Deficient knowledge creates risk
LOS ANGELES, Jan. 4, 2018 /PRNewswire/ — Not knowing how to manage one’s personal finances carries a high cost.
In 2017, the National Financial Educators Council sought to find out how much money people estimated they had lost across the year due to a lack of financial knowledge. In a one-question online survey, U.S. residents were asked, “During the past year (2017), about how much money do you think you lost because you lacked knowledge about personal finances?”
A total of 1,515 participated in the survey, representing six age groups across the country. Among this diverse group, respondents estimated that lacking knowledge about personal finances cost them an average of $1,171 in 2017. This figure was calculated by averaging the total number of respondents selecting each category, using the lowest number in each spread.
For the complete survey results, click here.
Reported financial losses over $2,500 in 2017 were reported by 18% of respondents. 41% of people reported losses above $500 for the year as a result of lacking knowledge about personal finance.
If we extrapolate these results across the 240 million adults residing in the U.S., we can estimate that – collectively – lack of financial knowledge cost Americans more than $280 Billion dollars in 2017.
This survey was the second installment in a broader research effort designed to define the cost and risks associated with lack of money management knowledge. By gathering and analyzing these data, the NFEC gains deeper understanding of how financial illiteracy hurts our country’s citizens individually, and helps clarify its potential impact on the national economy.
Deficient knowledge about money management creates risks that can include bank charges, credit card debt interest, high loan interest rates, and investment losses. And because there may be areas where people lose money, but don’t recall or may not even know they lost money, these results probably underestimate the actual losses people sustain.
Last year, the NFEC conducted a similar financial literacy survey asking respondents to estimate how much lack of financial knowledge had cost them over their lifetimes. The results of that study indicated that U.S. adults estimated experiencing average lifetime losses of approximately $9,725. Reported lifetime losses over $15,000 were reported by 1 out of 3 respondents, and nearly 1 in 4 people reported losses over $30,000 due to a lack of financial knowledge.
“Americans today have to negotiate a very complex financial and economic landscape, and given recent changes to the tax code and new digital currency options, that complexity is only going to increase,” said Vince Shorb, CEO of the NFEC. “Improving people’s ability to make informed financial decisions and increasing access to financial education programs is more important now than ever before.”
The NFEC and collaborators is conducting an ongoing series of research exploring financial attitudes, behaviors, and wellness. Previous studies and results of the national financial literacy test analyzed the associations between attitudes/behaviors and financial capability levels.
The National Financial Educators Council (NFEC) is a financial education resource provider, industry advocate, and thought leader. The NFEC conducts survey research and sponsors think tanks around financial education topics, with an overarching goal of obtaining empirical data that illuminate best practices to share with colleagues in the financial education space.