The true scope of the state of American financial literacy extends into some of the most prestigious institutions in the country according to the results of a recent study titled “Are You Smarter than a 12th Grader?” The study, which surveyed over 300 Ivy League students, found that most respondents weren’t financially smarter than a high schooler—and struggled with basic concepts like budgeting, debt management, and how to properly save for retirement.
About the research
- 341 undergraduate students from Harvard, Stanford, and the University of Pennsylvania were assessed using an online quiz aligned with JumpStart.org and Council for Economic Education (CEE) high school financial literacy standards
- Prior to taking the quiz, 52% of the students believed that they had “a solid understanding of core personal finance concepts”
- This dropped to 30% after they responded to the 14-question quiz
On average, study participants scored 48% on the financial literacy quiz—a failing grade. In fact, only 12% of respondents achieved a passing grade (C-) on the quiz.
These findings underscore the opportunity for today’s financial advisors. As advisors dig deeper into the ranks of the mass affluent to onboard current clients, they’re increasingly faced with prospective ones who struggle with foundational financial concepts. These obstacles persist for advisors focused on serving future wealth builders, particularly those building relationships with Gen Z and Alpha.
But as the best advisors know, big challenges also present big opportunities. Leading advisors are leveraging technology and teaching tools to provide turnkey financial lessons to clients and their families.1 In doing so, they’re also creating and strengthening bonds with the next generation of clients, all while building multigenerational wealth. This transformation—from obstacle to opportunity—is creating deep alliances between clients, their children and financial advisors.
The Direction of a Generation
Americans who possess a lack of financial literacy, also face hindered upward mobility, undercut saving and investing goals, and limited their ability to seize opportunities for homeownership, higher education, and entrepreneurship. At Goalsetter, we gauged the financial literacy of undergraduate students from Harvard, Stanford, and the University of Pennsylvania using an online quiz aligned with JumpStart.org and Council for Economic Education (CEE) high school financial literacy standards.
Goalsetter Article Brief on Smarter than 12th Grader Study
- Quiz Takers Failed at Financial Literacy with a 48%
- 12% Achieved a Passing Grade (C-)
- 2 in 5 respondents knew the 50/30/20 rule of budgeting
The engagement included an examination of various financial concepts, with participants spanning different academic levels.
To highlight just how much work lies ahead, we tested concepts including the 50/30/20 budgeting rule,2 how to save and invest, the benefits of compound interest and the Rule of
Goalsetter Article Brief on Smarter than 12th Grader Study
72,3 the risks and consequences of debt, how income and taxes are intertwined and impact overall net worth, and how credit scores impact financial decisions.
Among all quiz takers, just 48% understood the power of compound interest and 2 in 5 respondents (43%) knew the 50/30/20 rule of budgeting. Over half (57%) want to retire early.
However, the consequences of financial illiteracy become clearer when considering the spending ability of this survey participants. Seven in 10 participants have a credit card and 92% have a debit card. The need for an effective and robust financial education model is abundantly clear.
Education Is Key
By educating and enlightening clients, advisors can build a financially literate client base, which encourages sound financial decision-making and fosters economic stability at a broader level. By reaching and helping younger generations, advisors are providing young savers and investors with a leg up, helping them manage their resources effectively and anticipating a society better equipped to weather economic challenges, contribute to sustainable growth, and fortify the economic future.
It’s not just a good decision for the future. Even today, clients are in the midst of a massive transfer of wealth—with more than $84.4 trillion in wealth4 is expected to transfer from one generation to the next through 2045.
Are you financially smarter than a 12th grader? Are you curious how your financial literacy—and that of your clients’ and their children—stacks up to our survey participants? Take our quiz. Send it to your clients!
At Goalsetter, we believe that financial education is financial empowerment. We developed our family finance program and financial app to empower advisors with the tools they need to help their clients and their families feel more empowered when building and retaining their wealth. If you’re interested in partnering with us and strengthening your connections with the next generation of savers and investors, contact us today.
1 https://www.cerulli.com/corner-office-views-us-q2-2023
2 The 50/30/20 rule is a simplified budgeting approach that suggests dividing your after-tax income into three main categories: Needs (50%), Wants (30%), Savings and Debt Repayment (20%).
3 The Rule of 72 is a formula used to estimate how long it will take for an investment to double in value, given a fixed annual rate of return.
4 https://www.envestnet.com/wealth-management/solution-reaching-younger-generations
