Closing the financial literacy gap

There is a persistent financial literacy epidemic in the United States that threatens the financial futures of millions. The good news is that financial advisers can play their part as an antidote. 

D.A. Davidson recently conducted a survey that asked 1,000 U.S. adults about their personal financial knowledge. One startling finding was that when respondents were asked to grade themselves on their financial literacy skills using a scale from A to F, the majority of individuals (36%) graded themselves a C. This was particularly common among women, with 42% giving themselves this grade. Self-bias typically causes respondents to rate themselves higher than is actually the case, so this self-reported “average” rating is quite sobering.

Another startling finding was that nearly two-thirds (61%) of non-white respondents said a higher level of financial literacy would have helped them manage their finances better during the pandemic, compared to 44% of white respondents who said the same. Similarly, 63% of respondents living in urban locations say they would have benefitted from a higher level of financial literacy during the pandemic, compared to only 38% of respondents residing in rural locations. It’s clear that confidence in, and knowledge of, financial matters is lacking, but why?

Perhaps the most obvious explanation is that a financial curriculum is generally not taught in schools. Budget cuts have elbowed out “noncore” subjects. According to our survey, 88% of respondents say financial literacy should be a required class in grades K-12. Yet in most instances, it isn’t. Further, when asked at what age children should start to learn about financial literacy, nearly all respondents (96%) believe it should be before the age of 18.

Tragically, under the auspices of focusing school curricula on “core subjects,” we are knowingly sending children out into the world without the vital life skill of financial literacy. Most young adults now have smartphones and routinely use applications such as Venmo and Zelle to transfer funds and make purchases, yet many do not even know how to make a budget. This is a recipe for long-term financial disaster.


Fortunately, financial advisers are uniquely qualified to become a part of the solution to this crisis by helping to bridge the financial literacy gap. As stewards of other people’s wealth, we are entrusted with the fiduciary responsibility to put clients’ interests above our own.

As an extension of this, every adviser can do their part to educate, teach and mentor financial skills to others, whether formally or informally. What could be more altruistic than taking what we do every day for paying clients to share with others who need the knowledge, but may not have the means or inclination to seek out financial advice?

Four years ago, D.A. Davidson piloted a firm-developed curriculum called “Moneywise” to take basic financial education to some of Southern California’s most under-resourced communities. Partnering with the YMCA of Metropolitan Los Angeles, the firm brought this program to teenagers participating in the Y’s “Teen Summer Initiative.”

The month-long, one-hour-per-week program introduced basic financial concepts from bank accounts and budgeting, to paychecks and your first job, to saving and investing, and finally how to pay for college. While four hours was hardly enough time to do a “deep dive” into any of these topics, the curriculum was designed to plant seeds of possibility and thinking into these impressionable young people.

Since many participants weren’t getting this content in school or at home, our objective was to begin the conversation with them and allow the Y counselors to continue it over time. Each summer after the program, we surveyed the participants to learn which topics proved most helpful to them, the most common response being that the content was timely and relevant and that they were not being exposed to these topics in school or at home.

The feedback was extremely positive, and we even had parents of the teens request that we consider offering a financial literacy program for them as well. We knew that we had struck an important and timely nerve. 

[More: Making an impact with financial literacy]

That said, financial advisers certainly don’t have to develop a four-week program in partnership with another organization to make a dent in this chronic problem.

On the contrary, advisers can begin by simply looking for opportunities within their extended family, friend group or their local community to identify individuals who would benefit from a better understanding of basic financial knowledge. Offering to mentor a young person or teach a class at a local recreation department or church or synagogue can make a meaningful difference for the recipients.

The ripple effect of starting with one mentoring relationship could be dramatic, as that may lead to another friend, and then another.

Of course, the long-term solution needs to involve schools and the broader recognition of the importance of basic financial life skills for all graduates, but until that longer-term system changes, there is vital and valuable work to be done. Failure to address the problem today only creates a bigger financial problem later, as individuals retire without sufficient savings, with too much debt, or both. Advisers can help address this financial literacy gap now, one deserving individual at a time.

Andrew E. Crowell is vice chairman of wealth management at D.A. Davidson.

The post Closing the financial literacy gap appeared first on InvestmentNews.

Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.

Andrew Vincent
Andrew is half-human, half-gamer. He's also a science fiction author writing for BleeBot.
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