We all know Americans aren’t very good with their money (and evidently, citizens of many other countries aren’t either, but we’re REALLY bad), but this latest study puts it into perspective with disturbing statistics and approaches to measuring and reporting just how bad most Americans are at understanding the most basic financial principals that many take for granted. The mere fact that we have multiple shows with personalities like Suze Orman and Dave Ramsey telling people stop doing stupid things with their money indicates that a lot of people are in fact, doing stupid things with their money. Add in the millions of Americans that got into mortgages without even reading the terms, millions spend more than they make, you probably can’t even quantify how many people you know personally that carry high interest debt and it’s a sobering picture – anecdotally. But to put some hard numbers on just how bad we are, the author broke the study up into multiple key categories. I’ve outlined just a few of the eye-opening findings in each category; feel free to read the study yourself for all the gory details.
Making Ends Meet
- Almost half of Americans reported having trouble keeping up with monthly expenses and bills
- Nearly one-quarter (23 percent) of individuals with checking accounts reported overdrawing those accounts on occasion
- Nearly 9 percent have taken out a loan from their retirement accounts during the past 12 months, and almost 5 percent have taken a permanent hardship withdrawal
- Only 49 percent of respondents have set aside emergency or rainy day funds that would cover expenses for 3 months in case of sickness, job loss, economic downturn, or other emergency
- As many as 46 percent of Americans stated they cannot or are not confident they could come up with $2,000 in a month’s time
Planning For Retirement
- Only 51 percent of respondents who are 45–59 years old and not yet retired have tried to calculate how much they need to save for retirement.
Planning for Children’s Education
- Well below half (41 percent) of those who have financially dependent children have set money aside for college education
- Only 33 percent of those who have set aside money for college education have used a tax-advantaged savings account such as a 529 Plan (See Best 529 Plan) or Coverdell Education Savings Account
- Planning for children’s education is much more prevalent among those with higher income and those who have a college degree
- As many as 23 percent have used one of these methods in the last five years: auto title loan, a “payday” loan, getting an advance on tax refunds, using pawn shops, or using a rent-to-own store
- 41 percent of young borrowers paid only the minimum amount due on credit cards (See how I make hundreds per year tax-free by simply paying in full with a top cash-back rewards card)
- When asked whether they have an interest-only mortgages or a mortgage with an interest-only option, a rather large fraction (16 percent) stated they have an interest-only mortgage. Moreover, 20 percent did not know the answer to this question.
Understanding Financial Contracts
- About 20 percent of those who have auto loans do not know the interest rate they pay
- About 10 percent do not know the interest rate on their mortgages
This is abysmal. I would venture a guess that many of these same individuals that haven never even contemplated what they’ll need in retirement or saved a dime for college for their children could reel off stats for their favorite sporting teams or who won American Idol last season. If Americans put nearly as much effort and interest into learning the basics of personal finance and money management as they do into insipid entertainment and sporting interests, we’d all be in much better shape.
Personally, I think much of this stems from what kind of role models influenced priorities and behaviors early in life. Often times, the apple doesn’t fall far from the tree. Child sees parents making really poor financial decisions, child grows up exhibiting the same behaviors and vice-versa. There are exceptions and many grow into new interests. Just because your parents exhibit a certain behavior doesn’t mean you’re doomed to report it, but in aggregate, there’s a higher propensity to repeat the cycle – like many other learned behaviors. I’m not sure the public schooling system could or should step up efforts in this regard, but it certainly wouldn’t hurt, right? I mean the economic future of the country depends on the collective decisions we make as Americans, right? (as well as who we vote into office)…
I have a few questions and I’d be interested in hearing your take:
When Did Americans Become So Bad With Their Money? What Caused It?
What is the Best Way to Address Our Financial Illiteracy and Behaviors?
Is There Any Role in the Public School System to Teach Basic Personal Finance or Should It Be Taught in the Home?
What Is the End Game? Do We continue to Get Worse or Was the Recent Recession and Financial Collapse a Wakeup Call?