Starting Early: Why Financial Literacy Matters More Than You Think

As a 21-Year-old College student studying Finance at Bentley University, I can tell you firsthand that financial literacy is one of the most important and most overlooked skills that a young person can acquire. Before college, a lot of what I knew about money I had to figure out on my own. It wasn’t until college that I started to realize how little I knew. If this is true for someone like me in a finance program, then imagine how the average young person navigates it.

The reality is that most of us were never fully taught how to manage our money and not having this knowledge can lead to real-life consequences. A study done by the University of Illinois looked at around 3,000 young adults between the ages of 18 and 24 and found that only 22% were financially stable, and a third of them were classified as financially precarious (Sinha et al.). This meant that many had no savings and zero access to traditional banking. (Sinha et al.).

The issue goes beyond not having money; it also stems from a lack of financial knowledge. Understanding the importance of interest rates when taking a loan or understanding the basics of investing at an early age can put you in a stronger position in the years to come. These are fundamental financial concepts that should be commonly known to someone graduating high school.

According to the World Economic Forum, financial literacy in the United States has stayed around 50% for eight straight years (World Economic Forum). This means that half of American adults weren’t able to consistently answer basic questions about interest rates and the risks of investing (World Economic Forum). Another major issue was that of those 50%, a majority believed that they knew the information shared with them (World Economic Forum). This is a concern because you can’t work on something that you do not realize is a weakness.

A Stanford study reinforces this issue. In this study, researchers asked young adults three questions on basic financial topics, and out of all respondents, only 29% answered all three questions correctly, and only 14% of those under the age of thirty-five answered all three questions correctly (Stanford Initiative for Financial Decision Making). This data, drawn from the 2021 national survey, makes a clear point that young adults are the least financially literate group in the country.

Countries like Denmark have noticed this and have done things to try to solve these literacy issues. In Denmark, schools are required to teach financial education to students as young as 13 years of age, teaching them about budgeting, saving, and banking. Similarly, in the UK, they have built financial literacy into their national curriculum (World Economic Forum). Because of this, both countries ranked top 10 in the world for financial literacy.

If I were to go back and talk to my high school self, I would keep it simple. I would tell myself to be aware of my expenses to know what comes in and out of my account, so you are aware of what you spend and what you make. Next, I would tell myself to automate my savings to have a fixed amount go into my savings account weekly or monthly so I could set it and forget it. This takes the discipline out of it, so the habit sticks even in the months I might forget or not want to do it. Lastly, I would tell myself to get educated by taking a course that fills the gaps that high school never covered, such as interest rates and investing. All these tips do not require a finance degree but require starting early before one thinks they’re ready.

"Can You Answer These 3 Questions About Your Finances? The Majority of US Adults Cannot." World Economic Forum, 24 Apr. 2024, www.weforum.org/stories/2024/04/financial-literacy-money-education/.

Sinha, Gaurav, et al. "Many Young Adults Lack Financial Literacy, Economic Stability, Study Finds." University of Illinois News Bureau, 24 Aug. 2018, news.illinois.edu/many-young-adults-lack-financial-literacy-economic-stability-study-finds/. 

Stanford Initiative for Financial Decision-Making. "Financial Literacy Data Hub." Stanford University, ifdm.stanford.edu/dataviz.