First, it's fair enough to say that in a long-term view of things, literacy is at amazing levels in modern times. Back in the Middle Ages barely 20% of people could read or write. In the 1700s in the US only 75% of men and 65% of women could read and write. Most simply didn't have to. They plowed the fields, sewed the clothes, and talked with each other.
As the printing press, standardized education, and complicated jobs became more widespread, it became more important for people to know how to read and write. Also, the types of words people had to understand became more challenging. That is, it was no longer enough to know how to read "plant" and "seed." Now readers were expected to understand a far wider range of words to qualify for basic literacy.
In modern times in the US the literacy claim is 99.99% for basic text. Part of the challenge is immigrants who arrive without understanding English; while they might be literate in their native language, they need to be taught how to read English. That 99.99% rate can be deceptive, though. Of that group, only 15% could read at a high level, understanding a business article for example. 23% could not make inferences based on what they read. So they might be able to read a simple "Take bus A to stop B" instruction but they wouldn't do well with a discussion of political candidates and what each stood for.
It's because of these issues that many feel the average American reads at a 7th grade reading level - able to understand basic concepts but not up to handling complex language or ideas. This is important for authors to understand, so they can consider writing with language that most people will be able to comprehend. Or, if an author chooses to write more complicated material, they should be prepared both for poor reviews ("I can't understand this") and lower sales.
It's also important to note that these figures are for the US. Other parts of the world can have far lower rates for a variety of reasons. In Bangladesh it's 53.5%. In South Sudan only 27% of people are literate. In Afghanistan, it's 43.1% of males - and 12.6% of females. One can guess how this impacts a woman's ability to gain news and information.
Reading Books in the US
So literacy is one thing - and choosing to read for pleasure is another. How many people in the US read books?
According to The Atlantic in 2014, the percent of people who had NEVER read a book in the past year has tripled from 1978 to 2014. This includes paper books, ebooks, and even audio books.
The Atlantic - Decline of the American Book Lover
With the rise of the internet, YouTube, and Cable TV with hundreds of channels, people simply have lots of other options. Even as more and more books are released, there are fewer readers interested in reading them.
A Pew Research study from 2015 found that only 72% of Americans had read a single book over the past year. For those making $30k or less a year, that number dropped to 60%. For those who didn't finish high school, it's down to 34%.
Pew Research - Readers in 2015
So this helps demonstrate that those with less education and less money (conceivably less free time for leisure activities) simply don't read. This is a shame for all sorts of reasons. So many studies tout the benefits reading brings. So why aren't they reading? Maybe the typical book is too complicated for them? Maybe the typical book is too long and they don't have the time to dedicate to it? Maybe typical books aren't about topics they're interested in?
All of these are good thoughts to ponder, as an author, to understand the potential audience. It's also good to know from a marketing standpoint. If the readership is declining even as the volume of self-publishing reaches phenomenal highs, it means more authors are competing for fewer readers who are each reading fewer books. So an author has to work harder and smarter at making their book perfect for their audience and visible to as many potential readers as possible.
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