America gets a “D” for the second year in a row in Bankrate.com’s Financial Literacy Survey. (See our newest
Financial Literacy Survey.)
That’s disappointing enough, but the statistically valid survey of 1,000 Americans, conducted for Bankrate by RoperASW, also shows that Americans are in “debt denial.” They’re unwilling to admit that credit is a problem — in fact the only thing Americans are more secretive about is their love lives.
They say, “My credit’s OK, but the rest of the country sure has a problem.” A closer look at the evidence suggests that America has a dirty little secret: That debtor in the closet is you.
How the grade is created
At its core, Bankrate’s survey measures whether Americans know about, and whether they act upon, a dozen concepts that are basic to financial well-being. Those 12 concepts are:
- Paying bills on time
- Reading bank account statements regularly
- Making more than the minimum payments on 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. We attached a numeric score to each answer, and graded them on a standard 0-100 scale, with 90-100 percent considered an A score, 80-89 a B, and so on, with the letter grades declining with each 10 point drop.
With an average score of just 66, America’s 2004 grade is a “D,” as it was with the 2003 survey. A few more people got “B” grades than last year, a few less got “A” grades, and the number of “C,” “D” and “F” grades stayed about the same.
Among the key findings of Bankrate’s Financial Literacy Survey for 2004 are:
- Americans seem to be getting better at knowing what they need to do to achieve financial well-being. The public is more aware than last year: The percentage of Americans who say the activity is “very important” to good money management increased in 11 of the 12 steps.
- Though they know what they should do, their actions often don’t follow suit. There’s a substantial
gap between attitude and action. For example, 71 percent of the respondents say that keeping an emergency fund is “very important,” but just 44 percent say they always have one at hand — a gap of 27 points. The gap is even bigger for preparing a will and shopping around for the best insurance quotes and coverage. In every case, Americans are well aware that these are important for financial well-being — but significant numbers don’t follow through.
- Financially literate people
share several key tendencies and attitudes. The literates tend to be older, have a higher household income and be married. But higher education doesn’t correlate to higher levels of financial literacy, and neither men nor women are better at attaining it.
- Americans appear to be in ”
debt denial.” They claim they’re good at handling money and most say they pay their credit card bills in full each month. Yet three out of four say they’re concerned about always being able to pay their credit card bills each month, and they find the subject so embarrassing that they would rather reveal almost any detail about their personal lives than admit to how much they owe.
- Financial literacy
pays off. Just in mortgages alone, someone who is financially literate will save more than $30,000 over the life of his or her loan. The financially literate also enjoy a healthy lead in salaries over their financially flunking peers.
The survey was conducted for Bankrate.com by RoperASW. The survey included 1,000 adult Americans age 18 or older who were surveyed via random-digit-dialed telephone interviews that yielded a nationally representative sample. The survey, which was conducted Jan. 22 to Feb. 10, 2004, has a margin error of plus or minus 3 percent.