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Who's financially literate? Who's not?

  What sets the financially literate apart from the illiterate? The fast answer is that the financially literate have a well-rounded knowledge of their personal finances, while the illiterate tend to be oblivious, Bankrate.com's exclusive Financial Literacy Survey reveals.

Bankrate also uncovered some interesting distinctions between the way men and women, Republicans and Democrats, and Southerners and Northeasterners use credit cards.

What's most surprising is that so few people earned top marks.

More than a third of the survey participants received a big fat "F" on their financial literacy report cards. About 60 percent of those surveyed received a "B," "C" or "D" (roughly 20 percent falling in each grade category). Only 7 percent of participants aced the survey and earned an "A." That number is down from 9 percent a year ago. Altogether 1,000 randomly selected adults participated in the scientific national survey of the American population conducted by RoperASW for Bankrate.

To be considered "financially literate," you have to score an "A" or a "B" on the test, which, in broad terms, measures whether people know 12 common money-smart moves to make, and whether they actually do them.

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Common traits of financially literate
The 26 percent who received an A or B, those deemed "financially literate," share these traits:

  • They tend to be older; the average age is 49.
  • They have a higher household income, $66,200 on average.
  • Most (69 percent) are married, and (87 percent) have children.
  • More than half (53 percent) have a mortgage.

Financial Literacy grade

A/B

C/D

F

Average age

49

47

41

Mean household income

$66,200

$52,300

$37,200

Married

69%

63%

45%

Have children

87%

75%

67%

Have credit card

72%

77%

43%

Have a checking account

96%

91%

70%

Have a mortgage

53%

42%

31%

Traits of the 'flunkees'
Those who failed the literacy test are a bit younger -- age 41 on average. Their household incomes are lower, averaging $37,200. Fewer than half (45 percent) are married and many (67 percent) have children. About one in three has a mortgage. And if you make a bet with an "F," you're least likely to collect by check: Thirty percent don't have a checking account.

People who scored a C or D are in the middle of the pack in several ways. Their incomes fall midway between the two levels, averaging $52,300. Their average age is 47, with 63 percent married, 75 percent with children and 42 percent with a mortgage.

While higher age and higher income go hand in hand with financial literacy, higher education doesn't. There was no correlation between a person's education and his or her score.

Gender is not a factor in financial literacy, either. Men and women did equally well -- or poorly -- on the test. While the lack of correlation between gender and financial literacy is consistent with last year's test, the study did uncover some striking differences between the sexes on a few points.

Men and women and money
Perhaps women are better than men at facing their mortality: They are more likely than men to have prepared a will -- 44 percent vs. 35 percent of males.

Men are more likely to know the mortgage rate they are paying. Twenty-one percent of female mortgage holders professed ignorance about their mortgage rates, while only 11 percent of males did. And 44 percent of the women surveyed also admit to finding the process of getting the best mortgage deal confusing vs. 33 percent of the men. But of those who did know their rates, women mortgage holders say they are paying an average 6.16 percent while males are paying 6.32 percent.

Women hold more credit cards than men -- three vs. two and a half for men. Roughly 10 percent of the women throw caution to the wind with their credit cards, often spending more than they can pay off immediately, propelled by the belief that "life is short and you have to live for today." Roughly twice as many men share that whimsical attitude. And 58 percent of women describe themselves as savers vs. 49 percent of men.

What about political party affiliation?
Financial literacy cannot be cut along party lines. Americans of all political stripes -- Republican, Democrat or Independent -- scored equally poorly, averaging a "D."

Interestingly, Republicans (70 percent) are bigger users of credit than both Democrats and Independents (60 percent each). Republicans also are much more apt than Independents to hold loans other than a mortgage (45 percent vs. 29 percent), and they are much more likely than Democrats to have taken out a home equity loan or line of credit in particular (41 percent vs. 31 percent). More Republicans have maxed out a credit card -- 27 percent vs. 20 percent of Democrats. And Democrats are more likely than Republicans to switch to credit cards with lower rates.

