April is Financial Literacy Month and if so many surveys, polls and reports are any indication, a good chunk of Americans need a crash course in how to handle their money.
Yes, entire sections of bookstores are devoted to helping people save, manage and invest their money.
Yet despite the amount of information available and all manner of ways to access it, it doesn’t seem like we’re getting smarter. The wide array of financial products available to consumers today – mortgages, credit cards, student loans, annuities, investments – have shown to be too complex for the unsophisticated. And, of course, to their detriment; less savvy consumers won’t get the best terms on a mortgage, might pay unnecessary banking fees, and see below-average returns on their investments. Results of the National Foundation for Credit Counseling’s financial literacy survey this week found that 57% of Americans were worried about a lack of savings, while 38% were concerned about having insufficient retirement funds.
A research paper published this month by the Pension Research Council looked at how well-equipped today’s households are to make complex financial decisions, with a specific focus on financial literacy. One interesting piece of data it found is a substantial mismatch between what people think they know and what they actually know, as measured by correct answers given to financial literacy questions posed. Overall “respondents tend to overestimate their levels of knowledge,” say the authors, Annamaria Lusardi, economics professor at the George Washington University School of Business, and Olivia S. Mitchell, business economics and public policy professor at The Wharton School.
No doubt the costs of financial literacy are high. The authors note that financial literacy can explain more than half the wealth inequality observed in U.S. data. The paper cites previous studies that have found that the least financially savvy individuals are least likely to refinance their mortgages. They also pay fees that are 50% higher than those paid by average credit card holders.
In the spirit of furthering financial literacy, we invite you to test your knowledge by taking our quiz. How do you stack up? Check out our Your Money 101 page for more personal finance content here.