Disturbing Study: Americans Are HORRIBLE With Money – The Stats

by Darwin on June 8, 2011

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

Planning Ahead

  • 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

High-cost Borrowing

  • 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?

{ 14 comments… read them below or add one }

Ross @ Go Be Rich June 8, 2011 at 9:30 pm

I’m thinking that the only way this is going to change is if our culture begins to prop up the financially responsible and successful individual as the “golden standard” that we should all strive to be like. That being said, it sure wouldn’t hurt if financial matters were taught more in public schools, on the scale of math, history, science, and social studies.

Still, just becasue you educate someone on something doesn’t mean they’re going to adapt their behavior. Education is the first step though.


Darwin June 8, 2011 at 10:54 pm

I sense a bit of a shift toward “respect” and the cool factor regarding fiscal restraint and frugality…but not much. Hollywood and the mainstream media still tend to focus on the appearance of material wealth and spending itself over conservative habits and saving. Schools? It’s a thought; I’m sure it’s been bounced around, but it’s tough to change the curriculum nationally – unless it comes from the top. The Obamas are pushing healthy eating and the government getting more involved in many other aspects of life and regulation, but I’m not hearing much on this, if anything.


No Debt MBA June 9, 2011 at 11:03 am

I think the erosion of American’s financial habits has happened gradually. I imagine it started in the ’50s when buying on credit became a more prominent way to finance purchases. Although at the time it wasn’t habitual I think it has slowly progressed in acceptability to be in debt and the opportunities to use debt have increased phenomenally (think about the ubiquity of the credit card compared to only paying cash at the start of the century). Marketing probably has played a large role in starting this trend though I think laziness and ignorance perpetuate it.

I think it would be hard to teach personal finance in schools in such a way that it makes a significant impact on people’s financial habits long term. Think about all the health classes in schools that emphasize healthy eating, exercise and responsibility for your own health, but we still a huge national problem with obesity, type II diabetes, and other preventable and expensive ailments. That being said, some education on finances is better than no knowledge at all and I think financial literacy courses would be a worthwhile investment at the grade school and college levels.


Darwin June 12, 2011 at 1:51 pm

It’s sad, but the young are so influenced by popular media; if shows portrayed financial responsibility as “cool” somehow, you might see some newer attitudes, rather than the bling and cribs life we’ve seen evolve in prior years.


krantcents June 9, 2011 at 11:50 am

American have done a very good job of advertising and easy credit. 100% financing for a home, and no verification of income helped create this financial crisis. Americans in general have a low savings rate. We have a lot more choices in this country and our salaries are higher than elsewhere. There does not seem to be any consequences to irresponsible behavior. Who paid for the financial crisis? It wasn’t the people who caused it, they profited then and now. As a individual, bankruptcy is not an embarrassment!
I teach financial literacy in high school with some success. I teach the class because I love the subject. The students do projects which are very hands on and they learn a lot from it. I don’t know if it has a long term impact.
Do we need incentives to act responsibly? We have financial incentives for mortgages. Maybe we should have incentives for saving.


Darwin June 12, 2011 at 1:52 pm

Easy credit certainly hasn’t helped. It’s nice to have easy access to credit when responsible, but many people just didn’t contemplate the type of trouble it would get them into. Would interested in hearing more about the content you teach in school, what’s effective and what isn’t.


Financial Independence June 9, 2011 at 4:43 pm

This more related to the fact how poor are you, it is nothing to do with financial education or anything else.

For most of the Americans the biggest and only asset is their home. In nowadays it takes two to stay afloat with the kids.

Honestly, I tried to calculated our family finances and made available the statistic over last three years, 60+% are fixed expenses – you can not do anything about them.

On the other hand. Honestly. Life is a collection of experiences.

The best way to save – have two-three jobs, do not go out or on vacation. Do not have anything on your mind but job and savings.

Sure you can retire at 40+. Even better – you won’t need much, as during your life you did not do much.

I am not advocating it, as a life style. But when I analysed our family expenditure over three years. I just got some information and we decided to freeze them. Not cut, just try to control ourselves.

Otherwise what is the point? A penny for your thought.


Darwin June 12, 2011 at 1:54 pm

There is a strong correlation between financial behaviors and income, but is it a causal relationship? I dunno. I also know many people who make decent money and continue to make terrible financial decisions. Likewise, income and financial attitudes are somewhat a lifestyle; if you’re borne into poor habits and poverty, it’s overwhelming to break out.


