If a picture is worth a thousand words, then this might just set an auction record at Sotheby's:

Source: St. Louis Federal Reserve.

With recessions few and far between, Americans have demonstrated a propensity to spend at will over the past four decades. Since personal savings rates briefly spiked over 15% in the 1970s, they have fallen almost steadily to their current rate of just 4%.  

"Why is this dangerous?" you wonder. If citizens haven't properly stashed away money for their retirement or even rainy days, then large unexpected costs, such as medical bills, could wind up driving them into bankruptcy. One personal bankruptcy isn't going to throw the U.S. financial system off-kilter, but millions of Americans who are unable to meet their financial obligations could portend disaster.

And rather than save, Americans have been piling on personal debt like it's going out of style. Over the past 20 years, consumer credit levels have catapulted from "just" $931 billion to $3.175 trillion as of April.

Figures in millions of U.S. dollars, seasonally adjusted, Source: Federal Reserve. 

In other words, consumers aren't saving much and have shown a want in many cases to spend more than they earn. This is a scary and potentially unsustainable pattern.

However, within the U.S. not all states are created equally. Some states have top-notch educational programs and financial literacy training in place to prepare students and adults for the real world. The earlier you can reach out to students and young adults and teach them the finer points of money management and how monetary and fiscal policy can affect them, the better chance there is of effecting real-world change and improving the U.S. personal savings rate as well as the sustainability of consumer spending habits.


Source: Marco Arment, Flickr.

Then again, there are states at the other end of the spectrum where consumers are nothing more than financial institutions' worst nightmare: little to no savings, unsustainable spending habits, and practically no knowledge of how the financial world works.

The five least financially literate states in the country
Today, we're going to examine which five states rank dead last in financial literacy according to a recent study conducted by WalletHub. Understanding that financial illiteracy is running rampant throughout our country, WalletHub uncovered that only two out of five adults stick to a spending budget, 19% of consumers spend more than they earn, and 60% have no savings.

But WalletHub dug beyond the surface and examined specific metrics from each of the nation's 50 states to determine which states are doing a good job of educating students and adults about how to manage money and which states are falling well short.

These metrics were split into two major categories. The first is knowledge and education, which pertained to how much schooling state residents received as well as how financially literate they were based on a FINRA Financial Literacy Survey. The second category, planning and daily habits, examined aspects of consumer spending such as the percentage of people in a state that were spending more than they earned, or who were underbanked, to name a few factors.

Following WalletHub's copious efforts, it was determined that residents in these five states are the least financially literate in the country:

1. Mississippi

2. Arkansas

3. Nevada

4. Louisiana

5. New Mexico


Las Vegas Strip, Nev., Source: Marco Verch, Flickr.

Why did these states rank at the bottom of the list in terms of financial literacy? According to snippets of data provided by WalletHub, Mississippi and New Mexico had some of the highest high school dropout rates in the country, as well as the fewest people with a "rainy day fund." In terms of being underbanked, all aforementioned states except for Nevada wiggled their way into the bottom seven. Nevada, on the other hand, wound up tied for dead least in terms of least sustainable spending habits and highest non-bank borrowing rate (i.e., pawn shops and payday loans), which could be a direct function of the gambling culture inherent within the state.

How do we fix this problem?
Perhaps the biggest question of all is how we fix this problem. Here are some of my ideas.

The endemic problem of financial misunderstanding and ignorance begins at the schooling level. As someone who graduated high school 16 years ago I can plainly say that while I was taught the differences between fiscal and monetary policy, I wasn't taught real-world economics, such as how to open and manage a bank account, save for the future, or create a sustainable budget. These should be basic life skills that I'd expect to be taught in school, but my own personal experience shows they weren't -- and that's a big problem. Thankfully, economics was always a primary interest of mine so I sought out the answers to these questions. Admittedly, though, most people don't have the want or drive to learn these life skills on their own, so instilling these basic financial tools at the high school level is step one.

A second idea that could go a long way to improving nationwide financial literacy is to share your knowledge with others.

Source: Universidad de Navarra, Flickr.

Spending within your means and saving for retirement isn't some golden nugget of wisdom that you should hoard or hide under the mattress. In fact, the more people overspend and fail to put money away for retirement the more likely your own financial future can be adversely affected since their lack of savings and preparedness could collectively cause a negative ripple throughout the U.S. economy. This means you should be willing to share your financial knowledge with your kids, your family, and your friends. Investing and saving for retirement isn't a competition; we're all in this together!


Source: Images Money, Flickr.

Third, you should actively seek out ways to improve your own financial knowledge. At one time I knew nothing about the stock market, investing, budgeting, saving for retirement, and so on. By being proactive and seeking out this information I'd like to think I've put myself in a position to succeed over the long-term. Our education system has pretty much demonstrated that regardless of what state you're in you'll need to be proactive about seeking out information on your own. Even among the top five states with the lowest non-bank borrowing rates, you'll still find one in five to one in six people utilizing services such as payday loans. Even for top states this figure is far too high, demonstrating the need for consumers to be proactive about their financial well-being.

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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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