Financial Literacy in Missouri Needs Improvement
Do you know what compound interest is and how it works? What about interest payments on a 15 and 30-year mortgage? If you’re unsure of your answers, you are not alone.
The recently released National Financial Capability Study (NFCS) indicates that the average individual in the United States is not very financially literate. Based on responses to a six-question quiz on basic financial concepts (take it here), the average adult scored a whopping 3.16 correct answers. Some good news is that adults in Missouri are slightly less financially illiterate: We answered an average of 3.25 questions correct.
The financial literacy quiz is designed to see how well adults understand basic financial relationships, such as the role that interest rates play in making savings decisions, how interest rates and inflation are related, and how mortgage payments work. As pointed out in the Council for Economic Education’s 2016 “Survey of the States, not knowing how your money grows when put into savings increases the chances that you will not save enough for the future. And if you do not know the relationship between interest rates and inflation, you are more likely to make poor investment decisions that could cost you dearly in the long run.
Studies find that financial literacy education outside the home improves scoring on the quiz. In Missouri, unlike many other states, K-12 students are exposed to personal finance education, especially in high school coursework. While the most recent results indicate a lot of ground to make up in financial literacy, at least Missouri is headed down the correct path.
If you are curious how Missouri’s score compare to others, the table below reports the survey results for the nation, Missouri, and its neighboring states. Though most of the scores are pretty close (and low), Missouri did better than the national average and five of its neighbors.
Results of 2015 Financial Literacy Quiz
Average Responses (out of six)
Source: National Financial Capability Study.