When it comes to personal finances, most people generally know what they should do, but a lot of them don’t do it.
Americans feel a combination of confidence and concern about their money: almost three-quarters say they do a good or excellent job at handling it, yet more than half agree that their money could go farther if they did a better job of financial management.
The survey, conducted on behalf of Bankate.com to gauge Americans’ financial literacy, highlights the gap between knowledge and behavior. Like an overweight person who perpetually vows to start dieting next week, the typical American plans to whip those finances into shape, just as soon as there is time.
Bankrate.com hired RoperASW to poll a statistically valid sample of American adults about their personal finances — what they know and what they do. Roper contacted 1,000 randomly selected people by telephone between Jan. 17 and Jan. 31.
Americans are fairly good at taking care of the basic stuff, such as paying bills on time. But they aren’t as adept at handling complex tasks such as evaluating insurance. They tend to put off financial chores that don’t have to be done frequently.
- A sensible 93 percent say it is very important to pay bills on time to avoid late fees. And 80 percent say they always pay their bills on time. Some 17 percent say they sometimes pay their bills on time.
- 61 percent say it’s very important to shop around for the best insurance quotes and coverage, but just 39 percent actually do it.
- 54 percent say it’s very important to adjust the W-4 form annually to make sure the correct amount is being withheld from their paychecks for income taxes, but just 38 percent do it. And 44 percent believe that it’s very important to check their credit report annually for accuracy, but only 30 percent do it.
Among the most basic personal finance skills are paying bills and handling bank accounts, and people say they handle these tasks well. Almost three-quarters of respondents say they always make more than minimum payments on their credit cards, and a similar percentage say they always read their bank account statements regularly.
Paying bills on time and reading bank account statements don’t require a lot of analytical skill. When it comes to financial chores that require analysis and comparison, people don’t do as well. Witness that paltry 39 percent who shop around for the best insurance quotes and coverage.
Maybe so few people shop around for insurance because they don’t know what to look for. Asked, “Do you know how much life, auto, and health insurance you should carry?,” 59 answered no.
Of the roughly 45 percent of respondents who have mortgages, 76 percent said they comparison-shopped for the best mortgage deal. One-quarter said they didn’t, despite the fact that failure to shop for the best mortgage deal can cost tens of thousands of dollars over the life of the loan. A mortgage is the biggest single financial transaction most people make in their lifetimes.
“Americans clearly lack financial literacy skills, and it’s a fact that people have now overtly started to recognize,” says Karen Gross, professor at New York Law School. “We don’t teach about money or financial literacy very well. In our culture we teach better about sex than we do about money.”
Gross studies and teaches about consumer bankruptcy; has written a book,
Failure and Forgiveness: Rebalancing the Bankruptcy System, and is a founder of a program that teaches financial management skills to people who have filed for bankruptcy. She cites a 1992 study that found that 96 percent of bankrupt debtors lack the skills to compare credit card offers.
More than 1.5 million consumers filed for bankruptcy in 2002. If 96 percent of them can’t compare credit card offers, it’s a definite sign that lots of people need some financial education. But do people realize that they have gaps in their knowledge? It’s hard to tell, because people contradict themselves.
In the Bankrate.com survey, 71 percent of respondents say they feel very or somewhat satisfied with their financial situation, and 72 percent say they’re excellent or good at handling their money.
Yet 59 percent say they feel in control when dealing with finances, and 42 percent feel confident.
Imagine if people said similar things about their driving ability. If 72 percent of drivers said they were excellent or good at handling their cars, but 59 percent said they were in control of their cars, you would wonder how they made the distinction. You would be tempted to drive a surplus armored personnel carrier, and to wear a helmet when crossing the street, knowing that 41 percent of drivers acknowledged being out of control.
More schools offer driver education courses than personal finance courses, which is good news for users of America’s roadways and bad news for folks who plan to spend, borrow and save money in their adulthood.
Lack of education about personal finance is behind these numbers: 56 percent of respondents agree that “I could make my money go farther if I was better at money management,” and 55 percent agree that “I plan to get my finances in better order as soon as I have time.”
There’s no time like now.