Americans on the brink of financial illiteracy
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
- 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
- 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.
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
an emergency fund, preparing a will, shopping around for insurance, and
looking for and switching
to lower-rate credit cards.
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