The Most & Least Financially Literate States in America

by John S Kiernan

Wallet Hub Most and Least Financially Literate StatesThe issue of widespread financial illiteracy - not just in this country, but around the world - has rightfully garnered significant attention in the aftermath of the Great Recession. The housing market collapse and ensuing financial crisis served as a stark reminder of our societal obsession with debt as well as the dangers of fingertip financial access in the hands of consumers who are marked by a hope-for-the-best, figure-it-out-later attitude and an obvious lack of financial aptitude. But how much did we really learn, and what are we doing to help future generations avoid repeating our mistakes?

Not enough, it would seem. We’ve collectively racked up more than $73 billion in new credit card debt since the beginning of 2012, and it’s little surprise given that only two in five adults actually have a budget. There’s really no shortage of statistics that one can quote to illustrate our money management shortcomings – from the 19% of Americans who spend more than they make to the 60% of folks who don’t have a rainy day fund.

Where are the problems most and least pronounced, and which areas of the country are taking the necessary measures to foster a financially prosperous future? That’s what WalletHub sought to discover by analyzing financial education programs and consumer habits in each of the 50 states as well as the District of Columbia, using 12 key metrics ranging from Champlain University’s High School Financial Literacy Grades to the percentage of residents with a rainy day fund. More information about our methodology as well a complete breakdown of our findings and expert commentary can be found below.

Main Findings

 

Overall Rank

State Name

Knowledge & Education Sub-Rank

Planning & Daily Habits Sub-Rank

1 New Hampshire 1 1
2 Utah 3 8
3 Virginia 3 19
4 New Jersey 7 9
5 Minnesota 6 10
6 South Dakota 5 11
7 North Dakota 14 3
8 Maryland 11 4
9 Idaho 2 30
10 Massachusetts 24 2
11 Pennsylvania 19 6
12 Illinois 16 12
13 Wisconsin 13 16
14 Nebraska 18 13
T-15 Colorado 9 21
T-15 Iowa 20 13
17 Maine 34 5
18 New York 22 18
19 Montana 23 20
20 Vermont 12 27
21 Washington 29 16
22 California 42 7
23 Florida 31 15
24 South Carolina 26 28
25 Indiana 27 29
26 Oregon 28 25
27 Kansas 8 47
28 Hawaii 39 22
29 West Virginia 36 23
30 District of Columbia 30 33
31 Wyoming 35 26
32 Missouri 10 44
33 Tennessee 15 42
34 Ohio 33 31
35 Connecticut 37 32
36 Georgia 17 43
37 North Carolina 32 36
38 Delaware 47 24
39 Texas 21 45
40 Oklahoma 25 46
41 Alaska 45 34
42 Michigan 46 35
43 Arizona 38 41
44 Kentucky 44 38
45 Alabama 43 39
46 Rhode Island 48 40
47 New Mexico 49 37
48 Louisiana 40 49
49 Nevada 41 50
50 Arkansas 50 48
51 Mississippi 51 51

 

Wallet Hub Financial Literacy Report

Ask the Experts



What should the federal government do to improve financial literacy?

We need to conceptualize financial literacy as an elemental part of economic literacy. Economic literacy means that students and citizens understand the large macro as well as the micro forces that affect their lives.

So at the macro level they need to understand the fiscal policies and the monetary policies that are taking place and figure out how that affects their lives. At the micro level they need to understand personal finance to figure out about savings and specimen consumption, managing risk and so forth.

Those two elements, the macro and the micro, are essential for active and engaged citizenship. I think that's the point of schooling in this country. Without having that, I think we are failing our children in not preparing them to be active and engaged citizens as democratic citizens in a democratic society.

- Anand Reddy Marri, Teachers College, Columbia University



The federal government should develop campaigns for the social media and conventional print and electronic media to make citizens aware of both the importance of financial literacy and practical problems that can be addressed by financial literacy.  It ought to provide readily understandable material for a variety of audiences (ages, education, language) that can be obtained in addressing practical subjects that have financial challenges.

