A Foreign Prescription for Financial Literacy
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Financial literacy continues to be a topic of concern, exacerbated by the great recession of 2008 and, more recently, the COVID-19 pandemic and inflationary crisis. In response, there have been growing efforts to improve financial literacy in the U.S., including many governmental and private sector campaigns. But progress remains slow. It’s time to examine the menu of potential solutions offered by other countries with higher rates of financial literacy than the U.S.
What Is financial literacy?
There is no generally accepted definition of the term “financial literacy,” but the World Bank broadly defines it as “the level of aptitude in understanding personal finance.” The U.S. Financial Literacy and Education Commission defines it as “the skills, knowledge and tools that equip people to make individual financial decisions and actions to attain their goals.”
Financial literacy in the U.S.
The Milken Institute issued a 2021 study in which it reported that “many U.S. adults [still] lack the basic knowledge and skills required to engage in sound financial decision-making.” To get a measurable level of financial literacy, however, requires more specificity. That study referred to the 2014 S&P Global Financial Literacy survey for specific parameters. In the S&P study, financial literacy was assessed by measuring knowledge of at least three out of four basic financial concepts: risk diversification, numeracy, inflation, and compound interest. The S&P study found that 57% of U.S. adults were financially literate, though it also noted that financial literacy varied significantly across demographic groups.