By Cyril Tuohy
The most “financially capable” U.S. citizens live in California, Massachusetts and New Jersey, while the least financially capable live in Mississippi, Arkansas and Kentucky, according to a new survey by the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation.
As a whole, though, basic financial literacy among American consumers remains low, especially among the young, the state-by-state 2012 U.S. Financial Capability Study of more than 25,509 respondents also revealed.
“No matter how you slice and dice it, this rich, new dataset underscores the need for us to continue to explore innovative ways to build financial capability among consumers,” FINRA Foundation Chairman Richard Ketchum, said in a statement.
The results categorize respondent data by state, gender, age and region. The questions asked in the survey related to four basic financial literacy categories: making ends meet, planning ahead, managing financial products, and financial knowledge and decision making.
In California, 42 percent of respondents answered four or more financial knowledge and decision making questions correctly, compared with Mississippi, where only 32 percent answered four or more correctly. The national average for four or more correct answers in financial knowledge and decision-making was 39 percent, the study found.
On a test of five basic financial literacy questions, the national average was 2.88 correct answers, the survey also found. A sample question: Suppose you have $100 in a savings account earning 2 percent interest a year. After five years, how much would you have? A) More than $102 B) Exactly $102 C) Less than $102 D) Don’t know.
Some habits – spending and saving – have remained steady over the past three years, since FINRA’s 2009 benchmark survey was established. Other habits, such as paying credit cards in full, have declined, the study also found.
Only 41 percent of respondents reported spending less than their income, 26 percent reported having unpaid medical bills, and 56 percent do not have rainy-day savings to cover three months of expenses in case of an emergency, the survey found.
Many surveys have revealed disparities among Americans’ financial knowledge even as companies, institutions and educational organizations have poured money into websites where consumers can calculate compound returns or how long it would take to settle credit card balances paying only the minimum.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].
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