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How Money Works Educator - Derrick Gan

Derrick Gan

HowMoneyWorks Educator

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Burnaby, British Columbia V5C2K6

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The True Cost Of Financial Illiteracy

The True Cost Of Financial Illiteracy

August 9, 2021

The True Cost Of Financial Illiteracy

The average American reported that they lost $1,279 in 2019 due to financial illiteracy, according to a recent survey.Âą

That’s enough to potentially cover a mortgage payment or car repair bill. If the assessment is accurate, that would mean the country lost $307 billion last year simply because citizens were clueless about how money works. (For reference, the entire annual GDP of Pakistan in 2019 was $278.22 billion.²)

But the situation is far worse than you might imagine.

The result of financial illiteracy is far greater than buying things you don’t need, sinking deeper in debt, and mismanaging your cash by shoving it all in low-interest savings accounts. It’s costing you the opportunity to truly build wealth and pursue your dreams. That’s the true price tag of financial illiteracy.

The opportunity cost of financial illiteracy. Think about a decision you wish you could redo. Maybe you missed out on an awesome job or experience because you chose a safer option or didn’t know what huge potential you were letting slip by. That’s called opportunity cost. It’s why you kick yourself for selling your home a year before a sellers’ market explodes or why you wish you’d studied abroad for a semester in college. Who knows what your life would look like now if you had just been able to see the future!

You need to start realizing that every dollar in your bank account is bursting with potential. What if the $1,279 that Americans think they lose every year was in an account earning 8% interest that compounded monthly? That squandered cash would grow to $13,987 after 30 years. That’s a much closer estimate to how much financial illiteracy actually costs Americans every year. We’re losing $1,279 every year plus however much that money could have grown if we had just known how money works.

The personal cost of financial illiteracy. But there’s more to the opportunity cost of financial illiteracy than just numbers. It can cost us the lifestyle that we’ve been daydreaming about. Financial instability and unpreparedness can result in massive emotional and mental stress that can take a serious toll on health and relationships. It can limit educational opportunities for our children. The true price tag of money ignorance isn’t just dollars in a bank account; it’s the ability to live our lives in confidence and to pursue our dreams.

The book, HowMoneyWorks: Stop Being a Sucker describes financial illiteracy as the #1 economic crisis in the world. As you can see, that’s not an exaggeration. Let me know if you want to learn more about the severity of our global financial ignorance pandemic and how it’s impacting you right now. I can get you a copy of the book and help you see the financial opportunities that surround you—if you just know how to take advantage of them!

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¹ “Financial Illiteracy Cost Americans $1,279 in 2019,” National Financial Educators Council, https://www.financialeducatorscouncil.org/financial-illiteracy-costs/

² “Pakistan GDP,” Trading Economics, accessed 2020, https://www.worldometers.info/gdp/gdp-by-country/