It needs to revise common instructional materials and forms that have financial implications for a lay audience.  For example, tax forms are not written well, nor are the instructional materials ‘assisting’ in using them.  It also needs to emphasize the important incentives and rewards from financial understanding such as the conditions of payday loans, interest rates and what they mean in debt accumulation, what to expect in retirement payments from social security and what needs to be accumulated from other sources to cover living needs.

Assistance in designing curriculum and teacher training to incorporate financial literacy in courses in mathematics, social studies, language arts, and other subjects would also be helpful.

- Henry M. Levin, Teachers College, Columbia University



I believe that basic economics and personal finance should be required fields of study for all students before graduating from high school, besides driving and computer literacy. There should also be support to help universities/community colleges provide this kind of service to adults. In my opinion, that is as important as regulation to protect consumers.

- Laura Gonzalez Alana, Fordham University



At a minimum there should be automatic enrollment in a broad based financial planning course as a general education fulfillment. I think it should be a required course; however, automatic enrollment with an opt-out option would be a step in the right direction. CFP® Board Registered Programs have faculty willing and able to support the above mentioned directive. Universities without a Board Registered Program may have CFP® faculty that could help with the above mentioned directive. If not, hiring a new faculty member to assist in this area would make sense.

- Shaun Pfeiffer, Edinboro University



While the federal government has a vested interest in improving financial literacy, education has long been viewed as the responsibility of the states, with federal support.

- Jennifer Collet, Missouri Council on Economic Education



Yes we need to educate our citizens, but I see the government as a protector. The federal and state governments need to provide protections from predatory lending and that includes credit cards with APRs that have been normalized, but are exorbitant. Student loan debt needs to be refinanced also because many people are saddled with high fixed rates. Payday loans and other short term instruments need to be made illegal in the states where they are now flourishing.

Of course, parents should be encouraged to pass on what they have learned about money to their children and be as transparent as possible about family money issues. In education, curriculum needs to be developed and studied at all levels so that core outcomes in public education include financial literacy. However, it will take many years to see the fruits of those endeavors. In the meantime, we know that our population in not financially literate, as every study over the last several years has clearly shown. Isn't it a function of a beneficial government to protect its citizens?

- Donna L. Little, Menlo College



I can't see the federal government doing much in this area. This strikes me as a problem more pertinent to states, localities, and families.

- Donald H. Dutkowsky, Syracuse University



One option would be to make it easier for qualified plan sponsors to use plan funding for a wider range of financial education rather than just retirement planning. Other financial skills like budgeting and debt management can have a significant impact on the ability of employees to save more for retirement. The federal government can also tie state education funding to implementation of financial literacy programs in schools.

- Erik Carter, Financial Finesse, Inc.



Well, I think the federal government is doing as little better. They are coming up with mandates for schools, and they’re starting at a very early age. In fact, they’re starting with grade school and middle school kids and even as young as kindergarten.

I’m involved with Money Smart Week and I have been for several years. It’s a wonderful, wonderful organization through the Federal Reserve Bank, and they really have increased knowledge and literacy by promoting that week in April. It started in Chicago, but now they’ve gone national with it. Different organizations like Money Management International and Illinois Youth Saves have provided outreach not only during that week, but also through the rest of the year. They’re going through the schools and through the libraries and things like that. So, the mandate from the government is to start at a very early age and work your way up, and perhaps whatever the kids are bringing home, their parents will emulate and start budgeting and saving a lot better as well.

- Russ Goeltenbodt, Financial Literacy Experts



I’m not sure that the federal government, given its own colossal level of financial incompetency, is capable or to be trusted in this area. In fact, many federal programs and regulations actually subsidize poor financial choices by individuals and penalize what we have traditionally regarded as prudent financial management.

- James D. Philpot, Missouri State University



What should states do to improve financial literacy?

This is a life skill. These high schools, these schools are failing to understand this is a life skill. The sooner you can know about finances, investing and so forth the better off you will be, but with all this emphasis on standardized testing, they just don’t have time for it.  Financial literacy should definitely be included in public school curricula.

-  Keith W Weigelt, The Wharton School of the University of Pennsylvania



In public education we need to do a better job of introducing some of these topics earlier in the curriculum and integrating them more thoroughly with work that we’re already doing. These are topics that, for example, lend themselves very well to integration with the math curriculum.

