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:
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?