Financial literacy pays off in many ways
Money clings to financially literate people.
They earn more. They pay less for loans. They are smarter with
credit cards. They have financial cushions for the rough times. And their knowledge
also buys them peace of mind.
Americans who have a solid grasp of financial issues are richer
in many ways, according to the Bankrate.com Financial Literacy Survey of 1,000
Americans conducted by RoperASW.
They still worry. One surprising fact uncovered in Bankrate's
2004 survey shows that they worry just as much about monthly credit card bills
as their less financially literate friends and neighbors. But, because they
are smart and careful with a dollar, they also have resources others don't.
No surprise that learning about money makes life easier.
Bankrate looked specifically at mortgages obtained by survey participants.
Of those who had mortgages, people who scored an "A" or "B"
on the survey paid substantially less for their home loans than those who failed.
Top-of-the-financial-class students were able to track down and
lock in mortgages with an average interest rate of 5.95 percent. Those who received
an "F" in financial literacy ended up with loans averaging 6.80 percent.
So if the difference between the top of the class and the bottom
is less than 1 percent, what does that translate to in dollars and cents? Quite
a bit, as it turns out.
If you get a $150,000 30-year fixed-rate mortgage at 5.95, you
end up paying $322,024. But with a 6.80 percent loan, the final total is $352,040
for the same home. The difference: a tidy $30,016. And who wouldn't want that
money earning interest in a 401(k)?
The higher rate translates to an extra $83 each month. Homeowners
with the lower rate would write a check for $895, while the higher payment runs
Good money managers are stable
Money may not buy happiness. But it does indicate stability. Bankrate's
survey shows that people with a higher degree of financial literacy are more
likely to be settled individuals. They are apt to be slightly older than their
lower-scoring counterparts, with a median age of 48. More than two-thirds are
married, and nearly nine out of 10 have kids.
Not surprisingly, they also make more money. The average income
for someone with an "A" or "B" in Bankrate's financial literacy
test was $66,200 vs. $37,200 for those who posted an "F."
They also do a better job of putting smart money goals into practice.
Nearly all pay the bills on time, read their statements regularly and cruise
banks for the best mortgage deals.
It pays. More than half of Bankrate's "A" and "B"
students have a mortgage. Less than a third of those who failed the test own
their own homes.
Top money students may see just as many financially rainy days
as the rest of us. But they also are better prepared.
More than three-quarters of them have at least three months' living
expenses stashed for a rainy day. For those with a "C" or "D,"
only 45 percent have that kind of cushion. And for the lowest literacy scores,
also the lowest incomes, the figure drops to just one-fifth.
Those who know something about money, and put it into practice,
can also look forward to retiring with some ease. More than eight out of 10
regularly contribute to a retirement account. For "C" and "D"
students, a little more than six out of 10 put in money regularly. And those
who earned an "F" are living a more month-to-month existence, with
just 31 percent regularly putting away money for their "golden years."
But even "A" and "B" students aren't perfect.
Sixteen percent revealed that they have gotten into trouble with credit cards.
With moderate students, it climbs to 27 percent, but "F" students
take the lead with 34 percent.
Nearly one-fifth of "F" students admit that their credit
card spending has even been a source of strife with friends and family. But
only 6 percent of "A" or "B" students have gotten that far
out of control with credit.
Life's a marathon, not a sprint
Financial literates tend to keep up with the little details that can make
a big difference down the road.
They are more than five times more likely than non-literates to
have a will (76 percent vs. 14 percent.) They are more than twice as likely
to live by a monthly budget (73 percent vs. 30 percent). More than two-thirds
regularly adjust their federal tax withholding (vs. just 42 percent for the
moderately financially literate and 13 percent for those who flunk Bankrate's
They also tend to be more constant and careful shoppers when it
comes to financial services. Thirty-nine percent say they are always looking
for lower rates on credit cards, compared with just 14 percent of moderately
financially literate individuals and 4 percent of those who flunked the financial
Sixty-three percent of financial literates shop regularly for
better deals on insurance, compared to just 30 percent for moderate students
and 15 percent of those who flunked the financial literacy test.
Most of all, financial literates seem to realize they are in life's
money management race for the long haul. More of them classify themselves as
savers rather than spenders. And larger numbers of them admit that they don't
buy things on a whim or make snap decisions that involve their wallets.
Like Aesop's tortoise, they've learned that "slow and steady
wins the race" is doubly true when it comes to money.
-- Posted: April 6, 2004