David Lerner Associates: Financial Capability Study Sends Mixed Messages

First, the good news: According to the Financial Capability study, which surveyed more than 25,000 people last fall to get an idea about how Americans manage their finances, a higher percentage of people today are paying off their credit card balances in full each month (49 percent vs. 41 percent), have at least three months of income set aside for emergencies (40 percent vs. 35 percent), and are keeping up with their monthly bills (40 percent vs. 36 percent) than they were in 2009.

Also, about a quarter of respondents said they are currently satisfied with their financial health. This might not sound like a high percentage, but just 16 percent of respondents said this in 2009.

Now, the bad news: Only four out of 10 Americans (41 percent) are spending less than they earn, and about a third of Americans (34 percent) only make the minimum payment each month on their credit cards. And the average score on a test that consisted of five simple financial questions was 57 percent, or a D in economic literacy.

“This survey reveals that many Americans continue to struggle to make ends meet, plan ahead and make sound financial decisions,” said Richard Ketchum, chairman of the Financial Industry Regulatory Agency (FINRA) Foundation, which sponsored the study.

Not surprisingly, the more education and higher income individuals have, the more likely they are to be financially healthy. These individuals are also less likely to engage in financially destructive behavior, like obtaining payday loans and borrowing money against their retirement accounts, the study determined.

In addition, the geographic area of the country where people live also seems to have an impact on financial behavior: People who live in New Jersey, California and Massachusetts, for example, were more likely to control their spending than those who live in Kentucky, Arkansas or Mississippi.

Some experts believe that financial peer pressure — or “keeping up with the Joneses” — may be at work here. For example, if all of their friends and neighbors are living beyond their means by racking up big credit card balances and living in houses they can’t afford, some individuals can’t resist the urge to follow along.

Conversely, if their friends and neighbors live frugally and all the talk at neighborhood parties is about responsible spending and saving for retirement, individuals may be more uncomfortable living an irresponsible financial lifestyle.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. Member FINRA & SIPC