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Americans on the brink of financial illiteracy

America isn't flunking financial literacy, but it's close. With a grade of 67 out of 100, Americans get a "D" in the subject, according to Bankrate.com's Financial Literacy survey.

The statistically valid survey of 1,000 Americans, conducted for Bankrate by RoperASW, creates a benchmark grade on adult financial literacy in the United States.

The results are clear: There's a substantial gap between what we know and what we do.

How the grade was created
Bankrate listed a dozen steps that are basic to financial well-being in today's America:

  • Paying bills on time

  • Reading your bank account statements regularly

  • Making more than the minimum payments on your credit cards

  • Preparing a will

  • Contributing to a retirement account

  • Comparison shopping for a mortgage

  • Keeping an emergency fund of at least three months' living expenses

  • Shopping around for the best insurance quotes and coverage

  • Following a monthly budget

  • Adjusting your W-4 form annually

  • Checking your credit report annually for accuracy

  • Looking for and switching to credit cards with lower rates

In the survey, people were asked to assess the importance of each of the 12 subjects and then whether they actually did them.

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The good news is that the public generally understands how important these 12 steps are to achieving wealth, especially when it comes to paying bills on time, making more than the minimum payment on credit cards and reading your bank statement regularly. At least three out of four people said those were "very important" to good money management.

At the other end of the scale, people are not as likely to understand the importance of checking credit reports and switching to lower-rate credit cards. Only 44 percent and 43 percent of Americans said those were "very important" to good money management.

Gap between knowledge and action
But the survey uncovered a significant gap between people's knowledge of what they should do to be financially literate and what they actually do.

For example, although 93 percent of all Americans agree it's "very important" to pay bills on time to avoid late fees, only 80 percent say they do it all the time.

There were similar significant gaps between knowing and doing in amassing an emergency fund, preparing a will, shopping around for insurance, and looking for and switching to lower-rate credit cards.

The letter grade was created from the answers on what people do.

Using the 12 measures of financial literacy, each respondent was assigned zero to three points for each answer: "All the time" got three points, "sometimes" earned two, "rarely" earned one point and "never" got zero. The responses were averaged out, then converted into a 100-point scale. Letter grades were assigned in the common way done in schools, with a 90 percent or higher getting an A, 80 percent a B, and so on.

Survey says ...
Only a quarter of Americans made the dean's list, with 10 percent receiving an A and 16 percent a B. Another 19 percent earned a grade of C, with 20 percent getting a D and 35 percent received a failing F.

Overall, the score was 67, which translates to a grade of D. Bankrate will repeat the survey at intervals to see whether the score changes.

Other significant findings in the survey include:

The survey was conducted by RoperASW for Bankrate.com. In it, 1,000 adult Americans 18 or older were surveyed via random-digit-dialed telephone interviews that yielded a nationally representative sample. The survey, which was conducted Jan. 17-31, 2003, has a margin error of plus or minus 3 percent.

-- Posted: March 16, 2003

 

 

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