Why financial literacy matters more than ever in an uncertain economy
Writer: Mirella Franzese
April 2025 — April marks the start of National Financial Literacy Month in the United States, and wealth managers are doubling down on efforts to improve the financial health of their clients — made even more pressing by the recent market downturn that has shaken global stock exchanges.
“Too many Americans lack comprehensive financial literacy, which … lowers the amount of wealth they build throughout their life, among other negative consequences,” said WalletHub analyst Chip Lupo in a new report measuring financial literacy by state.
Poor financial expertise reportedly cost Americans a combined $388 billion in 2023, according to the Teachers Insurance and Annuity Association of America’s (TIAA) annual financial literacy index, which measures knowledge of personal finance among U.S. adults.
The report found that Americans scored lowest on survey questions related to risk comprehension. Only 35% of U.S. adults surveyed answered risk-related questions correctly, compared to 58% who performed well on topics related to debt and borrowing.
Understanding risk provides the basis for most financial decisions, making these poor test scores even more alarming, according to Moneyzine writer Idil Woodall.
And given the current economic slowdown in the U.S., which saw global equities plunge to five-year lows, private wealth managers are advising investors to proceed with caution in response to volatile market conditions.
“The market has made a great run, but … it wouldn’t hurt to be a little more cautious,” said Frank Sloan, regional director of EP Wealth Advisors PC, in an interview with Invest:. “People are emotional about their money, and that can be their downfall.”
President Donald Trump’s tariff announcement last week, for instance, led to a global sell-off of U.S. Stocks, erasing an estimated $6.4 trillion in market value. S&P 500 companies alone lost a total of $2.4 trillion, while the S&P 500 Index (SPX) fell significantly.
Navigating this turbulent marketplace poses an additional threat to do-it-youself investors who may lack financial knowledge or professional guidance, according to Kevin Scanlon, head of private wealth management at Stephens.
“When markets are doing well, such as when the S&P is up more than 20% for an extended period, clients sometimes think they can manage their investments themselves by leveraging simple indexes,” Scanlon said in an interview for the latest edition of Invest: Dallas-Fort Worth. “When markets are strong, that looks tempting, but…we are currently in uncertain times because inflation is not fully in check and there is global uncertainty.”
Lone investors aren’t the only ones impacted by the economic landscape. U.S. companies have scaled back both spending and hiring, and global hedge funds in the long-short space — a strategy which seeks to minimize market exposure by buying undervalued stocks and shorting overvalued ones — have wiped out gains for the year, according to Goldman Sachs.
Top image via Jakub Hałun/Wikimedia
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