Regional differences
Credit cards are most plentiful among folks in the Northeast, but only 3 percent of those in the New England and the mid-Atlantic states need them to buy necessities, while three times as many southerners, westerners and midwesterners are dependent on credit cards for necessities. Credit card users in the corn belt are more apt to pay their credit card bills in full each month -- 68 percent vs. 52 percent of folks in the Northeast and 54 percent of those in the South.

How the literates think
More important than their demographic profile is how this year's participants characterize themselves. For example, when asked, "Would you say that, in general, you are more of a spender or a saver?" 71 percent of the people who scored an "A" or "B" say they are savers, while only 38 percent of the people who got an "F" identify themselves as savers. When asked if they plan carefully before making decisions, or if they tend to make decisions spontaneously, 88 percent of the financially literate describe themselves as careful planners, compared to 62 percent of the "F" troupe.

Spontaneity flunks our test: Only 9 percent of the literates say they make spontaneous decisions, compared to 31 percent of the faltering.

The financially literate also tend to be more aware of the fine details of their financial lives. Four in five know such boring-but-important financial details such as their credit card interest rates, while only 56 percent of the "F" group could recall them. And while 88 percent of the financially literate know what their banks charge monthly for various services, only two-thirds of the faltering boasted the same knowledge. More financial literates also tend to use the Internet to manage their finances -- about half vs. a quarter of the financially faltering.

What the financially literate know, do
Also revealing is the mindset of the financial literates vs. that of the less-savvy participants. Financial literates place more importance on key money management behaviors. The table below shows the percentage of participants in each of the grade categories that agree that these particular activities are "very important" to good money management.

Financial Literacy grade
A/B C/D F

Paying bills on time so you don't get late fees

99%

97%

89%

Reading your bank account statements regularly

93%

84%

61%

Making more than the minimum payments on your credit card

91%

83%

74%

Preparing a will

90%

69%

53%

Contributing to a retirement account

87%

76%

53%

Keeping an emergency fund of at least 3 months' living expenses

83%

76%

57%

Comparison shopping for the best deal on your mortgage

82%

72%

54%

Shopping around for the best insurance quotes and coverage

79%

65%

53%

Following a monthly budget

77%

65%

53%

Adjusting your W-4 form annually to make sure you�re not giving the government too much money

78%

56%

36%

Checking your credit report annually for accuracy

66%

50%

37%

Looking for and switching to credit cards with lower rates

58%

37%

35%

But if actions speak louder than words, then a look at actual behaviors might reveal the biggest differences between those who received the highest marks and those who failed the financial literacy test. For example, nearly all of the financially literate say they always pay their bills on time to avoid getting late fees, while only two-thirds of the financially faltering do so. Three-quarters of the literate have an emergency fund with three months of living expenses saved up; only one-fifth of the faltering do. The table below breaks it all down:

Financial Literacy grade
A/B C/D F

Comparison shopping for the best deal on your mortgage

99%

85%

41%

Paying bills on time so you don�t get late fees

98%

90%

66%

Reading your bank statements regularly

96%

84%

48%

Making more than the minimum payments on your credit card

86%

69%

60%

Contributing to a retirement account

81%

61%

31%

Keeping an emergency fund of at least 3 months' living expenses

76%

45%

20%

Preparing a will

76%

40%

14%

Following a monthly budget

73%

48%

30%

Adjusting your W-4 form annually to make sure you�re not giving the government too much money

68%

42%

13%

Shopping around for the best insurance coverage

63%

30%

15%

Checking your credit report annually for accuracy

53%

31%

11%

Looking for and switching credit cards with lower rates

39%

14%

4%

All the survey participants do share one thing in common -- concern about credit card debt. Nearly three-quarters of those polled, regardless of their level of financial astuteness, are "very concerned" about their credit card debt.

-- Posted: April 6, 2004

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