Financial literacy is a hot topic among lawmakers and industry groups. But a new survey shows that residents in many states still have plenty to learn about handling their money.
According to a
study released today by the Financial Industry Regulatory Authority Inc., the residents of California, Massachusetts and New Jersey are the best at handling their money. Conversely, residents of Mississippi, Arkansas and Kentucky rank at the bottom of the list.
The results are based on an online survey of 25,509 American adults from July to October 2012. The study, which was sponsored by the Finra Investor Education Foundation, is a follow-up to a similar report issued in 2009. The financial capability rankings were determined by answers to five questions about the fundamentals of money management.
Overall, the number of respondents demonstrating a high degree of financial literacy — answering correctly four or five of the five questions about financial knowledge — dropped to 38% in 2012, from 42% in 2009.
More financial education is required, according to Finra chairman and chief executive Rick Ketchum. “Clearly, this focuses on the need for policymaking,” he said.
On the bright side, about 40% of respondents in this year's survey said that they could cover monthly bills and expenses. That compares with 36% in 2009. The portion of respondents who were “very satisfied” with their financial condition rose to 24% in 2012, up from 16% in 2009.
But debt — in the form of mortgages, credit card balances, unpaid medical bills and auto and student loans — looms over many Americans. In the survey, 42% responded affirmatively to the statement: “I have too much debt right now.”
“No matter how much income they earn, a significant number felt they had too much debt,” Mr. Ketchum said at an event at George Washington University.
The survey also revealed a startling lack of savings for many Americans. Nearly 40% said that they couldn't come up with $2,000 to meet an unforeseen expense over the next month.
“This finding sheds light on the precarious financial situation in many U.S. households,” Mr. Ketchum said.
About half of survey respondents have worked with a financial professional over the last five years. But they still lack knowledge of key financial market concepts.
For instance, only 28% correctly answered a question about the movement of bond prices, compared with interest rates. Less than half correctly answered a question about the risk of a single company stock versus a diversified mutual fund.
Securities and Exchange Commission Chairman Mary Jo White said that not enough investors are taking advantage of the agency's
online resources designed to provide financial education as well as information about financial advisers.
“It seems that we're almost more likely to go on Angie's List to check out our plumber than we are to go on the SEC's website to investigate the background of the individual with whom we are about to entrust our life savings,” Ms. White said, referring to the business reviews website. “There's something wrong with this picture.”
