Financial literacy describes a person’s ability to understand the basic concepts of economic principles, including personal financial management, budgeting, saving, and investing money.[1]For consumers, having a firm grasp of these principles can mean the difference between making smart decisions that lead to more buying power, lower interest rates, and achieving financial goals, or making decisions that could negatively impact their ability to improve their financial standing.
Many consumers make most of their financial transactions online; 7 out of every 10 US adults are enrolled in digital banking, and 95% bank online often or occasionally.However, only 31% of these consumers have a comfortable level of financial literacy.[2]Unfortunately, the convenience of banking online without the knowledge to do so safely can put consumers at risk of online threats like identity theft and fraud.
Consumers need and want help from their financial institutions to build and maintain financial literacy. Increasing consumers’ knowledge of basic financial principles may help them make better decisions, improve their financial standing, and remain loyal, confident customers to your business.
Only 1 out of every 7 consumers feel financially literate
A recent survey from Goldman Sachs reported that only 13% of respondents correctly answered five questions designed to assess their basic financial literacy.[3]With only 1 out of every 7 people having a strong sense of important financial concepts, this illustrates the severity of the gap in financial knowledge among U.S. consumers.
But this lack of understanding does not necessarily discourage them from using digital tools to manage their finances. Nearly a third of Americans still feel comfortable banking online, despite lacking financial literacy.[2]
Consumers who use online tools to manage their personal finances without the appropriate understanding of how to use them effectively, may run the risk of making poor decisions that can negatively impact their financial well-being and confidence.
A lack of knowledge about digital privacy in consumers may also put them at risk of digital threats such as identity theft and fraud. Having access to the necessary tools to monitor their accounts and activity can empower them to take quick corrective action if a fraud event occurs.
Lacking financial literacy is causing Americans to save less and lose more
Consumers can experience significant monetary losses when they don’t have a basic comprehension of financial concepts regarding budgeting, saving, investing, and managing personal financial accounts. A survey of Americans reported losing an average of $1,506 each in 2023 because of a lack of personal finance knowledge, resulting in an estimated total of $388 billion across the country.[4]A recent study also showed that nearly half of U.S. consumers only have $500 in savings,[5]which is far less than the recommended six months’ worth of expenses.
While many consumers may feel that they can’t afford to spend the time or effort to become more financially literate, the reality is that most of them can’t afford not to. Consumers need financial help, and they’re seeking it from the financial institutions they do business with.
Consumers want support from their financial institutions
The uncertainty regarding personal finances can create stress among consumers, but it can also present an opportunity for financial institutions to provide guidance and resources to the people who need it.
25% of Americans say they don’t have anyone they can ask for trusted financial guidance.[7]By delivering valuable support to consumers on how to save, budget, invest, and manage their finances, businesses can serve as a much-needed resource to help them make better decisions and improve their financial standing.
Partnering with Experian®to offer these useful products and services can help businesses empower their consumers to improve their financial standing in a variety of ways. For example, financial guidance can include credit education programs and resources designed to help consumers increase their credit scores and strengthen their credit standings. More than 65% of consumers enrolled in the Experian®credit education program saw an improvement on their credit scores.[8]
In addition, businesses can also help protect their consumers from threats of theft and fraud with Experian® identity protection services. These solutions are expertly designed to monitor for potential online risks, identify incidents of theft, and help quickly resolve fraud events if they occur. This added layer of protection can further fortify consumers’ financial power and optimize their ability to make strong financial decisions.
When businesses offer these services from Experian®to help consumers increase their financial literacy, those consumers may be in a better position to borrow more money and open new accounts. This can help brands foster stronger relationships with their consumers, encourage them to continue doing long-term business, and drive additional revenue. By helping improve consumers’ financial literacy, businesses can increase the financial power of their customer base and improve their bottom line.
Click here to learn more about how to implement a financial wellness programto help your consumers improve their financial literacy and increase their financial power.
[1]Masterclass, Financial Literacy Definition, Importance and Key Principles, 2023.
[4]National Financial Educators Council, Financial Illiteracy Cost Americans $1,506 in 2023.
[5]Yahoo Finance, Nearly Half Have Less Than $500 in Savings: How To Build Up Your Balance in 2024.
[6]Bankrate, Average credit card debt in the U.S., 2023.
[7]Annuity.org, 47+ Fascinating Financial Literacy Statistics in 2023.
[8]Experian Internal Data, 2023 credit lift study for users tracked from Dec 2020 – Dec 2022.
