Financial literacy pays off in many ways

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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 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 $978.

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 money test.)

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 management test.

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.