A recent survey conducted by the FINRA Investor Education Foundation has revealed that a significant number of American consumers lack basic financial knowledge.
More than 25,000 consumers were quizzed on their financial know-how, with less than a third answering at least five of the seven questions correctly.
The Survey’s Key Findings
- Less than 27-29% of respondents correctly answered at least five questions in Pennsylvania, New Jersey, and Delaware.
- A notable improvement was found in the area of inflation knowledge, with nearly 60% of respondents answering the question correctly.
- Compound interest questions, however, continued to stump a significant portion of the respondents.
The Improvement in Inflation Knowledge
Nearly 60% of respondents correctly answered the following question:
Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, how much would you be able to buy with the money in this account?
According to Gary Mottola, the FINRA Foundation’s research director, this improvement in understanding of inflation likely reflects the lived experiences of many over the past few years.
“People have had to live with inflation and read about it, and for young adults, this is probably the first time in their lives that they’ve encountered it,” he said. “People now seem to have a more intuitive understanding of inflation.”
The Challenge with Compound Interest
Conversely, compound interest questions proved to be a stumbling block for many.
Suppose you owe $1,000 on a loan and the interest rate you are charged is 20% per year, compounded annually. If you didn’t pay anything off, at this interest rate, how many years would it take for the amount you owe to double?
“Generally speaking, financial knowledge in the United States is on the low side, but there are some pockets of the country that are doing a little bit better,” Mottola said.
“There’s a big opportunity here to make financial education a priority and give people the knowledge, skills and tools they need to make sound financial decisions throughout life.”
Pushing for Better Education
A recent American Bankers Association Foundation survey revealed that 87% of respondents believe financial literacy should be taught in high school.
Many of those consumers (72%) believe they’d be better off financially had they learned the basics of personal finance at an earlier age.
As a result, Pennsylvania has joined at least 25 other states that have enacted high school personal finance requirements.
Starting in the 2026-27 school year, Pennsylvania high schools must provide a financial literacy course that students will have to take to graduate.
Similar requirements vary by district in New Jersey and Delaware, according to Next Gen, a nonprofit that advocates for personal finance education.
Studies show that requiring financial education improves credit scores, lowers loan delinquency rates, and reduces the likelihood of falling behind on credit card payments.
Financial Literacy in the Spotlight
Definition: Financial literacy is the ability to understand and apply basic financial concepts, such as saving, investing, and budgeting.
Highlights: The FINRA Investor Education Foundation’s survey highlights the need for improved financial education in the United States.
Key Takeaways:
- A significant number of Americans lack basic financial knowledge.
- Financial literacy should be taught in high school.
- Requiring financial education improves credit scores, lowers loan delinquency rates, and reduces the likelihood of falling behind on credit card payments.
By prioritizing financial education, individuals can make informed decisions about their financial futures and avoid common pitfalls, such as debt and financial instability.
It is essential for individuals, educators, and policymakers to work together to ensure that financial literacy is a priority in American education.
Expert Insights
Gary Mottola, the FINRA Foundation’s research director, shares his thoughts on the importance of financial education:
“Financial knowledge in the United States is on the low side, but there are some pockets of the country that are doing a little bit better.
news is a contributor at CreditOfficer. We are committed to providing well-researched, accurate, and valuable content to our readers.
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