How Do You Rate Your Financial Know-How?

Consumer credit cards are posed in North Andover, Mass., on March 5, 2012. (Elise Amendola/AP Photo)

Dear Readers: If I asked you to rate your financial know-how on a scale of 1-7 (with 7 being the highest), where would you place yourself?

If you’re like the Americans who participated in the 2018 FINRA National Financial Capability Study (NFCS), you’d probably give yourself a pretty high score. In that study, 76 percent of respondents placed themselves in the 5-7 range. But self-perception is one thing; reality is another. Because the same study found that only 34 percent could correctly answer at least four of five basic financial literacy questions on topics such as mortgages, interest rates, inflation, and risk.

Curious about your own answers? Why not take the Financial Literacy Quiz now? It not only gives you an immediate score but also shows you how you compare to others in your state. But whether the quiz confirms your knowledge or serves as a personal wake-up call, the generally low results of the NFCS definitely demonstrate the need to improve financial literacy in our country.

Financial Literacy: It’s More Than Just Math

I think the Financial Literacy Quiz is a good starting point because it deals with everyday money situations. Whether you’re putting money in a savings account, carrying a balance on a credit card, or considering taking out a student loan, you need to understand how compound interest works—either for you or against you.

When you’re budgeting for the future, you need to be aware of how inflation can lower your buying power. If you’re choosing between a 15- or 30-year mortgage, it’s important to consider not only your monthly payment but also the interest you’ll pay over the life of the loan. Investing for the future? You have to understand the relationship between risk and return, and how to choose investments accordingly.

It isn’t just learning how the numbers work. Real financial literacy means understanding the concepts that are fundamental to good decision-making. It can help people stay out of debt, plan and save for the future, and make wiser investing choices. And it doesn’t stop with doing well on a quiz.

Financial literacy is a skill that involves taking positive actions, and that continues to evolve along with our lives.

It’s Not Just for Kids

We often focus on kids when talking about financial literacy, and recent financial literacy scores from the Programme for International Student Assessment (PISA) demonstrate why: American students’ scores remain just average compared with those of their peers worldwide, and we performed worse than Estonia, Finland, Canada, Poland, and Australia. Average isn’t good enough in a globalized economy and increasingly complex financial landscape. We need to do better.

As you may know, I’m a strong advocate for teaching young people financial concepts at an early age. And I’m encouraged that the number of states that require high school students to take a course in personal finance is growing (currently 21). But while kids definitely need to be taught personal finance early on, the need for basic financial literacy extends to everyone regardless of their age or life stage.

Every day, as technology changes and the types of financial products expand, people of all ages and walks of life are met with new and different financial situations. From shopping for a car or home to saving for retirement to planning for health care, individuals now face more complex financial decisions, and need to be sufficiently financially literate to take the necessary steps to protect themselves and their loved ones.

Let’s face it; there’s a lot at stake. Whether you’re signing up for employee benefits, managing student loans, or deciding when to take Social Security, you want to know what you’re doing.

A Little Financial Education Goes a Long Way

The good news is there’s tangible proof that financial education works.

• According to the 2018 NFCS, nearly half of Americans (49 percent) who have received more than 10 hours of financial education report spending less than they earn, compared with 36 percent of people who received less than 10 hours of financial education.
• Research from the 2020 Council of Economic Education Survey of the States shows that students who receive financial education borrow more sensibly, from student and personal loans to credit cards.
• Results from the PISA assessment show that young people and adults in both developed and emerging economies who have been exposed to high-quality financial education are more likely than others to plan ahead, save and engage in other responsible financial behaviors.

And in my personal experience with the Boys & Girls Clubs, kids who take the Money Matters course not only make better money decisions; they have more confidence and greater hope for the future.

Let’s Improve All Our Scores

Whatever your own scores on the Financial Literacy Quiz, whether you’re a parent, a teacher, an employer, or a concerned member of your community, there are things you can do to help promote financial education for everyone.

For instance, the Global Financial Literacy Center offers FastLane, with practical ideas and action plans for groups and individuals. On CheckYourSchool.org, you can find out if the schools in your area offer financial education and how you can start or reinforce local financial literacy programs. DonorsChoose offers Lesson Plans & Activities for Educators, created by teachers in the field for teachers.

There’s a growing global awareness that financial literacy is an essential life skill that means not only greater prosperity but better choices, increased confidence, and the ability to more successfully handle real-life financial challenges. Ultimately, it means a better, more just world. I hope you’ll join me in taking action to support financial education—for yourself and for all of us.

Carrie Schwab-Pomerantz, a certified financial planner, is president of the Charles Schwab Foundation and author of “The Charles Schwab Guide to Finances After Fifty.”