Financial literacy may be one of the least-addressed but fastest-growing crises in America today and, in fact, the global community has recognized for over a decade that lack of financial literacy among young people is an economic as well as a political concern. Following the global financial crisis of the 2000s, shifting demographics, decreasing welfare systems, and growing accessibility to online financial systems all mandated a need for individuals to have the knowledge required to take control of their financial decisions. This includes not only daily choices but lifetime financial planning.
Financial literacy not only translates to personal and household success, but it is the best defense against further global economic breakdown.
[Read: New Financial Literacy Legislation Aimed to ‘Empower Students’]
Recently WalletHub.com, a financial advice site, commissioned a study of financial literacy that included all 50 states and the District of Columbia. It focused on two main categories: general education/knowledge and daily habits. They took data, which included demographic information like high school dropout rates and the percentage of people with bachelor's degrees, and translated it into two lists of the 10 best and worst states for financial literacy. Additionally, a list compiled by Judy Diamond Associates translated those rankings into real numbers by presenting the 10 states with the highest increase in average 401(k) balances.
Here's a review of the results for all three studies:
10 Worst States for Financial Literacy
The following 10 states received the lowest scores in both financial literacy categories as well as overall. In general, the states on this list are statistically more likely to have residents with outstanding revolving credit card debt, upon which they make minimum payments, they are more likely to seek out high-interest payday loans, and they generally spend more money than they earn.
10). Michigan9). Arizona
8). Kentucky
7). Alabama
6). Rhode Island
5). New Mexico
4). Louisiana
3). Nevada
2). Arkansas
1). Mississippi
Knowing these statistics is important for both college administrators in these states as well as those dealing with students from these states. In addition, students from these places should take measures to buffer themselves against the environment around them. Though there will always be people who have a "knack" for financial planning, it is the lack of knowledge that is especially concerning.
10 Best States for Financial Literacy
In contrast to the 10 worst states for financial literacy, the top 10 states are places where residents are more likely to follow smart financial practices, such as retirement planning and budgeting. These people are more likely to have an active rainy day fund and spend less money than they earn.
10). Massachusetts9). Idaho
8). Maryland
7). North Dakota
6). South Dakota
5). Minnesota
4). New Jersey
3). Virginia
2). Utah
1). New Hampshire
Despite the relative good news for people and institutions in these top 10 states, remember that location is not really an accurate predictor of financial success. Indeed, colleges and students from these states are wise to remember that a staggering 60% of Americans overall lack a rainy day fund and even fewer have sufficient funds in it to cover the recommended six months of expenses.
In addition, about one in five or 20% of the overall population spends more money than they earn regardless of where they are or what they do for a living.
10 States with the Highest 401(k) Balance Increases
For several years, 401(k) contributions have grown across the board. This means people understand the importance of saving for retirement. However, a closer analysis reveals that certain states command a higher share of this proverbial pie and are growing at a faster rate:
10). Missouri—12.68%
9). Kansas—12.69%
8). Arizona—12.91%
7). Rhode Island—13.3%
6). Alaska—13.45%
5). Idaho—13.74%
4). Oklahoma—14.74%
3). Wyoming—16.9%
2). Maryland—14.5%
1). Montana—16.72%
Like any type of educational crisis, the best way to combat problems with financial literacy is through proactive measures. A lack of financial literacy among college students, and especially upper classmen, is a dangerous trend in America today and something all college administrators should take into account if they want to see their graduates actually succeed. Fortunately, colleges and other higher education professionals understand the need for improved financial literacy and have developed financial literacy courses.
Remember, lack of financial literacy does more than harm people's bottom lines. It makes them susceptible to predatory loan practices and increases their chances of filing for bankruptcy in their lifetime. Teaching young adults about finance, including budgeting practices, long- and short-term financial planning, and the importance of the 401(k), goes a long way in producing a new generation that out-saves their parents and makes smart financial decisions that have a global impact.