We worked hard on this issue [during my tenure as Secretary of Education in Massachusetts].  State Treasurer Stephen Grossman did a lot of work on this topic, and we were very supportive of him in that regard. We don’t do a lot of course requirements for Massachusetts; that’s too top-down. We would rather express goals about what children should know and be able to do in our new standards. We do have goals and we insisted upon their being some goals that pertain to financial literacy. But, at the same time, we were trying to encourage schools to embrace a more aggressive approach to including financial literacy in the curriculum.

We were able to support some funds being made available in the budget so that individual schools and school systems could have some money to support effective practice.  We also encouraged our state Department of Education to do some work on teacher professional development in order to help teachers figure out ways of integrating these subjects more effectively into the curriculum.

We made some headway. Did we do enough? Probably not. More needs to be done. But I don't think breaking it out as a separate course and adding a course now is the way to go. Educators in education systems are already overloaded with top-down state requirements. Within our existing framework of goals and courses, this financial literacy material is ripe for the picking as motivating, engaging curriculum units. Students actually like to engage with these topics because they’re real. It’s where they live and it involves money and involves resources and opportunities and avoiding pitfalls and making the most of opportunities. And that tends to be motivating, engaging work for students.

- Paul Reville, Harvard University Graduate School of Education


Financial concepts should be taught from kindergarten to 12th grade. And I think the way to do it, as we've learned in successful teaching of concepts, such as in math or science, it's not the facts. You shouldn't really worry about kids knowing the rule of 72. Who cares? You can look that up. Or the same way in history, you don't need to know about the war of 1812, but rather what are the concepts and the conflicts that are involved. And to do it in an inquiry-based way where kids are drawn to it and they get into these dilemmas where they're engaging with competing and multiple viewpoints.

For example, we've created curricula at the Teachers College Columbia where we keep creating case studies about financial literacy on eight concepts, such as savings, consumption and investments. There are dilemmas about: should a kid go to a community college, a state university or a private school, and what are the choices involved in that? When someone hits it rich, what should they do? If you're a NFL football player, and you're about to sign this contract, what are the choices that you're going to be faced with?

It's all about problem solving and having them analyze the choices that are involved.

- Anand Reddy Marri, Teachers College, Columbia University


States should do many of the same things that the federal government is recommended to do.  But, in addition, the states are responsible for their educational systems.  They should create both stand-alone units at different grade levels on the subject with applications to practical problems as well as incorporation of issues, examples, and financial problem-solving into other curriculum units.  In addition, they should require better teacher preparation at all levels on financial literacy and how it can be incorporated into specific courses, projects, and the curriculum.

- Henry M. Levin, Teachers College, Columbia University


I believe states with the most acute financial illiteracy rates should be especially proactive in terms of supporting federal effort and complementing it through commercials on radio and local television.

- Laura Gonzalez Alana, Fordham University


Follow the lead of the federal government Initiative outlined above. Incentives for participation could also be considered.

- Shaun Pfeiffer, Edinboro University


It is widely believed that lack of financial literacy in our society was a major factor in the recent financial crisis. Financial literacy in today’s world is almost as important as learning to read and write, and one could argue that a student’s credit history is far more important to his or her future than grade point average. Yet most students leave high school ill-prepared to manage their money.

Gaining financial literacy is a long-term educational process that, for most people, requires the assistance of institutions outside the home. The logical deployment vehicle for training are the schools since the target audience is, for the most part, captive. States can improve financial literacy by mandating a rigorous K-12 personal finance curricula and providing support to districts and teachers to implement the programs.

That is where organizations like Missouri Council on Economic Education fill the void by providing material, training and programming. Missouri adopted its personal finance competencies in 2005 and was one of the first states to do so.

- Jennifer Collet, Missouri Council on Economic Education



Research shows that most financial literacy education is not successful. Neither children nor adults change their behavior when educated on financial topics. Part of the problem is enormous exposure to media giving less than optimal advice, but the biggest hurdle seems to be that people don't internalize financial advice until they need it. If you teach good financial planning tools too soon, your audience will not absorb the message.

