Financial Illiteracy, a Driver of Generational Poverty

Did you know that nearly four out of five teens today lack basic financial literacy? That’s 80% of young people who don’t understand how to budget, save, or make informed financial decisions. Think about that for a moment—80%. And the worst part- this affects those who are already financially disadvantaged the most due to lack of opportunity to learn from their parents our effective financial role models. Starting to learn financial habits early can be extremely beneficial especially later in life. For example when dealing with life changing loans like mortgages, where a massive down payment and commitment is required to get a house. This is the first step in becoming middle class and escaping generational poverty. Having a good credit score leads to more favorable lending rates; with the difference between top and bottom credit scores being 8% interest. This means a person with a bad credit rating would pay double the cost of their house in interest alone.

To get a good credit score, it is important to understand credit and debt, as well as basic budgeting to ensure payments are made on time. Building up credit enables a sense of trust by banks, which in return offer lower interest. 

Financial literacy by generation, showing a marked decline among Generations Y and Z 
 And the problem doesn’t stop there. Studies show that only 18% of millennials—just under one in four—demonstrate full financial literacy. The consequences? Rising credit card debt, poor savings habits, and in some cases, even bankruptcy. These aren’t just numbers—this is the reality we’re facing.

Globally, a lack of financial literacy is costing us over $400 billion every year. That’s $400 billion lost because people simply aren’t equipped with the tools and knowledge they need to make smart financial decisions. Among the financially disadvantaged, lack of savings and inability to invest leads to generational poverty, the root of inequality - and the issue is getting worse, not better. This is due to poor education in learning how to save and get out of debt. These youth have no ‘financial role models’. On the other hand, students from more privileged backgrounds are often supervised and shielded from any sense of financial responsibility or struggle. So, they never really experience earning, spending, and saving money until well into adulthood, let alone more advanced concepts such as financial risk and portfolio diversification. Multiple generations end up financially illiterate due to the lack of education.

Social immobility particularly is an issue we must address. Due to compound interest, those who have had a head start in investing by 7 years will have almost double the savings of those that start later. Many people, despite having surplus funds, choose to spend rather than invest.

 Compound interest, a basic concept unknown to the majority of youth, promotes savings and allows young earners to build a nest egg.

But here’s the thing: it doesn’t have to be this way. Financial education is the key to empowering our youth to take control of their futures. The time to act is now—because the cost of doing nothing is far too great. That is why we launched the dream enabler collective, where me and a team of inspired youths band together to provide free accessible financial literacy on our platform. Our mission is to empower the world’s youth with the knowledge and skill to achieve financial literacy by providing free and accessible financial education in order to cultivate financial and investing habits to enable long term prosperity for all. Trends in inequality could be reversed with the right wisdom through education.

At the Dream Enabler Collective. We will Explain basic concepts like saving and borrowing as well as credit. Create a series of investing guides that touch on the basics of investing. Through Building a space where youth can openly discuss and exchange financial tips like investing and saving money as well as build connections, generational poverty due to lack of financial education would be a problem of the past. Even though we alone cannot solve the effects of generational poverty. We will overcome the roots of it - the lack of education. 

At the Dream Enabler Collective, we will continue to engage, inspire, and inform youth on a global scale, to constantly address different communities, cultures and individuals. Due to limited resources many countries have cut spending on financial education despite its importance. That’s why we at the dream enabler collective believe it is our duty to do what governments can’t . To take initiative and enable good financial skills for youth all around the world to create a more egalitarian world.