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This is for the advisors that are considering bolstering their educational offerings and prospects that are on the fence about becoming clients. Financial education and literacy are increasingly valuable, but broadly speaking, these aren’t courses taught in most schools.
The lack of availability of financial literacy courses is a conversation for another time, but it represents an opportunity for advisors because there are likely some topics on which current clients would like to bolster their knowledge bases. Likewise, a robust financial education offering can be a value add and a compelling factor for prospects looking to hire advisors.
Advisors have good reasons to play parts in improving financial literacy and clients and prospects have good reasons to demand access to such offerings. Those reasons are aligned because as noted by the National Financial Educators Council’s (NFEC) Cost of Financial Illiteracy Survey, the cost of poor financial literacy is high.
Putting Financial Illiteracy in Dollar Terms
The NFEC survey asked 1,200 people the following question: “During the past year (2024), about how much money do you think you lost because you lacked knowledge about personal finances?” The respondents estimated that amount to be $1,015.42.
There is some good news in that nearly half the respondents said they believed lack of financial knowledge cost them “just” $499 last year and another 18% said their amount was $500 to $999. Still, this represents massive opportunity for advisors. Consider the following.
“If we generalize the results to represent all of the approximately 240 million adults who live in the U.S., lack of financial literacy cost Americans a total of more than $243 billion in 2024,” according to the NFEC.
That’s a significant sum of money. Putting $243 billion into context, that figure is slightly larger than Wells Fargo’s (NYSE: WFC) market capitalization as of Jan. 9. Further context is warranted, particularly for advisors and clients. Let’s round the aforementioned $1,015.42 down to $1,000. Imagine losing $1,000 annually due to financial illiteracy over the course of 10, 15 or 20 years. That’s an adverse impact on emergency savings, saving for a house and retirement, among other important financial goals. Said another way, there’s considerable value in financial literacy because financial illiteracy is too costly to endure.
Clear Need for More Financial Literacy
The survey didn’t get into detail regarding what issues constitute financial illiteracy, but it’s reasonable to surmise those points include clients/prospects not truly understanding the gravity of credit card interest rates, bank fees, APRs on cars and the like.
“The need for more financial education in the U.S. is underscored by the current rates of credit card debt (over $1 trillion), lack of emergency savings funds, and shortfalls in retirement savings,” concludes the NFEC. “It’s important to note that the losses reported in this survey may be underestimated, as people with low levels of financial literacy may not know how much money it actually costs them. For example, lack of financial knowledge can lead to high interest rates, bank overdraft fees, identity theft, and vehicle impoundment – which may not be included in the estimates.”
Bottom line: advisors can and should play pivotal roles in improving financial literacy. That scenario is a win-win because a more educated client is a more engaged client.