Survey Says: We Need to Become Better Educated About Personal Finances

The Rules of Thumb blog from MoneyThumb continuously strives to educate our readers on important things of a financial nature. To further our quest, today we would like to cover issues Americans have with financial literacy as revealed in the annual survey conducted by the Global Financial Literacy Excellence Center (GFLEC) at George Washington University.

The survey concluded that Americans struggle to comprehend risk more than any other financial concept. Unfortunately, Americans also received a “failing grade” on overall financial knowledge in the survey with the average number of questions answered correctly barely above 50%. The study shows that many Americans are stuck in paycheck-to-paycheck survival mode and have debt that keeps other financial goals out of reach.

Below are some quotes from an article at CNBC covering the survey and its results.

“We’re not measuring how smart people are. We are not measuring how much people understand math. We want to understand basic concepts that allow us to make good decisions,” said Annamaria Lusardi, Denit Trust Chair of Economics and Accountancy at the George Washington University School of Business and a co-author of the study.

Ted Jenkin, CEO and founder of oXYGen Financial, a financial advisory and wealth management firm specializing in Generations X and Y, and a member of the CNBC Financial Advisor Council, said many people do struggle with basic risk concepts. “People can say they will invest more when the market is down 20%, but in real life, they don’t do it,” he said.

“Everyone understands rewards, but hardly anyone understands risk. We should be trying to get back to basic financial literacy about risk and time,” Jenkin said. “The stock market is a long-term investment. People without five years or more to be in it shouldn’t be in it. There is just not enough education on risk,” he said, and that is always compounded after a period of time during which the market seemed to only go up.

The survey was conducted among more than 1,000 American adults throughout the month of January. That is key because the U.S. market was still booming at the time, unemployment was low, and that means more recent events reinforce the importance of the failings exposed in the data. And the question on risk was far from the only one Americans struggled to answer.

As your guide through this unfortunate round of information, The Rules of Thumb blog would not present our readers with a problem that does not also have a solution. That solution is education. However, if you are barely getting by financially, it is kind of hard to concentrate on getting educated about something that you do not have in excess, which is money.