Would You Get an “F” in Personal Finance?

When it comes to your finances, what you don’t know will definitely hurt you. The failure to understand even the most basic tenets of savings, debt, budgeting, and prioritization is currently leading millions of Americans to the brink of bankruptcy, at the same time that nearly 25 percent of people at or near retirement age are likely to become impoverished at some point in their remaining lives.

Photo via hans.gerwitz

For many Americans, their delusion, masked as optimism, has allowed them to “live in the moment” at the expense of their future. In fact, according to a new financial literacy survey, a disturbing number of people simply lack the knowledge to effectively manage their personal finances.

For a brief moment it seemed as though the calamitous financial crisis and economic downturn had snapped some common sense into a populace that had been over-charging their credit cards, over-spending, under-saving, and, generally, over-indulging. However, the findings from The 2012 Consumer Financial Literacy Survey released recently reveal a return to a familiar and destructive pattern. Among the more stunning findings:

  • One-third of Americans can’t keep up with their monthly bills.
  • Four in ten people carry a balance on their credit cards.
  • More than 40 percent of adults have zero savings.

Even at the most fundamental level of personal finances, people are ignoring, or ignorant of, the need to do basic budgeting, with more than half admitting they do not have a budget, and more than 1 in 5 who say they don’t have a good idea of how much they spend on housing, food, and entertainment. So, the fact that one-third of Americans don’t pay all of their bills on time is not very surprising, nor is the fact that four in ten adults don’t have any savings.

As to those who say they do have savings, according to another survey conducted by EBRI, half report that they have less than $25,000 and 25 percent say they have saved less than $1,000. The numbers improve only slightly for workers closer to retirement. In a 2010 Wells Fargo survey, workers in their 50s earning below $100,000 had median retirement savings of just $25,000, and those in their 60’s had accumulated $30,000.

Out of all workers, only 11% claim to have saved more than $250,000 for retirement. It’s not surprising then that 85% say they have little or no confidence that they will be able to meet their retirement needs.

Of greater concern is the seemingly cavalier attitude displayed by an increasing number of people when it comes to critical financial decisions such as their mortgages. The survey found that 55% are fine with walking away from their mortgage when they can no longer make the monthly payment. That’s a 10% increase since 2010. Interestingly, the same exact numbers of people have no idea what their credit score is.

It seems remarkable that in an age of instant information ubiquitously available across the World Wide Web, Americans, 85% of whom are online, can’t seem to glean even the most basic knowledge necessary to guide them in their most essential financial decisions.

Nearly 50% of adults in this country grade themselves at a C or below on their knowledge of personal finance, but just as importantly, how would they grade themselves for effort?

What grade would you give yourself in personal finance?

About the Author

By , on Jun 13, 2012
Monica Clark
Monica Clark is the Managing Editor at Directbanc. Directbanc strive to help consumers by providing unbiased information and educational articles about financial products in order to improve their finances.

Leave Your Comment (6 Comments)

  1. Jenny says:

    I’d still give myself a B. Between retirement, extra on the mortgage, and prepaid college for the kids, we put away more than a quarter of our income a year, but there’s still more we could do!

  2. Five years ago, I would have given myself a C. Today, an A. So what changed? I underwent a spiritual conviction that I was not handling my money the way God intended. I also received some basic financial education from experts in the field such as Dave Ramsey. My wife and I also took steps to get on the same page in regards to our priorities. Today we are moving towards being completely debt free. Feels good to be going in this direction rather than where I was before.

  3. Kris says:

    I don’t think its lack of knowledge that hurts people financially, nor lack of effort. I think its more an inability to accept reality – meaning, living within your means, as opposed to living as you want. You need to understand that if you can’t afford it, there’s no shame in going without.

  4. Jenna says:

    Yikes!

    I’d give myself a B right about now. Hopefully back to an A by the end of the year.

  5. Jenn says:

    These numbers are both disturbing but as you wrote, also a little unsurprising. The key seems to be education both in the home and in the schools. If good habits are instilled at a young age, then as an adult, finances are a lot easier to manage.

  6. Those statistics are certainly alarming! I would give myself a “B” in personal finance. I know how to manage my money and save, but I haven’t yet dipped into planning for retirement and investing. However, I wouldn’t have given myself a “B” when I was a recent college graduate. I can definitely say I wish I knew more then, so I could have been better prepared for my future now!

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