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I listened to a personal finance podcast, “The Truth About Your Future,” this past weekend. The topic was about accredited investors. The most experienced, most knowledgeable, most sophisticated, and wealthiest investors are at big risk because of cognitive decline. Accredited investors tend to be older and more seasoned investors. The big problem/risk is that these accredited investors don’t know that they’re in cognitive decline. They were sharp when they were younger. As they have aged, they’re not as sharp as they used to be. In fact, many of these accredited investors scored worse on a financial literacy quiz than those who were considered simpletons on the subject of personal finance.
Listening to this podcast prompted me to seek out statistics on financial literacy. Below are statistics provide by www.zippia.com.
Financial literacy is one of the most important skills a person can have, but that doesn’t mean everyone has it. From knowing how to save money to knowing just how much you can afford to spend, there are many skills that make someone financially literate. According to our research:
- Only 57 percent of American adults are financially literate.
- 73 percent of teens want more personal finance education.
- Americans lose an average of $1,819 annually due to financial illiteracy.
- 77 percent of Americans are financially anxious.
- Women are 40 percent more likely to have low levels of financial literacy.
Approximately 21 percent of women score a low level of financial literacy, compared to 15 percent of men.
- Asian and White Americans score the highest on financial literacy tests, answering 53.3 percent of questions correctly.
Asian Americans and White Americans answered an average of 3.2 out of 6 financial literacy questions correctly, while Hispanic Americans answered 2.6 out of 6 questions correctly (43.3 percent), and Black Americans answered 2.3 out of 6 questions correctly (38.3 percent).
- 25 percent of American adults don’t have anyone to ask for trusted financial guidance.
- 63 percent of Americans live paycheck to paycheck.
- 71 percent of Americans believe they have high financial literacy levels.
- Only 16 percent of Millennials understand basic financial principles.
- Only 25 percent of American teens have confidence in their personal finance knowledge.
- 53 percent of Americans don’t have an emergency fund.
- Despite working full-time, 35 percent of American families still can’t afford rent, food, transportation, medical care, and minimal household expenses.
- 18 percent of adults claim to just “get by” financially.
- 55 percent of Americans don’t think their retirement savings are on track.
- 73 percent of American adults rank finances as their primary stressor.
- 29 percent of Americans stress about money daily.
Startling statistics! I’ve read similar statistics over the years that confirm these statistics. Based on these statistics, it’s safe to say that Americans are grossly undereducated on personal finances. Especially African Americans. When it comes to money and personal finances, ignorance isn’t bliss. What you don’t know can bankrupt you!
Below is a Financial Literacy Pop Quiz. If you’re like 71 percent of Americans who believe that they have high financial literacy levels, confirm it. If you know that you need to enhance your financial knowledge, use this pop quiz as a starting point.
Let’s get started: You need to get 12 of the 15 correct to be considered “Financially Literate.”
- What is the definition of budgeting?
- a) Setting financial goals
- b) Tracking income and expenses
- c) Investing in the stock market
- What is the purpose of an emergency fund?
- a) To save for vacations
- b) To cover unexpected expenses
- c) To buy luxury items
- For a young person, which insurance policy provides the most coverage at the lowest cost?
- a) Term life
- b) Whole life
- c) Universal Life
- When you buy an insurance policy that has a high deductible, the premiums will be…?
- a) Higher
- b) Lower
- c) The same
- What is the concept of compound interest?
- a) Earning interest on the initial deposit only
- b) Earning interest on the initial deposit and the accumulated interest
- c) Earning a fixed interest rate on a savings account
- What is the purpose of diversification in investing?
- a) Minimizing the risk by spreading investments across different assets
- b) Maximizing the return by investing in a single asset
- c) Avoiding taxes on investment gains
- What is the difference between a traditional IRA and a Roth IRA?
- a) Traditional IRA contributions are tax-deductible, while Roth IRA contributions are not
- b) Traditional IRA withdrawals are tax-free, while Roth IRA withdrawals are taxable
- c) Traditional IRA has higher contribution limits than Roth IRA
- Net worth is equal to?
- a) Total Assets
- b) Total Assets plus liabilities
- c) Total Assets minus liabilities
- What does FICO score measure?
- a) Income level
- b) Credit worthiness
- c) Savings account balance
- What is the purpose of a 401(k) retirement plan?
- a) To save for a down payment on a house
- b) To save for college education
- c) To save for retirement
- What is the concept of inflation?
- a) Increase in the value of money over time
- b) Increase in the supply of money in the economy
- c) Increase in the prices of goods and services over time
- Savings Accounts and Money Market Accounts are most appropriate for…?
- a) Long-Term Investments like retirement
- b) Emergency Funds and Short-Term Goals
- c) Earning a High rate of return
- What is the purpose of a will?
- a) To transfer assets to beneficiaries after death
- b) To pay off debts and liabilities
- c) To create a trust fund for future generations
- What is the concept of risk tolerance in investing?
- a) Willingness to take risks for higher potential returns
- b) Avoiding all risks by investing in low-risk assets
- c) Determining the maximum loss one can tolerate
- For which type of loan is interest never tax deductible?
- a) Home Equity Loan
- b) Adjustable Rate Mortgage
- c) Personal vehicle loan
Answer key: 1. b), 2. b), 3. a), 4. b), 5. b), 6. a), 7. a), 8. c), 9. b), 10. c), 11. c), 12. b) 13. a), 14. c), 15 c)
(Money Coach Damon Carr can be reached at 412-216-1013 or visit his website @ www.damonmoneycoach.com.)
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