Less Than Six in Ten U.S. Adults Considered Financially Literate

Only one-third (33%) of adults worldwide are financially literate, according to the S&P Global FinLit Survey.

This means that around 3.5 billion adults globally, most of them in developing economies, lack an understanding of basic financial concepts. The survey found the countries with the highest financial literacy rates are Australia, Canada, Denmark, Finland, Germany, Israel, the Netherlands, Norway, Sweden, and the United Kingdom, where about 65% or more of adults are financially literate. Fifty-seven percent of U.S. adults are financially literate.

Financial literacy was measured using questions assessing basic knowledge of four fundamental concepts in financial decisionmaking: knowledge of interest rates, interest compounding, inflation, and risk diversification. A person is defined as financially literate when he or she correctly answers at least three out of the four financial concepts described.

Financial literacy rates differ in important ways when it comes to characteristics such as gender, education level, income, and age. Worldwide, 35% of men are financially literate, compared with 30% of women. According to the survey, 62% of men in the U.S. are financially literate, compared to 52% of women. This 10 percentage point gender gap is twice as large as the global gender gap.

Overall, while women are less likely to provide correct answers to the financial literacy questions, they are also more likely to indicate that they “don’t know” the answer. Women have weaker financial skills than men even considering variations in age, country, education, and income.

For the major advanced economies, financial literacy rates increase with age but then later decline with age (i.e., older people or older generations are less financially literate then middle-age ones). On average, 56% of young adults age 35 or younger are financially literate, compared with 63% of those ages 35 to 50. Financial literacy rates are lower for adults older than 50, and rates are lowest among those older than 65.

About 45% of U.S. adults save for old age, according to the survey, and 66% of them are financially literate. About 55% of U.S. adults do not save for old age, and only half of them are financially literate.

Rich adults have better financial skills than the poor. Of adults living in the richest 60% of households in the major emerging economies, 31% are financially literate, compared to 23% of adults who live in the poorest 40% of households.

Financial literacy also sharply increases with educational attainment—which is strongly associated with math skills, as well as age and income. In major advanced economies, 52% of adults with secondary education—between nine and 15 years of schooling—are financially literate. Among adults who have primary education—up to eight years of schooling—that figure is 31%. A similar divide separates adults with secondary education and adults with tertiary education: Among adults with at least 15 years of schooling, 73% are financially literate.

In the U.S., 78% of adults with tertiary education are financially literate, compared to 50% of adults with just a secondary education.

The survey report notes that changes in the pension landscape transfer decisionmaking responsibility to participants who previously relied on their employers or governments for their financial security after retirement. Studies have shown people with strong financial skills do a better job planning and saving for retirement, and financially savvy investors are more likely to diversify risk by spreading funds across several ventures.

To download the complete Standard & Poor’s Ratings Services Global FinLit Survey and related material, visit http://www.FinLit.MHFI.com.