The Most & Least Financially Literate States in America
The 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.
Knowledge & Education Sub-Rank
Planning & Daily Habits Sub-Rank
|30||District of Columbia||30||33|
Ask the Experts
- What should the federal government do to improve financial literacy?
- What should states do to improve financial literacy?
- What should parents do to improve financial literacy?
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.