Financial literacy is a concept we are becoming increasingly aware of, with places like Red Star Education striving to increase levels of financial literacy so that people can feel confident and capable when navigating financial situations. But when it comes to being financially literate, is age a factor?
Are Young People Less Financially Literate?
Research conducted by The Centre for Economics and Business Research on behalf of Wealthify in 2023 involved asking 2,250 Brits questions to assess their understanding of 10 frequently discussed financial topics. They created a Financial Literacy Benchmark, with respondents needing to achieve a score of 6.5 or more out of 10 to get a good pass rate. Based on this measure, they found that 73% of the UK fell below the benchmark, with only 5% answering all 10 questions correctly.
The research also found that young respondents had the least financial knowledge, with the average 16-18 year-old getting only 2.3 questions right. As a comparison, respondents aged 71-80 averaged 6.2 correct responses. This suggests two things: that younger people are more likely to lack financial literacy, but also that the vast majority of us seem to have some learning to do.
It’s really important for us to recognise that financial literacy is not a magical understanding we automatically gain, it’s a process of learning and a skill that we enhance and hone over our lives.
Does Our Financial Literacy Decrease in Old Age?
As put by Wendhu Du and Min Chen, “In terms of the age of individuals, middle-aged people are more likely to be more likely to be financially literate, and the level of financial literacy shows a maximum in middle-aged people and decreases after the age of 60”.
Some studies suggest that financial literacy may decline in old age, as if cognitive ability declines, financial literacy is likely to decline too. For example, when we consider who is most vulnerable to scams, we tend to think of older generations, who appear to be at higher risk of financial exploitation due to higher levels of isolation and cognitive decline.
Lei Yu et al found that financial literacy is likely to decrease in old age. . The average age of participants in this study was 81, and 76% were female. Over up to 10 years of annual follow ups, the average financial and health literacy score dropped 1% a year. However, the findings also note that “decline is not inevitable” and that “efforts to mitigate declining financial and health literacy may promote independence and wellbeing in old age”.
Additionally, some studies suggest that older adults have a greater financial literacy in old age due to more financial experience that may offset age-related cognitive decline.
The key takeaway here seems to be that we are all individuals, with our own unique set of circumstances, and one size does not fit all when it comes to examining an entire age group.
Summary
Overall, different age groups appear to have different levels of financial literacy, with younger people more likely to show a more limited understanding of financial understanding and capability compared to those with more financial experience.
This highlights the importance of teaching financial education from a young age, to help us create a level of understanding early on. That said, all of us can certainly benefit from financial education, as it is a constant process of learning and evolving.
While learned experiences certainly help to develop our financial understanding, early learning is also very beneficial. The earlier you’re exposed to financial education, the better equipped you will be to make informed financial decisions with confidence and ease in later life.