Does lacking knowledge affect a person’s bottom line?
/PRNewswire/ — Lack of financial knowledge and education can have a powerful impact on individuals’ personal finances. Recently, however, the National Financial Educators Council (NFEC) sought to discover whether lacking knowledge affected a person’s bottom line. In a survey of U.S. adults located around the country, the NFEC asked a single question: “During the past year (2020), about how much money do you think you lost because you lacked knowledge about personal finances?”
Among the 1,548 respondents divided into six different age groups, the average amount of money they estimated lost in 2020 due to lack of money management knowledge was $1,634 per adult. The complete survey results conducted between December 30, 2020 and January 3, 2021 are available here.
By extrapolating these results to be representative of the approximate total of U.S. adults (254 million), we can estimate that financial illiteracy cost the country’s citizens more than $415 billion in 2020.
Year To Year Increases
The 2020 data ($1,634 per adult) is a sharp increase from 2018 ($1,230) and 2019 ($1,279) surveys. The total cost for the adult population in 2019 (240 million) was $309 billion. The 2020 data accounted for a population increase of 14 million more adults. If the 2019 population data were used today, it would show an increased cost of adult Americans $85 billion more than last year.
Even more concerning was the finding that 21.6% of survey respondents said they had lost more than $2,500 in 2020 because of lacking personal finance knowledge; and 40.4% reported losing more than $500 due to this knowledge gap. This figure was calculated by averaging the total number of respondents selecting each category, using the lowest number in each range.
“Given the complexity of today’s financial landscape, with all the changes to the tax code and the rise of digital currencies, it’s become critical to make sure people gain the financial knowledge they need,” comments Vince Shorb, CEO of the NFEC. “These survey results demonstrate that financial education is more important now than ever before. Improving financial knowledge can empower individuals and the Country.”
Efforts To Illuminate
This is the fifth year the NFEC has been conducting this survey, as part of its widespread research efforts to illuminate the risks and costs caused by lack of financial knowledge. By collecting and analyzing these data, the NFEC clarifies the individual damage caused by the financial illiteracy epidemic and its potential to affect the larger national economy.
Previous studies offer more in-depth comparison points. For example, in a 2016 NFEC survey, US adults indicated that they had lost an average of $9,725 across their lifetimes due to lack of financial knowledge; one in three respondents reported lifetime losses over $15,000. Nearly 25% of participants said they had lost more than $30,000 across their lives because of this knowledge lack, which underscores just how important teaching financial literacy can be.
Deficits in personal finance capability increase people’s risk of incurring bank fees, facing high interest rates on loans and credit cards, and losing money in investments. It should be noted that the survey results may represent an underestimate of actual losses, since people may lack financial knowledge but remain unaware of their lost opportunities.
The National Financial Educators Council (NFEC) produces financial education curriculum and resources and conducts advocacy to spread the financial literacy message. The organization’s research efforts are designed to explore the financial behaviors, attitudes, and health of citizens in the United States and around the world. Earlier findings have found strong associations between individuals’ financial behaviors and attitudes and their money management capability.