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Dollars and Sense: Improving Financial Literacy and Results

Author

Alison Salka, Ph.D.
Principal Research Consultant
LIMRA and LOMA
asalka@limra.com

April 2025

April marks Financial Literacy Month, a time dedicated to enhancing our understanding of personal finance and empowering people to make informed financial decisions. In volatile economic times with a complex financial landscape, the importance of financial literacy is hard to overstate. Exploring how financial education can bridge the knowledge gap and pave the way for a more financially secure future is an important endeavor for the industry. This is especially true for the next generation of investors, who have years of financial decisions ahead of them.

Financial literacy equips young people with the knowledge and skills to make informed financial decisions, build healthy money habits, and achieve long-term financial security. By understanding budgeting, saving and debt management early on, they can avoid common financial pitfalls and reduce stress associated with financial issues. Additionally, financial literacy allows them to plan for major life milestones and safeguard themselves against financial exploitation. Ultimately, it fosters independence, confidence and a strong foundation for future success.

The Current State of Financial Literacy

A few years ago, in honor of financial literacy month, LIMRA asked consumers a series of 10 questions to gauge their understanding of financial topics. More than 1 in 3 consumers performed poorly on the quiz, and the average consumer answered only 4 questions correctly. Just 1 in 8 consumers have a high level of financial literacy.

When looking at literacy, it’s important to distinguish between self-reported literacy and objective (test-based) literacy. LIMRA data suggests that some groups of people tend to be overconfident in their knowledge while others are underconfident (Table 1). Interestingly, LIMRA data suggests that younger generations are more likely to overestimate their level of knowledge, and older people are more likely to underestimate it. For example, 30 percent of Millennials in a LIMRA survey called themselves “very knowledgeable” about investments and financial products. Despite this, fewer than 1 in 10 Millennials who took a short 10-question test with basic financial concepts answered seven or more questions correctly.

Figure 1. Comparison Between Financial Literacy Self-Reported and Test-Based Data

Source: LIMRA’s Q1 2020 Consumer Sentiment Survey, Q2 2023 Consumer Sentiment Survey, high literacy score = 7 or more questions correct on 10-question test.

Knowledge matters, though. “Compared to those with a very high level of financial literacy, those with a very low level are twice as likely to be debt-constrained; three and one-half times more likely to be financially fragile; four times more likely to lack one month of emergency savings; three times more likely to be not at all confident in their retirement income prospects,” according to the TIAA Institute.

The Role of Financial Services Industry

The financial services industry can play an important role in improving financial literacy. Banks, insurers and advisory firms can offer interactive resources, such as budgeting apps, financial planning workshops, and educational content, to empower consumers with practical knowledge.

One promising program is Financial Literacy for All (FL4A), an initiative led by Operation HOPE. This program aims to embed financial literacy into American culture over a 10-year period by making financial education fun and engaging. It does this through interactive workshops on financial principles. It also includes targeted outreach to middle and high school students, as well as community college and university students. The program involves leaders from business, sports, entertainment and nonprofit sectors, combining their expertise to improve outcomes.

An example from another country is Visa’s "Practical Money Skills" program in Japan. This initiative, developed in partnership with local financial institutions and educators, provides interactive financial education tailored to Japanese consumers. It includes classroom curricula, mobile games like "Financial Football", and budgeting tools designed to make learning about money engaging and practical. The programs help people develop essential financial skills like budgeting, saving and responsible credit use.

Recognizing Financial Literacy Month

This month offers a great opportunity to promote financial education and improve money management skills. There are many ways to do this.

  • Set a financial goal. Use the month to create a budget, start saving or begin investing.
  • Read a book or take an online course.
  • Start or increase contributions to an emergency fund or retirement plan.
  • Try a “no spend challenge.” Reduce unnecessary expenses for a week or a month to boost savings.
  • Find, support or create a program to increase financial literacy in your community.

Ultimately, a more financially literate population benefits both individuals and the broader economy, leading to greater financial stability and security.

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