David Lerner Associates: National Financial Capability Study Reveals Shortcomings

In May, the FINRA Investor Education Foundation released its annual National Financial Capability Study. The results of the study reveal some shortcomings in terms of how good a job most Americans are doing at making their financial ends meet, planning ahead for their financial futures, and managing financial products.

Among the findings of the study are the following:

• Less than half of Americans (41 percent) say they spend less money than they make. About one-third (36 percent) say they break even with their income and expenses, and about one-fifth (19 percent) say they spend more than they make. “Only those who spend less than their household income are able to save,” stated the authors of the report. “Individuals who are not balancing monthly income and expenses may find themselves struggling to make ends meet.”

• One-quarter (26 percent) of Americans say they have medical debt that is overdue. About one-third of them (31 percent) are between the ages of 18-34 and about another third of them (30 percent) are between the ages of 35-54. “The piling up of medical debt can make it even harder for Americans to make ends meet today and to plan their financial future,” stated the authors of the report.

• Only four out of ten Americans (40 percent) say they have a rainy-day emergency savings fund that’s adequate to cover expenses for three months in case of an emergency such as sickness, job loss or an economic downturn. “Individuals without this emergency savings lack a buffer against unexpected financial shocks, threatening their personal financial stability, as well as decreasing the stability of the economy as a whole,” stated the authors of the report.

• More than one-third of Americans (34 percent) are only paying the minimum balance on their credit cards each month. “Consumers must understand how to manage credit and that paying only the minimum on credit cards can result in a long-term drain on their finances and borrowing ability,” stated the authors of the report.

• Fourteen percent of Americans say they are currently “underwater” on their home’s mortgage (i.e., the balance on their mortgage is higher than the value of their home). “This can keep many Americans away from the key financial benefits of owning a home,” stated the authors of the report. “If an individual has an underwater mortgage, they will have to pay the difference if they sell their home, and may find refinancing their mortgage difficult.”

• The average score on a test that asked five basic financial literacy questions was 2.88 correct answers. More than half (61 percent) of respondents got three or fewer answers correct. “Individuals need at least a fundamental level of financial knowledge,” stated the authors of the report. “This knowledge, paired with financial decision-making skills, can best ensure an individual’s financial capability.”

“This survey reveals that many Americans continue to struggle to make ends meet, plan ahead and make sound financial decisions — and that financial literacy levels remain low, especially among our youngest workers,” stated FINRA Foundation Chairman Richard Ketchum. “No matter how you slice and dice it, this new dataset underscores the need for us to continue to explore innovative ways to build financial capability among consumers.”

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.