Study Shows Poor Financial Literacy among Americans

Study Shows Poor Financial Literacy among Americans

With Americans being forced to take more and more responsibility for their retirement savings and growth, the need for making better financial decisions is becoming paramount. Unfortunately, a recent survey by LIMRA, a life insurance market research association, designed to test the financial literacy of the average American, shows that we still have a long way to go. LIMRA discovered that only 12% of participants correctly answered at least nine out of the ten questions, while over a third got more than half the questions wrong.

“As Americans are required to take greater responsibility for their retirement saving, the issue of financial literacy becomes increasingly important,” said Alison Salka, corporate vice president and director of LIMRA Retirement Research. “Our study confirms what previous studies have shown – people need more help understanding financial concepts.”

The study found that of those that scored high on the test, implying a high level of financial literacy, men outnumbered women by 31% to 23%. And older Americans did significantly better than younger Americans (40% to just 21%). Participants who worked with a financial professional, had a college education, and more than $100,000 in household assets were also more likely to demonstrate a higher financial literacy.

The study also revealed that respondents were unsure of their own knowledge of investments and financial products. One-quarter said they are “not at all knowledgeable” on financial products, yet 60% answered five to seven questions correctly. And the few Americans who rated themselves as “very knowledgeable” (6%) actually scored poorly on the quiz.

LIMRA suggests four ways that financial institutions, schools, employers and the government can help Americans improve their financial knowledge:

  • Educate Early. According to LIMRA, those who are exposed to financial education in high school tend to have higher savings later in life.
  • Educate at Work. Worksite education programs that includes multiple sessions on life planning topics such as saving, debt, insurance, and retirement can be very helpful.
  • Address Differences. Men and women have different knowledge levels as well as different perceptions and confidence about their own knowledge. These differences should be addressed as part of a targeted education program.
  • Communicate Resources. Make people aware of the many resources available to them, whether through a website, financial institution, organization, or advisor. There are many ways to become educated; help people connect with the one that works best for them.

“Everyone wants to make good decisions and retire with security.” commented Salka. “It is important that we all work together to help Americans improve their financial knowledge and make responsible decisions about systematic savings and retirement planning. This will help more people enjoy the retirement lifestyle they desire.”

If you’re interested in taking the quiz yourself, here it is: http://www.limra.com/Posts/PR/Industry_Trends_Blog/How%E2%80%99s_Your_Financial_Knowledge_.aspx

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