illiterate is perpetually growing. 28 This number continues to grow as our economy becomes more
complex and as more people enter adulthood unprepared to manage their financial well-being. 29
A. What is financial illiteracy?
Financial illiteracy is considered the lack of ability to understand, anticipate, and
adequately plan for one’s financial well-being. 30 The Government Accountability Office defines
financial literacy as the aptitude to “make informed judgments and to take effective actions
regarding the current and future use and management of money.” 31 A financially literate skill set
“includes the ability to understand financial choices, plan for the future, spend wisely, and
manage the challenges that come with life events such as a job loss, retirement, or saving for a
child’s college education.” 32 Someone not equipped with these basic skills is considered
financially illiterate. Importantly, “[a] lack of financial literacy affects consumers’ economic
well-being and security in a variety of ways. Poor money management and financial decision
making can lower a family’s standard of living and interfere with crucial long-term goals, such as
buying a home and financing retirement.” 33 For low-income families struggling to support their
basic needs, financial literacy can mean the difference between paying the bills and facing
disconnected utilities, starvation, and even homelessness.
Other measured financial knowledge components include everyday math skills, and an
understanding of monetary concepts such as interest and inflation. 34 The inability to demonstrate
an understanding of these basic concepts is one factor considered in earning one a designation of
financially illiterate. 35 A base level understanding of math such as adding and subtracting money,
or calculating income earned versus expenses paid, helps in making financial calculations. 36
Making such calculations may seem like a simple task, yet a number of Americans spend more
than their income every year, 37 suggesting that they are not properly calculating what they can
afford to pay based on the income they earn. While it is true that many of these families may by
necessity spend more than they earn because they do not make enough to cover their base-level
survival needs, financial illiteracy may also contribute to this problem. 38 Monetary concepts are
also important to one’s financial skills tool belt because pursuing financial success in modern
society often involves the acquisition of various financial products39 such as mortgages,
Id. at 18. Less than ten percent of respondents were able to answer all the questions covering fundamental financial concepts correctly.
28 Thomas L. Harnisch, Boosting Financial Literacy in America: A Role For State Colleges and Universities, PERSPECTIVES, Fall
2010, at 1,
Financial_Literacy( 3).pdf (discussing the growing concern regarding financial illiteracy in America).
29 FINRA INVESTOR EDUC. FOUND., supra note 12, at 2; Financial Literacy Hearing, supra note 23 (suggesting that learning financial
concepts should begin in childhood).
30 U.S. GOV’T ACCOUNTABILITY OFFICE, HIGHLIGHTS OF A GAO FORUM: THE FEDERAL GOVERNMENT’S ROLE IN IMPROVING
FINANCIAL LITERACY 1 (Nov. 2004), http://www.gao.gov/new.items/d0593sp.pdf.
34 FINRA INVESTOR EDUC. FOUND., supra note 12, at 18. Measuring financial knowledge components includes asking fundamental
economics and finance questions related to topics such as interest, inflation, risk, and mortgage questions. Id.
35 See id. (testing concepts designed to determine one’s financial literacy).
36 FINRA INVESTOR EDUC. FOUND., supra note 12, at 17; see also Jacob Vigdor, Solving America’s Math Problem, 13
EDUCATIONNEXT, Winter 2013, available at http://educationnext.org/solving-america%E2%80%99s-math-problem/ (examining how
far American children lag behind their global counterparts in mathematical capability throughout their education).
37 See PRESIDENT’S ADVISORY COUNCIL ON FIN. CAPABILITY, supra note 4, at 3 (twelve percent of Americans reported that their
spending exceeded their income in 2011).
38 See Only 41% of Americans Spend Less Than Their Income, CREDIT.COM BLOG (Jun. 9, 2013), http://blog.credit.com/2013/06/only-
41-of-americans-spend-less-than-their-income/ (examining the impact of poor financial decision-making on overspending).
39 See U.S. GOV’T ACCOUNTABILITY OFFICE, supra note 30, at 8-9 (discussing the range of financial topics that should be emphasized
in financial education, and thereby implying that such topics are important to one’s financial success); see also FINRA INVESTOR
EDUC. FOUND., supra note 12, at 4, 17 (listing some of the aspects of the current financial landscape).