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NEW York (MainStreet) — American students spend about 1,000 hours in school each year, and yet very few, if any, of those hours are dedicated to learning about personal finance. It should come as no surprise then that U.S adults perform poorly when quizzed on basic financial concepts like interest rates and inflation. Only 22% of women and 38% of men aced a three-question test conducted by the Global Financial Literacy Excellence Center. Among people under age 35 the numbers are even worse. Only 12% of women and 26% of men correctly answered all three questions.

“There is substantial evidence that more financially savvy people are more likely to plan, save, invest in stocks, and accumulate more wealth,” according to a report published recently by the Global Financial Literacy Excellence Center. “They also have been shown to be less likely to have credit card debt, and when they do borrow, they manage loans better, paying off the full amount each month rather than just the minimum due.”

Clearly, financial education is an important component of developing economic independence. According to the report's authors, Olivia S. Mitchell and Annamaria Lusardi, “more than one-third of U.S. wealth inequality could be accounted for by differences in financial knowledge.”

That number could be even higher than one-third. According to the Survey of Consumer Finances, 46.7% of American households carry credit card debt. A Bankrate study found that a similar proportion of Americans, 48%, is not investing in the stock market.

“When people make poor financial decisions, this can get them into deep financial trouble over their lifetimes,” the authors write. “In turn, these difficulties can spill over to their families and the rest of the economy.”

Much work remains to be done, but Americans are open to learning more. According to the report, consumers would trade 3% of their consumption over the course of their lifetime to gain the financial knowledge needed to improve their overall well-being. They can begin their efforts in three areas:

Understanding how interest rates work...

Not all debt is created equal. Interest rates are the most important factor to consider when deciding how to prioritize a debt repayment plan. Many Americans are stressed about student loans, but the majority of interest rates for education debt range from 3% to 8%. A borrower who is also carrying credit card debt with an interest rate of 15%, should prioritize putting extra cash toward the credit card debt, while making the minimum student loan payment. Over time, this strategy will minimize the total amount of money spent paying off debt.

Overcoming a fear of investing

The recent recession has left many people, especially young people, afraid of investing. Historically, the stock market is the best way to ensure account balances grow at a rate that outpaces inflation. For gun-shy investors, choosing a target date mutual fund is a perfectly good place to start. Target date funds rebalance regularly to manage risk and return in relation to age. Not investing at all is likely to result in a retirement funding shortfall that could potentially be debilitating.

Making more to save more

Wages have been stagnant in recent years, leaving it difficult for many people to save money. Cutting expenses can only go so far. The single best way to have more money is to make more money. According to a study from, 44% of American workers never negotiate their salary during performance reviews. This adds up to hundreds of thousands of dollars in lost income during one’s working years. Employees aren’t the only ones suffering from a lack of financial knowledge. Preliminary research from the Global Financial Literacy Excellence Center indicates that there may also be a connection between financial literacy and successful entrepreneurism. Yet another reason to invest in financial education in schools and the workplace.