Learn about your own level of financial literacy by taking a quiz – then read more about the implications of financial literacy to our society.
How did you learn to make financial decisions?
In the United States, adults are faced with a bewildering number of decisions to make related to their money. Decisions that must be made include whether you can afford the rent on the income you have; where to open a bank account; what type of account to open; whether to buy or lease a car; and more. We each make financial decisions almost every day.
And yet the problem is – how and when did we learn how to make those financial decisions? Many of us learned through trial and error.
I still remember one of my first financial missteps with not a small amount of shame.
My first semester in college when I made a purchase using a check that I knew I didn’t have the money to cover in my bank account. I didn’t own a credit card, I thought I needed the item, and I knew I didn’t have the cash. Luckily I had a job that helped me pay it back the following month, but it was more difficult to pay back than I had anticipated in part due to the high penalty fees.
All that to say, we don’t do a very good job educating on financial literacy. And it has consequences for us individually and as a society.
Recent Study Evaluates Financial Capability
The FINRA Investor Education Foundation (link opens in new tab) published a study in July 2022 called the “2021 National Financial Capability Study”. The study is conducted every three years “to get a pulse on the behaviors and motivations that are guiding financial decision making” among Americans. This study surveyed 27,118 people across all 50 states throughout 2021.
Higher Financial Literacy = Better Financial Outcomes
Part of the study examined financial literacy. Higher financial literacy is tied to better financial outcomes, underscoring the importance of financial education. The study found that respondents with higher financial literacy (scoring above the median on a seven-question financial literacy quiz) were:
- More likely to make ends meet
- More likely to spend less than their income (53% of those with higher financial literacy vs. 35% of those with lower financial literacy)
- More likely to set aside three months’ worth of emergency funds at higher levels (65% vs. 42%)
- More likely to have taken steps to plan for their long-term financial future such as opening a retirement account (70% vs. 43%)
These types of financial decisions can have a huge impact on the financial outcomes of an individual and their family. If a person has an emergency fund, they are more likely to be able to weather financial surprises that come their way, and therefore less likely to rely on credit cards or other debt instruments to cover their financial emergencies. You can see how greater financial literacy can contribute to greater financial stability.
With social security projected to cover just 1/3 of a retiree’s income needs according to ssa.gov, it’s critical that today’s workers are saving for retirement through other sources beyond just social security. If our retirees are living in poverty because they didn’t save for retirement, that will result in a greater need for social services. And if greater financial literacy leads to a greater likelihood of opening a retirement account, it’s in our best interest as a whole society to promote financial literacy.
Take the Financial Literacy Quiz
Here’s a quiz you can take to evaluate your own financial literacy. And it’s ok if you don’t get all them, or even some of them, correct! We all need to start somewhere. When you get your results, you can see how you compare to others who’ve taken the quiz. There’s also the opportunity to get a little more educated by reading an explanation of each answer so you can improve your own financial literacy right there.
Take the quiz yourself (link opens in new tab) to evaluate your personal financial literacy, and maybe learn something in the process.