We’re Flunking Out of Financial Literacy 101
I’m Andy Temte and welcome to the Saturday Morning Muse! Start to your weekend with musings that are designed to support your journey of personal and professional continuous improvement. Today is February 8, 2025.
Over the past few weeks, I’ve been talking about what “success” means and the ingredients to achieving success, no matter how success is defined. Of the key ingredients to success, the one that stands out as being the most problematic is financial literacy. I contend that financial literacy is an essential skill to support any success journey, but financial literacy rates—especially in the United States—are shockingly low.
So to be clear, the goal of today’s Muse is to show the interconnectedness between financial literacy and the definition of success.
To begin, I encourage you to visit the Global Financial Literacy Excellence Center (link in show notes) and review their most recent research on financial literacy. The TIAA Institute-GFLEC Personal Finance Index (a.k.a., P-Fin Index) is a measure of financial knowledge and literacy in the United States. The same organization also measures a concept they refer to as retirement fluency. The P-Fin Index measures financial literacy across a set of 28 questions. In 2024, only 48% of respondents got more than 50% of Index questions correct. Only 16% of respondents scored a 76% or greater on the test. Imagine the uproar we’d have if a high school or college class generated outcomes where only 16% of the class received a C or better. That’s essentially what we’re talking about. If we imagine for a moment that 50% is a failing grade, 52% of the class would have flunked.
To cross-check our numbers across the global stage, the Standard & Poor’s Global Financial Literacy Survey shows that Denmark, Norway, and Sweden lead the way with 71% financial literacy rates. Canada and Israel are tied for 4th at 68%. According to this survey, the US doesn’t even rank in the top 10 countries. Unfortunately, the S&P study is over 10 years old and was issued back in 2014. Back then, 57% of adults in the US were deemed to be financially literate, so our cross-check confirms that US adults lag behind their wealthy nation peers and our scores have deteriorated over the last decade.
Going back to the GFLEC P-FIN Index, and taking a look at performance across demographic subgroups:
Men significantly outperformed women in the survey. Only 39% of women scored 50% or better whereas 56% of men had a score of 50% or higher.
Racial differences were also stark with only 28% of black and hispanic respondents scoring 50% or higher.
Looking across generations, only 29% of Gen Z respondents scored 50% or higher compared to Millenials at 43%, Gen X at 52%, and Boomers clocking in at 57% of respondents scoring 50% or higher.
Not surprisingly, the above patterns are also evident in the retirement fluency results.
Now, let’s dig a little deeper on our way toward today’s goal of correlating success with financial literacy. The GFLEC P-Fin Index does a nice job of connecting the dots between financial literacy and financial wellbeing. The big headlines here are that those who are in the bottom 25% of survey respondents (bottom quartile) are:
Debt constrained at twice the rate as those in the top 25% of respondents. Here, debt constraint means that accumulated debt and debt payments prevent a respondent from achieving other financial priorities.
Financially fragile at three and a half times the rate as those in the top 25% of respondents. Financial fragility is measured by the likelihood that a respondent could come up with $2,000 for an unexpected expenditure within a month.
Not able to cover a month of living expenses in an emergency at a rate that’s four times that of the top 25% of respondents.
More than three times more likely to lack the confidence that they’ll have enough saved for retirement as compared to the top 25% of respondents.
So why am I spending so much time Musing about financial literacy? Because it matters. The data show clearly that investments in financial literacy lead to improved financial wellbeing and vice versa. Financial wellbeing, or the lack thereof, is correlated with mental health and the health of our most important relationships. According to a 2023 survey conducted by Forbes Advisor:
54% of respondents indicated that they always or often feel stressed about the debt they’ve accumulated.
60% of respondents who have experienced some level of financial stress indicated that this led to disagreements in their relationships, and 55% said it resulted in a loss of trust with loved ones.
A whopping 72% of respondents reported that when they’re stressed about money, they’re somewhat or very likely to accumulate more debt, creating a vicious, negative cycle.
Finally, a March 2024 study by Bankrate showed that 47% of respondents indicated that money has a negative impact on their mental health. A 2019 survey by the same organization showed that 56% of respondents lose sleep at night over money-related challenges.
So, there you have it.
Improved financial literacy leads to improved financial wellbeing, which leads to improved overall mental wellbeing.
The bottom line is that financial literacy and success are tightly interrelated—not because success is equated with having a big pile of money (which for some people it is)—but because financial literacy is an enabler for living the life you want to lead. A life in which you can live your purpose and pursue a vision for your future that aligns with a one-size-fits-you definition of success.
Grace. Dignity. Compassion.
