Apr 07, 2018

Financial Illiteracy Is Causing New Businesses to Fail

Americans squandered $280 billion last year due to poor financial understanding, according to a recent survey by the National Financial Educators Council. That’s about $1,200 for the average consumer. And financial illiteracy isn’t limited to personal finances—this same waste is bleeding over and causing new businesses to fail before they can even stand.

According to the 2015/2016 Global Entrepreneurship Report, over half of businesses discontinue operations due to lack of profits or working capital. Small businesses frequently start under-capitalized because owners underestimate how much capital they’ll need to run operations. To make matters worse, these same owners often overestimate how quickly their products and services will sell in the market.

But the degree of financial illiteracy isn’t so much an American people problem as a economic landscape problem.

“Americans today have to negotiate a very complex financial and economic landscape, and given recent changes to the tax code and new digital currency options, that complexity is only going to increase,” said Vince Shorb, CEO of the NFEC. “Improving people’s ability to make informed financial decisions and increasing access to financial education programs is more important now than ever before.”

Dann Adams, president of global consumer solutions at Equifax, emphasizes the importance of fundamentals to small business owners. “Without a basic understanding of credit and your own behaviors, it can become challenging to do some of the basic fundamentals such as save for retirement, establish an emergency savings account, or move beyond living paycheck to paycheck,” Adams advised. If business owners lack the financial skills to save, budget, and plan ahead in personal matters, they’re bound to face the same challenges with their company.

The rising generation appears to be about as financially savvy as the adult population. Close to 60% of 15- to 18-year-olds failed the NFEC’s recent financial literacy test. To preserve future businesses and personal savings, financial education needs to become a priority for Americans, communities, and educational institutions.

Applying is free and it won't impact your credit

About the author

Jesse Sumrak
Jesse Sumrak is a Social Media Manager for SendGrid, a leading digital communication platform. He's created and managed content for startups, growth-stage companies, and publicly-traded businesses. Jesse has spent almost a decade writing about small business and entrepreneurship topics, having built and sold his own post-apocalyptic fitness bootstrapped startup. When he's not dabbling in digital marketing, you'll find him ultrarunning in the Rocky Mountains of Colorado. Jesse studied Public Relations at Brigham Young University.

Quickly Compare Loan Offers from Multiple Lenders

Compare Offers
from 75+ Lenders

Applying is free and won’t impact your credit
Talk to a rep at (855) 853-6346

Mon–Fri | 7:30am–5pm MST