Confidently Incorrect: The Decline of Financial Literacy
Sherman Hanna, a professor of consumer sciences at The Ohio State University, headed up a study that tracked the progress of financial knowledge of Americans over nearly a decade. Using data gathered through the National Financial Capability study, which survey’s respondents every three years, Hanna and colleagues analyzed four rounds of financial knowledge scores, controlling for variables like age, ethnicity, and education.1
They found that from 2009–2018 people's measurable financial knowledge declined steadily. While at the same time their personal rating of their own financial knowledge increased. According to a release about the study, the percentage of people who believed they were above average in financial literacy, but actually scored below average on the test, increased from 15% up to 21% during that period.
The obvious takeaway from this is to be very careful about acting on financial advice from friends and relatives, especially when they're adamant that they know what they’re talking about. A close second would be to cultivate humility about your own level of knowledge. Be open to the idea that you still have lots to learn.
Let’s talk about your options. And make it a point to educate yourself. The better educated you are, the less likely you are to make costly decisions.
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