JT June 10, 2011 at 3:04 pm

I took personal finance in high school. If you consider watching Dave Ramsey videos a lesson in personal finance (this is what we did most of the time), then having HSs teach personal finance is a great idea. Don’t expect very much from people who don’t know the subject themselves.

Finance is starting to become a lost language, it seems.


Darwin June 12, 2011 at 1:55 pm

Wow, I didn’t even know highschools over a pure PF course these days. I would have loved that. If my kids have the opportunity, I’ll make them take it come that time. I can try to teach them all I can, but learning it from a “real teacher” goes even further, it’s not just parental preaching then.


Invest It Wisely June 12, 2011 at 4:22 pm

Some of this is just due to not knowing any better, but some of it is systemic. Personally I did not have the best examples growing up, so I am glad that I found people that could push me and show me that there are better ways out there.

When you look at the people who are irresponsible, what’s really happening is that they just don’t place much value on the long-term and they are sheltered from the consequences of this by this program or that. Personal responsibility will only come back when it’s actually advantageous to be responsible. System incentives are so important… they say human nature doesn’t change, but actually it does in a sense. People are usually rational, but when they don’t have a good concept of the benefit and cost then it’s easy to make mistakes.


Financial Success for Young Adults June 14, 2011 at 10:28 am

I don’t know where or when the problem started but it is perpetuated by our federal government’s excuse for an education system. There is absolutely no education on personal finances.

That is a subject that one would think would be covered in a capitalist society yet we allow our children to macroeconomics when they have no idea how to balance a checkbook. Most parents are either too busy or don’t know enough themselves to teach their children what they need to know to make a difference. I think that’s where we need to start.


Patrick June 14, 2011 at 5:38 pm

“Hollywood and the mainstream media still tend to focus on the appearance of material wealth and spending itself over conservative habits and saving.”

I’d like to argue that it’s not so much Hollywood and the mainstream media as it is what I’d call paid media: for-profit media that is driven by advertising revenue, the advertisers, the advertising firms, and our general consumer culture.

We’re the most marketed-to society in the history of the world, and we’re becoming even more marketed-to, not less. Marketers are making very good use of the recent understandings we have of cognitive and behavioral foundations of decision making to appeal as directly to our built-in human biases as possible. Advertising and marketing rules the roost, and I’ve never seen an ad that wasn’t specifically for a Dave Ramsey or Suze Orman type show or product that mentioned, much less encouraged, responsible financial decisions.

I’d even go so far as to argue that responsible financial decision making is the last thing that most of the for profit world is interested in when it comes to consumer behavior. Those folks need consumers to spend, spend, spend! Their jobs and bonuses depend on that kind of consumerism.

My folks were both born in the late 20s and early 30s and grew up through the Depression and World War II. I didn’t even know what credit was until I got to college because I was taught as a kid that if I didn’t have the money to pay for it, I shouldn’t be buying it. My professor father and bank teller mother used credit very sparingly in their adult lives, and always paid as much down as possible to reduce the amount needing to be financed and the time over which it would be financed. This served them well and allowed them to have one kid and live for most of their adult lives and retire as comfortably middle class people.

However, their blueprint simply wouldn’t work for most folks today. Three decades’ worth of inflation rising faster than household incomes means that everything is so much more expensive today than it was when I came along back in the early 1970s. You can live as my parents did today, but if you do, you can likely kiss the dream of a comfortable middle class life goodbye. Assuming the number someone cited from personal experience upstream in the comments that around 60% of expenses are fixed costs, that leaves a whole lot of folks without any hope of buying a home well into their 40s (as my parents did), and that’s if they make a savings plan for a home and stick to it in addition to making a savings plan for their personal savings and sticking to it at the same time. If you run around espousing that approach to home buying, banks, homebuilders, and advertisers will call you crazy.

I wish I knew more answers to these questions. There are a bunch of questions about us as a society and us as individuals that are all tangled together when it comes to this topic, and I think we owe it to ourselves and to one another as a whole to try and untangle them and start answering them.


Renee June 20, 2011 at 9:55 pm

I don’t know what would help, but these statistics are staggering. I think a high school course would be a good start.


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