Therefore, the best way for government entities to disseminate financial education is to target each audience very carefully and in small doses. Children should be taught about money and how to save, high school students should be given information on bank accounts and good financial behaviors, and college students should also be exposed to information on consumer credit and credit reports. Adults should be offered education on taxes, benefits, retirement planning, investment planning, and estate planning as well as reinforcing earlier topics.

- Kristine Beck, California State University, Northridge


Promote and even possibly mandate courses in personal finance within the high schools. As of 2011, only 14 states required that a personal finance course be offered in high schools and only 13 states required that it be taken as a graduation requirement (Survey of the States 2011, Council for Economic Education). Promote and sponsor workshops or seminars for young people out of school on areas like different types of bank accounts (especially in poverty areas), home buying, car buying or leasing, credit cards and getting out of credit card debt, budgeting, saving, and basic investing. Promote the development and implementation of college courses in personal finance within their public colleges and universities.

- Donald H. Dutkowsky, Syracuse University


States have a more direct opportunity to improve financial literacy than the federal government. Many states have launched financial literacy initiatives like Financial Football, a football themed game that teaches people about money management. States can also do more to promote financial literacy programs in schools and perhaps even mandate it as part of the curriculum.

- Erik Carter, Financial Finesse, Inc.


I don’t think the states need to do anything separately. If financial literacy is mandated through the Department of Education, it’s mandated already. States can support what the federal government is asking them to do, but normally if it comes down through the federal government – just like No Child Left Behind – every school has to adhere to that.

If there’s nothing in place, then I think the various schools should start something on their own and they should be a little more proactive about it.

- Russ Goeltenbodt, Financial Literacy Experts


States would do well to incorporate financial literacy into the K-12 school curriculum. Several states have a personal finance requirement in high schools. Sometimes this is a stand-alone course for 0.5 to 1 credit; sometimes it is satisfied with a module within a math, social studies, or family science course.

- James D. Philpot, Missouri State University



What should parents do to improve financial literacy?

We need to focus a lot more on getting teachers to understand economic literacy because it's exponential. One teacher in New York City has 150 high school kids a day.

Most teachers are afraid of economic topics, period. Less than 20% of teachers have taken more than one economics course in their undergraduate days. Most people have used Econ 101 and 102, and we know that those are reading tools to get people out of those topics because they become very math-centered and so forth.

If we concentrate on helping teachers understand some of the concepts behind there and how it affects their own lives – I think that's the best way to do it. That way it transfers over their kids as well, and they’re able to connect with their parents. If you connect with their parents, I think it's the best way to do it.

- Anand Reddy Marri, Teachers College, Columbia University


Parents should talk about the importance of financial literacy.  They should help students with practical problems they will face all of their lives such as budgeting, saving, the magic of compound interest, credit cards and their dangers, etc...Helping kids start bank accounts or investments is important for them to see some of this in action.  Indeed, actions speak louder than words and actions combined with words work best.

- Henry M. Levin, Teachers College, Columbia University


Parents should start the financial education of small children, teaching them to budget, the difference between needs and wants, the importance of savings, etc.

Children should also learn that an A in school means more money in their future lives than not making efforts beyond B or even C. And instead of receiving an allowance, I believe children should earn it, through helping out in the house, working as teenagers, and getting good grades all along. And money earned should not translate into cash in hand, but into a savings/checking balance, towards which they could be allowed to spend specific limited amounts, for justified reasons on specific occasions (end of semester or summer vacation, for example).

At least that is the way I am bringing up my children!

- Laura Gonzalez Alana, Fordham University


Encourage their kids to seek financial literacy education either through the high school and/or university the student attends. Self-education is also another option that will be beneficial to some students.

- Shaun Pfeiffer, Edinboro University


The responsibility to train students also falls on parents. Above all, parents should model responsible financial behavior and discuss budgeting and saving openly and honestly in the home. Children should be given the opportunity to manage their own finances in age-appropriate ways early on so that they can develop skills in a low-risk, supported environment.

