Only 1 In 3 Adults Are Financially Literate

Tuesday, January 15, 2019 | Leave a comment

Chances are, if you’re reading this article, you know more than most when it comes to the basic financial concepts that impact your portfolio. However, when you really stop to think about it, how much do you actually know? The unfortunate truth is that the majority of adults today are financially illiterate. In 2014, McGraw Hill Financial teamed up with Gallup, Inc., the World Bank Development Research Group, and GFLEC to interview over 150,000 adults in over 140 countries. The findings of their S&P Global FinLit Survey were a sobering reality check.

The survey covered four basic financial concepts: risk diversification, numeracy, inflation, and interest compounding. In order to be financially literate, the participants had to respond correctly to three out of the four topics. So, how did we rank?

Financial Literacy Findings

Here are some of the survey’s findings: (1)

  • In the U.S., 57% of adults are financially literate.
  • Worldwide, only 33% of adults are financially literate.
  • The U.S. ranks about the same as Belgium, Switzerland, New Zealand, and Singapore.
  • Americans with less education and lower incomes have lower financial literacy levels than their counterparts in other wealthy nations.
  • College-educated adults in the U.S. rank 28 percentage points higher in financial literacy than those with only a high school education.
  • Interest is the least-understood concept in the U.S., and of adults who own a credit card, 43% answered this question incorrectly.
  • Only 58% of adults who save at a financial institution answered the compound interest topic correctly.
  • There is a 10 percentage point financial literacy gap between men and women in the U.S., which is twice as large as the global gender gap.
  • Of the 62% of U.S. women who have a credit card, only half of them answered the interest question correctly.
  • The financial literacy gap based on income is 17 percentage points in the U.S., compared to 9 percentage points globally.
  • Almost 10% of U.S. adults have borrowed money to pay for school fees in the last year, but only half of them correctly answered the interest topic.
  • In the U.S., about a third of adults finance their houses, but only 62% of them answered the interest topic correctly.

Why Does Financial Literacy Matter?

Given the results above, we clearly have a ways to go in the financial literacy department, both here in the U.S. and worldwide. But at the end of the day, how much does it really matter?

Consider these statistics:

  • Though we are the wealthiest nation, the U.S. ranks 14th in financial literacy worldwide. (2)
  • Finances are the #1 cause of stress in America, with 72% of adults saying that they feel stressed about money some of the time. (3)
  • Money is the #1 cause of arguments between spouses. (4)
  • Too much conflict or arguing is the second most commonly named “major” reason for divorce. (5)

As if all of those issues weren’t enough, stress has many negative effects on our health and well-being. Stress results in harmful physical conditions such as headaches, upset stomach, elevated blood pressure, chest pain, and problems sleeping. (6) Furthermore, stress increases the likelihood of engaging in unhealthy behaviors like excessive alcohol consumption, tobacco use, or overeating.

So, why is financial literacy important? Because the impact that it has, positive or negative, reaches much further than our wallet. This lack of aptitude affects our relationships, our health, and eventually ripples to every area of our lives.

How Financially Literate Are You?

Okay, so the United States isn’t in the best shape. But how about you? How do you compare to the global statistics? Do you know as much as you think you do? Answer the following questions to find out:

1.Suppose you have some money. Is it safer to put your money into one business or investment, or to put your money into multiple businesses or investments?

A) One

B) Multiple

C) I don’t know

2. Suppose over the next 10 years the prices of the things you buy double. If your income ALSO doubles, will you be able to buy less than you can buy today, the same as you can buy today, or more than you can buy today?

A) Less

B) The same

C) More

D) I don’t know

3. Suppose you need to borrow 100 dollars. Which is the lower amount to pay back: 105 dollars or 100 dollars plus 3 percent?

A) 105

B) 100 + 3%

C) I don’t know

4. Suppose you put money in the bank for two years and the bank agrees to add 15 percent per year to your account. Will the bank add MORE money to your account the second year than it did the first year, or will it add the SAME amount of money both years?

A) More

B) The same

C) I don’t know

5. Suppose you had 100 dollars in a savings account and the bank adds 10 percent per year to the account. How much money would you have in the account after five years if you did not remove any money from the account: more than 150 dollars, exactly 150 dollars, or less than 150 dollars?

A) More than $150

B) Exactly $150

C) Less than $150

D) I don’t know

ANSWER KEY

  1. B. Multiple

This question is about risk diversification, and 69% of U.S. adults answered correctly.

  1. B. The same

This question is about inflation, and 63% of U.S. adults answered correctly.

  1. B. 100 + 3%

This question is about interest, and 52% of U.S. adults answered this question correctly.

  1. A. More
  2. A. More than $150

The last two questions are about compound interest, and 61% of U.S. adults answered this section correctly.

Do You Want To Improve Your Financial Literacy?

So, how did you stack up? Did you do as well as you thought you would? Or are you already jumping on Google to brush up on some topics? Sure, the internet has a wealth of financial information to fill in the gaps in your financial proficiency. However, as you may have already learned the hard way, the internet is also full of information that is incorrect. And many of the reputable sites that provide accurate information assume you already have a strong foundation of financial literacy from which to work. You may quickly find yourself misled, overwhelmed, or even both!

Luckily, we at D. Bryant Retirement Strategies are here to offer our experience in order to help guard you against the unnecessary stress and costly mistakes you may have otherwise made as you learn. We see ourselves as both guides and educators. Beyond financial planning and investment management, we educate you on your options, explaining the pros and cons and helping you make well-informed decisions in which you can be confident. If you want to improve your financial literacy or review your portfolio to make sure your choices line up with your values, call us at (402) 932-2141 or email contact@dbretirement.com today!

About Darrell

Darrell Bryant, CFS®, CAS® is Omaha’s Retirement Strategist. As the founder of D. Bryant Retirement Strategies, he focuses on helping individuals and couples nearing retirement do so successfully. Along with more than 30 years of experience, he received the Certified Fund Specialist (CFS®) designation and a Certified Annuity Specialist (CAS®) designation from the Institute of Business & Finance. Passionate about helping as many people as possible in his community, he hosts Retirement Strategies Radio, heard Saturday mornings at 8 a.m. on 1110 KFAB. He has also written articles on financial planning that have been featured on Fortune.com, FoxBusiness.com, Money.com, and in the Midland Business Journal. To learn more, visit his blog, his website, or connect with him on LinkedIn.

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(1) http://gflec.org/wp-content/uploads/2015/11/3313-Finlit_Report_FINAL-5.11.16.pdf?x28148

(2) https://www.spglobal.com/corporate-responsibility/global-financial-literacy-survey

(3) https://www.apa.org/news/press/releases/stress/2014/stress-report.pdf

(4) http://time.com/money/2800576/love-money-by-the-numbers/

(5) http://www.smartmarriages.com/nms.pdf

(6) http://www.webmd.com/balance/stress-management/effects-of-stress-on-your-body

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