At a time when Americans are seeking financial security, their financial literacy remains sorely lacking, according to the Financial Matters survey commissioned by Northwestern Mutual, an insurance and financial services firm. The survey of 1,664 Americans ages 25 to 65, conducted June 1-9, 2010, reveals that more than two-thirds of respondents (69 percent) would not pass a quiz about financial products and concepts.
Take Northwestern Mutual's 14-question online financial quiz, developed in conjunction with the Financial Matters survey. (Spoiler alert: some answers are given below.)
The good news is that people seem eager to learn more. When asked to rank the importance of understanding their personal finances, nearly eight in 10 respondents (79 percent) gave it a 7 or above on a scale of 1 (“what I don’t know won’t hurt me”) to 10 (“I feel the need to know all I can about my financial situation”).
“Financial knowledge is key to achieving financial security and understanding what impacts one’s personal finances,” said Dave Simbro, Northwestern Mutual vice president for life products. “We know from this study that most Americans want to be financially self-sufficient, and are focused on preserving their lifestyles and protecting against uncertainty. This desire makes improving financial literacy especially relevant, and we believe the first step is an honest assessment of personal finance proficiency.”
Among the key findings from the survey:
• Most respondents understood some basic financial concepts, such as diversification (88 percent answered correctly), asset allocation (79 percent) and dollar-cost averaging (57 percent).
• Only 35 percent of respondents knew that the average rate of inflation was closer to 3 percent than 6 percent or 9 percent.
• Half of respondents believed (incorrectly) that bonds offer the best protection against inflation compared to stocks.
• Only one-third (32 percent) knew that index funds seek to match the returns of stock or bond benchmarks.
• Only one-third (35 percent) knew that money market funds are composed of short-term investment vehicles.
Stephen Miller is an online editor/manager for SHRM.
Tiers Recommended for 401(k) Investment Menus, SHRM Online Benefits Discipline, October 2010
Financial Literacy: Taking Ownership of the Future, SHRM Volunteer Resources, March 2010
More Employers Consider Financial Literacy Programs, HR News, December 2008
Employees’ Financial Literacy Improves Bottom Line, HR News, August 2008
On the 401(k) Menu—Do More Funds Help Participants Diversify?, SHRM Online Benefits Discipline, August 2005
SHRM Online Benefits Discipline