- Jennifer Collet, Missouri Council on Economic Education


Yes we need to educate our citizens, but I see the government as a protector. The federal and state governments need to provide protections from predatory lending and that includes credit cards with APRs that have been normalized, but are exorbitant. Student loan debt needs to be refinanced also because many people are saddled with high fixed rates. Payday loans and other short term instruments need to be made illegal in the states where they are now flourishing.

- Donna L. Little, Menlo College


Have regular conversations with their children about the topic, at the dinner table or whenever. Share with them their past and current experiences (including mistakes) involving aspects of their own personal finance. Subject to appropriate limits, share with them their budgeting, bill-paying, bank accounts, writing checks, investing, obtaining and using insurance, making pension contributions, and meeting monthly payments for cars and mortgages. Explain to their children the benefits of sound personal finance, especially when specific contextual occasions arise.

- Donald H. Dutkowsky, Syracuse University


The single most important thing parents can do to improve financial literacy is to be good role models to their children. Children tend to pick up more of what their parents do than what they say. That being said, it also helps to teach children basic money management skills in terms of how they manage their allowance and any money their earn working and even how they can invest some of their savings for the future. For example, involving older children in the management of their college savings accounts can be an excellent learning experience for parent and child alike.

- Erik Carter, Financial Finesse, Inc.


I think the parents need to partner with their kids. In many cases, parents can learn a lot from what their kids are learning about financial literacy in school. Many of the parents have horrible spending habits. If the parents have good spending habits, they need to be teaching that at home as well.

- Russ Goeltenbodt, Financial Literacy Experts


My experience is most parents do not model proper financial behavior for their children.

- James D. Philpot, Missouri State University


Methodology

Two of the biggest hurdles when it comes to evaluating a given area’s financial literacy are defining financial literacy and identifying accessible indicators without mistaking financial hardship for the inability to make sound financial decisions.  The past few years have been disproportionately rough on certain demographics and geographies, which means comparing states based on factors such as average credit score or number of bankruptcies per capita would reveal far more about temporary macroeconomic dynamics and the country’s wealth disparity than financial literacy.

Financial literacy ultimately comes down to familiarity with key themes and concepts, the ability to think critically, good judgment and self-restraint.  We felt that the following 12 metrics, which we separated into two main categories – Knowledge & Education and Planning & Daily Habits – were indicative of those qualities and ideals, revealing the resources that are being put toward financial education in each state as well as behavioral characteristics that are indicative of not only how well those programs are working, but also how well local values mesh with the tents of responsible money management.

The specific metrics that we used and the weights that we assigned each in constructing our overall rankings of state financial literacy can be found below.

Knowledge & Education = 5

  • Champlain University High School Financial Literacy Grade:  1.5
  • High School Dropout Rate:  1.5
  • FINRA Financial Literacy Survey:  1
  • Percentage of Residents with a Bachelor’s Degree:  0.75
  • Number of Library Branches per 100,000 Library Service Population:  0.25

Planning & Daily Habits = 5

  • Percentage of People Who Spend More Than They Make:  1.5
  • Percentage of People with a Rainy Day Fund:  1
  •  Percentage of Unbanked Households:  0.75
  • Percentage of People Borrowing from Non-Bank Lenders:  0.75
  • Percentage Paying Only Minimum on Credit Card:  0.5
  • Percentage of People Comparing Credit Cards Before Applying:  0.25
  •  IRS Refund Amount Per Tax Filer:  0.25

 

Sources:  The data used to compile this report is courtesy of the U.S. Census Bureau, the National Center for Education Statistics, the Federal Deposit Insurance Corporation, the Institute of Museum and Library Services, the  FINRA Investor Education Foundation, the Center for Financial Literacy - Champlain College, the Internal Revenue Service, US Department of Commerce - Bureau of Economic Analysis and WalletHub research.

Author
User
John Kiernan is Senior Writer & Editor at Evolution Finance. He graduated from the University of Maryland with a BA in Journalism, a minor in Sport Commerce & Culture,…
1181 Wallet Points
Another GREAT report! Thank you for sharing; most helpful. It's FREE too! AWESOME!
Aug 31, 2014  •  Reply  •  Flag