The financial literacy gap doesn’t exist

One narrative about the wealth gap in the United States claims that it is at least partially driven by a gap in financial literacy: If people simply knew more about money, they would make better financial decisions, and more wealth would undoubtedly follow.

And indeed, financial education is becoming increasingly popular: 24 states now require that high schools offer a personal finance course, up from just seven states in 2000. Students across the nation are learning about the difference between wants and needs, about diversifying an investment portfolio, and about the nuts and bolts of opening and maintaining savings accounts.

There’s just one problem: The supposed financial literacy gap doesn’t exist. Kids across the income spectrum have similar levels of financial knowledge, but that knowledge doesn’t put money in the bank for low-income kids, and it won’t fill the United States’ approximately $14 trillion wealth gap.

Data from education technology provider EVERFI show that low- and middle-income students know as much as their higher-income peers about savings accounts, and they’re eager to save for future financial goals like buying a home or investing. But they don’t all have the resources to do it: Though 53% of low-and middle-income students named paying for education as a five-year goal, only 21% reported having a college savings account.

William Darity Jr., a professor of public policy, African and African American studies, and economics at Duke University, has studied the wealth gap extensively, particularly its effect on Black communities. He believes that the narrative of financial prosperity tied to individual decision-making and personal responsibility is completely inaccurate.

“Yes, financial education can be beneficial,” Darity said. “But if it’s provided without any significant financial resources, it’s the equivalent of a recipe without any ingredients…[Some financial education narratives] say that people aren’t making the right decisions. My argument is people don’t have adequate resources.”