Most Financially Literate States

In the aftermath of the financial crisis, the issue of widespread financial illiteracy has become more known. And while Americans certainly have plenty of financial shortcomings, some states are doing a better job of preparing their residents to handle money responsibly, according to a report from WalletHub.

Americans racked up more than $73 billion in new credit card debt since the beginning of 2012, only two-fifths of adults have a budget, and 19% spend more money than they make, according to WalletHub.

Defining financial literacy and differentiating financial hardships from the inability to make sound financial decisions were important when creating this study. WalletHub did not seek to factor in average credit score or number of bankruptcies per capita in the belief that those indicators would reveal more about temporary macroeconomic dynamics and the wealth disparity throughout the US than actual financial literacy.

Instead, the study weighed 12 metrics that were separated into 2 categories:

Knowledge and education

• Champlain University High School Financial Literacy Grade

• High school dropout rate

• FINRA Financial Literacy Survey

• Percentage of residents with a bachelor’s degree

• Number of library branches per 100,000 library service population

Planning and daily habits

• Percentage of people who spend more than they make

• Percentage of people with a rainy day fund

• Percentage of unbanked households

• Percentage of people borrowing from non-bank lenders

• Percentage paying only the minimum on credit cards

• Percentage of people comparing credit cards before applying

• IRS refund amount per tax filer

WalletHub compiled the data from various sources: the US Census Bureau; the National Center for Education Statistics; the Federal Deposit Insurance Corporation; the Institute of Museum and Library Services; the FINRA Investor Education Foundation; the Center for Financial Literacy — Champlain College; the IRS; the US Department of Commerce’s Bureau of Economic Analysis; and WalletHub’s own research.

“I believe that basic economics and personal finance should be required fields of study for all students before graduating from high school, besides driving and computer literacy,” Laura Gonzalez Alana, assistant professor of finance and business economics at Fordham University, told WalletHub. “There should also be support to help universities/community colleges provide this kind of service to adults. In my opinion, that is as important as regulation to protect consumers.”

10. Massachusetts

Education rank: 24

Planning/daily habits rank: 2

Cambridge

With nearly half (47%) of residents reportedly having a rainy day fund, Massachusetts is really good at planning ahead. Only 2 states (Arizona with 53% and New York with 49%) had better rates of people with rainy day funds. Massachusetts also had one of the lowest rates of non-bank borrowing — just 20% compared to Oklahoma with the highest rate at 40%.

9. Idaho

Education rank: 2

Planning/daily habits rank: 30

Boise

Idaho’s residents may not be the best at planning or have particularly good daily habits, but the state has the second-lowest high school dropout rates in the country with just 1.4% not completing high school.

8. Maryland

Education rank: 11

Planning/daily habits rank: 4

Baltimore

Maryland has the most sustainable spending habits, tied with West Virginia (which had ranked 29, overall, for financial literacy), with just 14% of residents spending more than they make, compared to 23% of residents in Nevada and Hawaii. So, even though the state’s knowledge and education did not the top 10 for that sub-ranking, residents clearly have a handle on their money anyway.

7. North Dakota

Education rank: 14

Planning/daily habits rank: 3

North Dakota University in Fargo

Like Massachusetts, earlier, North Dakota’s residents are doing well with planning and 46% have a rainy day fund. This year, MoneyRates named the state was named one of the best to make a living because it had the lowest unemployment rate in the country and low taxes.

6. South Dakota

Education rank: 5

Planning/daily habits rank: 11

Brookings. Photo by Jon Platek.

Not only are residents in South Dakota very financially literate, but they have the added bonus of being one of just 7 states in the country with no state income tax at all. Meanwhile, Alaska and Nevada, also without state income taxes, were at the bottom of the list among the states with the worst financial literacy.

5. Minnesota

Education rank: 6

Planning/daily habits rank: 10

Minneapolis

Minnesota tied with Indiana and New Jersey for the third-lowest high school dropout rate (1.6%). And it’s a good thing its residents are financially literate since Minnesota has one of the worst tax climates in the country. However, to balance that out, their insurance premiums are among the lowest in the nation (with the exception of southeastern Minnesota).

4. New Jersey

Education rank: 7

Planning/daily habits rank: 9

Atlantic City

Like Minnesota, the Garden State has a low high school dropout rate (1.6%), plus it has the lowest rate of non-bank borrowing (16%). Residents in New Jersey need to be financially literate, though: the state perpetually ranks low for its taxes, plus its cost of living is 127 — far higher than the nation’s average of 100. Also, it’s one of the most expensive states to own a car.

3. Virginia

Education rank: 3

Planning/daily habits rank: 19

Charlottesville

Virginia’s education rank tied with the next state on this list, but its residents didn’t quite match up when it comes to their planning and daily habits. With a lower tax rate and a below average cost of living, Virginia is also one of the best states to retire, according to Bankrate.com

2. Utah

Education rank: 3

Planning/daily habits rank: 8

Salt Lake City

Just 2.8% of household do not have bank accounts, which is the second-lowest percentage in the country. To the benefit of Utah’s residents, they have a great planning tool available to them in the form of the best 529 savings plan to help residents save money to send their kids to college. Plus, despite having below-average income, the state has a low cost of living, low unemployment, and one of the best tax climates in the country.

1. New Hampshire

Education rank: 1

Planning/daily habits rank: 1

Manchester

There seems to be a common theme: the states with the lowest high school dropout rates were all in the top 10, and New Hampshire had the best rate of all with just 1.2% of students dropping out. Plus, the state has the lowest rate (1.9%) of unbanked households, and just 16% of residents spend more than they make, which is among the most sustainable spending habits in the country. Lastly, New Hampshire is right behind New Jersey for its low non-bank borrowing rate (17%).