAs) are easy ways to directly save money that people often are simply unaware of.
What would you recommend as the first step toward improving financial literacy?
A quick way would be to become more aware of the benefits associated with one’s job. Taking advantage of employer-sponsored benefits will immediately inform someone of various financial products, tax code, etc. in a tangible and valuable way.
Dr. Kevin Mullally is an assistant professor of finance in the College of Business at the University of Central Florida. Before that, Mullally served as an assistant professor of finance for three years in the Culverhouse College of Commerce at the University of Alabama. He received his Ph.D. and MS degrees in finance from Georgia State University in Atlanta and earned his B.S. in mathematics education from UCF. Mullally’s research interests are in the areas of institutional investors, financial markets and behavioral finance.
If you have feedback or questions about this article, please email the MarketWatch Guides team ateditors@marketwatchguides.com.
Rebecca HendersonContributor
Rebecca Henderson is a Colorado-based creative writer who specializes in automotive and personal finance. Between exploring the Colorado wilderness and roving over boulders with her RC cars, she dreams of one day becoming a monster truck driver.
Andrew DunnSenior Editor
Andrew Dunn is a veteran journalist with more than a decade of experience in the business and finance arena. Before joining our team, Andrew was a reporter and editor at North Carolina news organizations including The Charlotte Observer and the StarNews in Wilmington. In those roles, his work was cited numerous times by the North Carolina Press Association and the Society of Business Editors and Writers. Andrew completed the business journalism certificate program from the University of North Carolina at Chapel Hill.
