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Improving on Financial Literacy: How Do We Spell Success? 

In our last e-newsletter, we discussed the value of teaching our children about money. In this article, let’s widen the focus further: How is our nation’s adult population doing on financial literacy? A National Financial Capability Study has given us important insights on that question.
Funded by the FINRA Investor Education Foundation in consultation with the U.S. Department of Treasury, the study included a simple, five-question financial literacy quiz administered to more than 25,000 participants in 2009 and again in 2012. The questions tested whether they understood:
  1. How earning interest works
  2. The relationship between inflation and savings
  3. The relationship between bond pricing versus rates earned
  4. Essential differences between 15- versus a 30-year mortgage costs
  5. The role of diversification in minimizing investment risks

Here are the results:

2012 National Financial Capability Survey Results




Don’t Know

National Average








While it would have been nice to see the general population score higher to begin with, the study and its survey results offer important insights on where our outreach efforts might be best-placed in seeking improvements. The study focused its analysis on four areas of financial capability considered key:

1.      Making ends meetSpending beyond one’s means, leaving insufficient savings. More than half of those surveyed in 2012 reported spending more than their means.

2.      Planning aheadBuilding “rainy day” funds. Again, more than half fell short.

3.      Managing debtBank, credit card and home loans. A third reported paying only the minimum on their credit card payments during the previous year.

4.      Financial decision-makingHow well respondents could apply financial skills to real life situations, as assessed by the five-question survey.

You may want to explore the study’s wide range of findings at your leisure. Summary charts are available on the study’s website both for nationwide as well as state-by-state results. (At a glance, Michigan seemed to serve well as an approximate proxy for the nationwide figures. In other words, we were not widely above or below typical averages.) An in-depth report also is available.
As the survey sponsors observed, “Managing one’s finances is a complex set of challenges in the best of the times, requiring a combination of skills, judgment and resources.” So, first, recognize that the study encompassed a wide range of participants across varied socioeconomic conditions. Second, consider that knowledge is power. By identifying our weak spots, we can begin to take positive steps to correct them. As the study report observed, “A more financially capable population can result in a larger and more efficient market for financial products, greater participation in asset building and greater financial stability.”
On a bright note, we were heartened by one bit of information we found relatively buried within the full report. In the 2012 study, participants were asked whether they thought financial education should be taught in schools. The vast majority of participants (89 percent) across all walks of life agreed that it should.

We couldn’t agree more, or more enthusiastically. As we touched on in our last article, forming good money management habits when we are young can contribute enormously to a lifetime of financial freedom. In the meantime, if we can help you explore or more fully understand the questions posed in this quiz – or any other questions related to your and your family’s financial well-being, we hope you’ll turn to us for additional conversation.

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