My CFP peers across the nation are probably tired of hearing me sing the praises of living in South Dakota. One of them recently emailed some disturbing news that put some sour notes in my “South Dakota is God’s Country” song. A recent national survey that ranked the financial literacy of US states and the District of Columbia ranked South Dakota at 49th.
The survey appeared at WalletHub in an April 6, 2022, story by John S. Kiernan. It collected results from 34,759 responses that covered three areas: Wallet Hub’s “Wallet Literacy Score,” Financial Planning & Habits, and Financial Knowledge & Education.
You can test your financial literacy by taking the 30-question WalletLiteracy Survey. Even as a financial expert, I didn’t get a perfect score, but I was relieved to score a 97%. South Dakota ranked 39th in this evaluation.
The Financial Planning & Habits survey rated 10 areas. The share of adults who spend more than they earn, that had rainy day funds, and were saving for their children’s college education accounted for 50% of the total score. South Dakota embarrassingly ranked a dismal 50th.
The Financial Knowledge & Education section rated seven areas. Having received a good grade in your high school financial literacy course, graduated from high school, and earned a bachelor’s degree from college accounted for 75% of the score. This was South Dakota’s best showing at 22nd.
Unfortunately, when the scores in those three areas were combined, South Dakota ranked an embarrassing 49th in the nation, just ahead of Louisiana and Arkansas. The other states in the bottom 10 were Oklahoma, Alaska, Mississippi, West Virginia, Connecticut, New Mexico, and Washington DC.
The top 10 states were Nebraska, Utah, Virginia, Colorado, New Hampshire, North Carolina, Maine, Iowa, Minnesota, and New Jersey.
Interestingly, financial literacy has a correlation to political party affiliation. Seven of the 10 lowest ranked states are considered “red” states; seven of the 10 states with the highest financial literacy are considered “blue” states. I will not speculate as to why and leave that interpretation to analysts smarter than me.
Other findings found men scored higher than women, the higher one’s income the higher the score, the higher one’s education the higher the score, and married individuals scored higher than any other group. Those having a post-graduate degree scored 50% higher than those who did not graduate from high school. Generally speaking, the older respondents were the better they did, with the exception of the 55-64 age group that scored the highest.
Unsurprisingly, there was a strong correlation with those who had a strong education and scored high on financial literacy versus those who had a weak education and scored poorly on financial literacy. The former had the highest combined scores and the later had the lowest combined scores. Similarly, those with the highest credit scores and strong financial literacy also had the highest combined scores, with those having weak credit scores and weak financial literacy having the lowest combined scores.
One might conclude that the biggest influence on financial planning is financial literacy and education, but South Dakota is evidence that is not the case. South Dakotans scored in the 43rd percentile for education and the 75th percentile for financial literacy, but almost dead last (98th percentile) for Financial Planning & Habits. On the other hand, 28 states ranked lower than South Dakota in Financial Knowledge & Education but higher in Financial Planning & Habits.
If education isn’t a predictor of financial literacy and good financial planning, then what is? I don’t know, and the researchers didn’t speculate. Whatever the special sauce is for good financial planning habits, South Dakota needs to discover the recipe.