Financial literacy may be a hot term right now, but that doesn’t mean that people are rushing to improve their knowledge of all things related to money. On many fronts, Americans are becoming less and less financially literate as the years go by, and their lack of financial knowledge is costing them big money. According to Marketwatch, the lack of financial literacy among U.S. investors has cost them upwards of $200 billion over the last twenty years.
According to a recent report, people in all kinds of financial situations — from the paycheck-to-paycheck, payday loan consumer to the wealthy investor — are indeed what experts consider financially illiterate. (For more, see: Why High Earners Still Live Paycheck-to-Paycheck.)
In fact, FINRA’s newest Financial Capability Study showed that two-thirds of survey takers failed a basic financial literacy test. Even worse, the number of people who can pass the test (by answering four out of the five questions asked on the test correctly) has been in decline since 2009.
The report includes more statistics that can give financial experts a clearer picture of where their clients stand from a financial literacy standpoint:
As of 2015, 21% of U.S. citizens have overdue medical bills.
Eighteen percent of citizens spent more than they made in 2015.
Fifty percent of those surveyed have no emergency savings.
Thirty-two percent paid only the minimum payment due on their credit cards in 2015.The Student Loan Problem
College debt is another looming financial problem for many Americans. Current 2016 student loan debt statistics reveal that Americans owe nearly $1.3 trillion in student loans. In fact, the average college graduate in 2016 finished with a whopping $37,172 in student loan debt, up 6% from the previous year.
With an average monthly student loan payment of $351 (for borrowers aged 20 to 30) and an 11.6% student loan default rate, it’s clear that today’s students are ill-prepared for financial realities, ones that financial literacy that could have helped them avoid, or at the very least paid off quickly. (For related reading, see: Money Habits of the Millennials.)Paycheck-to-Paycheck Living
Paycheck-to-paycheck living is reportedly still a big problem for many American families as well. reports that over 56% of Americans have less than $1,000 in their checking and savings accounts combined.
Their lack of available cash in checking and savings accounts leaves them ill-prepared to cover any kind of unexpected expense such as a car repair, home repair or medical bill.
Americans’ lack of financial literacy means that professional advisors would do well by explaining investing and financial management basics as part of their to-do’s while servicing clients to the best of their ability. Having a well-informed, financially literate client base not only helps your clients; it also increases the chances that the client will be happy with your services and will keep investing with you over the long haul.
This doesn’t mean you have to take full responsibility for the financial literacy of your clients. Instead, offering resources that will help your clients to take charge of their money and improve their knowledge of personal finance basics will likely assist them in reducing their debt load and increasing the amount of money they have for saving and investing.
Every step you can take to help provide your clients with new and helpful information regarding financial literacy will help the average citizen begin building better financial health. From office brochures, to regular blog articles, to occasional financial education classes and beyond, it’s a smart business move to begin including financial literacy education as a part of your expert financial services packages.