The Cost of Financial Illiteracy (2024)

April is National Financial Literacy Month in the US and a recent study uncovered the staggering cost of financial illiteracy. The National Financial Educators Council (NFEC) conducted a survey asking American adults to estimate how much money they had lost during the year 2022 because of a lack of financial knowledge. 3,001 people responded to the survey between October 23rd and December 5th, 2022. The average estimated amount of money that lacking knowledge about personal finances cost people was $1,819. Extrapolating the results to represent the 254 million adults who live in the U.S., lack of financial literacy cost Americans a total of more than $436 billion in 2022.

This issue is not unique to the United States. An older study conducted in the United Kingdom for Money Savings Expert by the Centre for Economics and Business Research found that people who do not save enough for retirement cost the UK government £6.2bn in income subsidies and that financial education could reduce this by £1.8bn a year.

As the NFEC report notes, the simple result is that financial illiteracy costs money.

Although it’s difficult to quantify the exact cost of global financial illiteracy, the economic and social impacts are profound:

  1. Lower savings and investments since financially illiterate individuals often lack knowledge to make informed decisions about savings and investing, which can have an impact on economic growth at the national level, and limited access to financial services.
  2. Higher debt and bankruptcy rates for people with limited financial knowledge who are more likely to make poor borrowing decisions. Again, higher bankruptcy rates and loan defaults can not only affect individuals but have negative effects on the financial system.
  3. A wider wealth gap, since financial illiteracy often disproportionately affects lower-income and marginalized populations. This in turn perpetuates poverty and exacerbates income inequality.

Keith Hall, the Assistant Governor (Banking and Payments) of the Reserve Bank of Australia, summarized it well in an addressat the Conference on Deepening Financial Capacity in the Pacific Region: “The costs of financial illiteracy – of ‘being bad with money’ – are equally apparent. Those who go through life making poor financial decisions will inevitably end up with a far lower standard of living than was otherwise achievable.”

What’s also clear from the surveys above is that the cost of financial illiteracy affects not just the financial illiterate individuals, but society as a whole.

Financial education programs and initiatives aimed at improving financial literacy can help address this problem. As we noted in our 2021 article, Promoting Financial Literacy: Professional Accountancy Organizations Take On the Challenge, the accountancy profession can advocate for and facilitate financial education to help improve financial literacy as part of its public interest responsibility. Various professional accountancy organizations across the world have developed programs to improve financial literacy. Governments and businesses are also developing innovative programs.

This month, we call on our PAOs and their members to take on the challenge. Let us know if you are aware of a program to help address financial illiteracy in your jurisdiction or region. Together, we can all work to provide access to important financial education programs and make all individuals financially literate.

The Cost of Financial Illiteracy (2024)


The Cost of Financial Illiteracy? ›

Lack of financial literacy cost 15% of adults at least $10,000 in 2022. Here's how the rest fared. The share of people who said not being financially literate cost them more than $10,000 is up from 11% in 2021, according to a new report. Most respondents say it cost them under $500, if at all.

How does financial illiteracy cost us? ›

Americans estimated their own financial illiteracy cost them $1,506 per person in 2023, according to a new survey conducted by the National Financial Educators Council.

What are the consequences of financial illiteracy? ›

Being financially illiterate can lead to many pitfalls, such as being more likely to accumulate unsustainable debt burdens, either through poor spending decisions or a lack of long-term preparation. This, in turn, can lead to poor credit, bankruptcy, housing foreclosure, and other negative consequences.

What happens when people aren't financially literate? ›

The effects of a lack of financial literacy can include: Not enough emergency savings, which could cause financial hardship in the event of a job loss, a big medical bill or a pricey car repair. A credit card balance you can't pay off each month, which incorporates interest charges.

How much does a lack of financial literacy cost 15%? ›

A report from the National Financial Educators Council shows that 38% of people surveyed said their lack of financial literacy cost them at least $500 in 2022, including 15% who said it set them back by $10,000 or more.

Why is financial illiteracy a problem? ›

Lower savings and investments since financially illiterate individuals often lack knowledge to make informed decisions about savings and investing, which can have an impact on economic growth at the national level, and limited access to financial services.

Why is financial literacy a problem in America? ›

This lack of personal finance education in high school has understandably lead to stress over managing finances for all Americans. In fact, 3 in 4 U.S. adults (74%) said they “often” (32%) or “sometimes” (42%) felt stress because of money.

How much does a lack of financial knowledge cost Americans annually? ›

In the two previous years' surveys – 2021 and 2022 – Americans said they lost $1,389 and $1,819, respectively, due to lack of personal finance knowledge.

How many people are affected by financial illiteracy? ›

According to a 2021 FAIRWIND Credit Union survey, only 6% of US adults can correctly answer 7 out of 10 questions regarding basic financial concepts. Only 54% of American adults pay their credit card bills in full each month, a crucial aspect of financial literacy.

How many people in the US are financially illiterate? ›

Highlights: Financial Literacy In America Statistics

19% of American adults reported spending more than their income in 2020. Approximately 63% of Americans could not pass a basic financial literacy quiz. About 25% of Americans have nothing saved for emergency expenses.

What does lack of finances cause? ›

Anxiety. Money can be a safety net; without it, you may feel vulnerable and anxious. And all the worrying about unpaid bills or loss of income can trigger anxiety symptoms such as a pounding heartbeat, sweating, shaking, or even panic attacks.

What is a famous quote about financial literacy? ›

“Financial freedom is available to those who learn about it and work for it.” — Robert Kiyosaki. With Good Good Piggy, children can develop financial literacy and take active steps towards achieving long-term financial freedom.

Is financial illiteracy the cause of poverty? ›

Financial literacy is not just about understanding numbers; it is a tool for empowerment and social justice. Without proper financial knowledge, individuals and communities are left vulnerable to cycles of poverty, debt, and limited economic mobility.

What is the 50 30 20 rule for financial literacy? ›

Do not subtract other amounts that may be withheld or automatically deducted, like health insurance or retirement contributions. Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.

What percentage of the world is financially illiterate? ›

Worldwide, only 1-in-3 adults are financially literate. Not only is financial illiteracy widespread, but there are big variations among countries and groups. For example, women, the poor, and lower educated respondents are more likely to suffer from gaps in financial knowledge.

How much does a lack of financial knowledge cost Americans? ›

Lack of Financial Knowledge Costs Americans Money - Over $1,500 on Average in 2023, New Survey Shows.

How much does a lack of financial knowledge cost America annually? ›

Financial Illiteracy Cost Americans $1,506 in 2023. Lacking financial literacy and not knowing how to manage one's personal finances carried a high cost in 2023. The NFEC conducted a survey asking American adults to estimate how much money they had lost during the year due to lack of financial knowledge.

What percentage of the US population is financially illiterate? ›

Financial literacy research summary.

Only 57% of American adults are financially literate. 73% of teens want a more personal finance education. Americans lose an average of $1,819 annually due to financial illiteracy. 77% of Americans are financially anxious.

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