While interest rates climb and debts accumulate, millions of people still struggle with the basics of managing their money. This inability to handle personal finances, known as financial illiteracy, is a global issue. A 2015 survey from Standard & Poor’s revealed that nearly 70% of adults worldwide were financially illiterate, a challenge that continues to echo today.
This phenomenon occurs due to poor financial education in school systems, or even at home. Therefore, even though we live in a money-driven world, most people are never taught how to handle it.
The Value of Financial Literacy
Financial Literacy is not just about what you put your money on, but also about acquiring the knowledge and skills to understand basic financial concepts, such as saving, borrowing, investing, and most especially, planning for the future.
A financially literate person is capable of making informed decisions based on real information. This definition aligns with Remund’s (2010) work, which describes financial literacy as “a measure of the degree to which one understands key financial concepts and possesses the ability and confidence to manage personal finances through appropriate, short-term decision-making and sound, long-range financial planning”.
A person who lacks these concepts can be affected in many areas of their life. A lack of knowledge about interest rates, absence of financial backups, and insufficient planning – combined with the influence of impulsive spending promoted on social media nowadays – can shift perspectives toward buying temporary, and unimportant items just for the thrill of new trends, rather than investing in their future. All of this can turn out into a whole cycle of non ending debt.
Constantly worrying about money all the time can be exhausting. Life stops and starts being endured, as people do whatever they can to earn more while sacrificing leisure and simple pleasures. According to PubMed’s study “The Relationship Between Financial Worries and Psychological Distress Among U.S. Adults”, this persistent concern can lead to psychological distress and triggers symptoms such as anxiety, insecurity, insomnia and the feeling of being out of control.
The Roots of Financial Ignorance
The main reason so many people worldwide are financially illiterate is the education they received. Childhood shapes an individual’s entire future; it is the period when the most important habits are formed, when new concepts are encountered, and it is also the best time to learn how to manage personal finances.
Learning about finances at this stage of life is crucial for making informed future decisions, which encourages children to start valuing, saving, and planning from a young age, forming a lifelong habit.
Financial education should ideally be introduced at home, where children can learn from their parents’ actions and guidance, and be reinforced in school to formalize this knowledge. However, many schools still don’t include personal finance in their programs, leaving students to graduate without the practical skills necessary to manage their own money.
Poor communities with limited access to quality education suffer even more from financial illiteracy. This widens the gap between the rich and the poor: the wealthy can use their knowledge to build wealth, while the less privileged bear the cost of ignorance, such as higher loan interest rates.
In many American neighborhoods, payday lenders are not only a symbol of short-term credit but also of institutionalized disparity. Research shows that African American and Latino communities are disproportionately represented as users of these high-cost, short-term loans – not merely due to income, but often because of limited access to financial literacy education and safer forms of credit.
Without the knowledge to navigate the complex banking system, compare interest rates, understand compound interest, or save for emergencies, these families have little to protect them from falling into debt traps that deplete their already meager resources. In neighborhoods where payday lenders cluster, schools tend to have poor financial literacy education, and banks are scarce, leaving residents with few alternatives beyond these costly loans.
The cost is steep: what begins as a short-term solution can become perpetual financial strain, limiting options for saving, investment, and long-term stability. For far too many, this struggle goes unseen by others but shapes every decision about what to buy, what to forgo, and how to make it through each month.
How to break the cycle
Several notable financial programs have been introduced in schools and have proven capable of making a real difference.
My Classroom Economy is a low-cost program that provides financial literacy instruction for elementary-level classrooms through practical activities and encourages the broader environment to be a part of the studies. It has impacted more than 1,972 students from 24 different schools. Students who participated in the program showed significant improvements in their financial skills: overall financial knowledge increased by 13%, while their ability to budget and manage expenses improved by 11%.
In addition, they became more engaged in financial discussions at home, with a 19% rise in the frequency of these conversations. Beyond the classroom, students also gained practical experience, as seen in a 21% increase in participation in economic activities outside school, such as opening and managing their own bank accounts.
Programs like this highlight that, with the right guidance and hands-on learning, schools can help break the cycle of financial ignorance and give young people a real opportunity to build a secure, independent future.
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The article above was edited by Isabella Simões.
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