Authors
Claude Lopez, PhD
New report finds gaps in financial literacy along racial, socioeconomic, and gender lines stand to exacerbate longstanding inequalities.
WASHINGTON, DC, August 17, 2021 — Despite a decades-long push towards financial literacy, many individuals across the US lack the basic knowledge and skills necessary to make sound financial decisions, finds a new Milken Institute report. In “Financial Literacy in the United States,” the authors conducted a landscape analysis that revealed little progress over the past decade and persistent gaps along racial, socioeconomic, and gender lines.
“The federal government spends $300 million annually to promote financial and economic literacy, which we know is critical to overall financial inclusion. Measurements of these efforts currently exist only at the macro level and have shown financial literacy to remain stable at best,” said Claude Lopez, PhD, head of the Research department at the Milken Institute. “With a lack of nuanced accountability metrics, it will be nearly impossible to design and track successful financial literacy efforts in the future.”
The report paints a worrisome picture of the current state of US financial literacy:
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Most people do not make sound financial decisions. Evidence suggests that individuals across age groups lack the skills and training required to successfully navigate today’s complex financial world. This knowledge gap is most troubling for young people, who stand to face greater financial challenges when compared to former generations.
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Inequalities exist when comparing financial literacy between racial, socioeconomic, and gender groups. Financial literacy generally increases with age, education, and income. Men typically perform higher than women on surveys measuring financial knowledge. These inequalities are higher in the US than in other similarly developed countries.
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Little progress has been made in improving financial literacy. Despite the wide range of financial literacy programs established in recent years, macro-level evaluations of financial literacy levels show that they have been stubbornly resistant to progress over time. Additional metrics must be agreed upon to track the community-level impact of financial literacy efforts moving forward.
In addition to the comprehensive analysis that examined dozens of studies, surveys, and indicators, the report recommends:
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A common and updated definition of financial literacy. Financial literacy involves not only skills and knowledge but also behaviors and attitudes, such as long-term planning, confidence in retirement plans, and reasons for saving, borrowing, and investing. A lack of agreement on what financial literacy means will hinder the nation’s ability to measure and improve it.
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Implement accountability metrics that can effectively measure financial literacy progress. With a current lack of systematic evaluations of financial literacy strategies in the US, there are few insights about how to make improvements across populations. More robust metrics will identify best practices and highlight the financial education resources that will be most effective.
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Gamification of financial literacy offers a path forward. New financial technologies can help tailor efforts to improve financial literacy among target audiences, especially vulnerable and younger populations. However, programs must be designed for differing age groups, including populations that are less familiar with technology.
“New technologies offer great opportunities to advance financial literacy, but they must be paired with education to prevent fraud, data-privacy issues, and other costly mistakes associated with these technologies,” added Oscar Contreras, PhD, economist in the Research Department at the Milken Institute.
“Financial Literacy in the United States” is co-authored by Oscar Contreras and Joseph Bendix. The full report can be downloaded here.
About the Milken Institute
The Milken Institute is a nonprofit, nonpartisan think tank that helps people build meaningful lives in which they can experience health and well-being, pursue effective education and gainful employment, and access the resources required to create ever-expanding opportunities for themselves and their broader communities. For more information, visit milkeninstitute.org/
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