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Financial Literacy and Savings Behavior Vary Widely Among States
Where do residents of your state rank?

By SHRM Online staff  12/1/2011
 

Residents of New Hampshire and Alaska rank at the top in financial literacy (such as understanding the effect of interest rates on savings) and savvy financial behavior (such as setting aside sufficient emergency funds), while residents of Louisiana and West Virginia rank at the bottom, according to research by the nonprofit Employee Benefit Research Institute (EBRI).

The complete ranked listing of the states is included in the report How Do Financial Literacy and Financial Behavior Vary by State? published in the November 2011 EBRI Notes.

After controlling for the effect of individual demographics such as age, ethnicity, education, income, marital status and labor force status, the study found that residing in one of the bottom-ranked states still had a statistically significant effect on residents’ financial literacy. Moreover, almost all states had a statistically significant effect on their residents’ financial behavior, said Sudipto Banerjee, EBRI research associate and author of the study. This suggests that there might be something apart from individual demographics going on at the state level that's shaping individual financial literacy and financial behavior.

Rankings

Banerjee used data from the National Financial Capability Study, designed by the FINRA Investor Education Foundation, which uses an online state-by-state survey to measure financial literacy and financial behavior. The survey was fielded June-October 2009. Among the findings:

Top-ranked states. New Hampshire and Alaska top the financial literacy and the financial behavior rankings, respectively. Minnesota, Idaho, Washington, Colorado, Wisconsin, Utah and Maryland appear in the top 15 of both rankings.

Bottom-ranked states. Residents of Louisiana and West Virginia were found to be at the bottom of the financial literacy and the financial behavior rankings, respectively. Mississippi, Arkansas, Tennessee, Alabama, Ohio, Kentucky, Texas and Indiana appear in the bottom 15 of both rankings.

Rank

Financial Literacy

Financial Behavior

1

New Hampshire

Alaska

2

Minnesota

Utah

3

South Dakota

Delaware

4

Idaho

Colorado

5

Washington

New Jersey

6

Colorado

Minnesota

7

Wisconsin

Idaho

8

Vermont

Washington

9

Nebraska

D.C.

10

Utah

Wyoming

11

Iowa

Connecticut

12

Michigan

Kansas

13

Alaska

New Hampshire

14

Maryland

Maryland

15

Rhode Island

Wisconsin

16

Massachusetts

Rhode Island

17

California

Iowa

18

Arizona

Nebraska

19

Wyoming

Massachusetts

20

Missouri

Georgia

21

Delaware

Arizona

22

Maine

Michigan

23

Connecticut

South Dakota

24

New Mexico

Oregon

25

Virginia

New York

26

Oregon

New Mexico

27

North Dakota

Florida

28

Montana

South Carolina

29

Hawaii

Virginia

30

Florida

Hawaii

31

Nevada

California

32

Illinois

Nevada

33

South Carolina

Pennsylvania

34

Oklahoma

Maine

35

New Jersey

Illinois

36

Kansas

North Carolina

37

Indiana

Indiana

38

D.C.

Montana

39

Texas

North Dakota

40

Georgia

Tennessee

41

Kentucky

Vermont

42

Ohio

Alabama

43

Alabama

Ohio

44

Pennsylvania

Texas

45

West Virginia

Missouri

46

New York

Louisiana

47

Tennessee

Oklahoma

48

North Carolina

Arkansas

49

Arkansas

Mississippi

50

Mississippi

Kentucky

51

Louisiana

West Virginia

Source: EBRI. For complete results including financial literacy and behavior scores for each state, see the November 2011 EBRI Notes.

Research shows that a majority of Americans have limited knowledge about such basic financial concepts as inflation, compound interest and risk diversification as well as low numeracy skills, Banerjee noted. Not surprisingly, low financial literacy is associated with low income and education. Therefore, an important policy question is whether the lack of financial literacy can be attributed entirely to individual characteristics or if institutional factors have a role in it.

Banerjee said that the study results indicate there might be a reason to call for policy intervention at the state level to help Americans achieve a financially secure retirement. 

Retirement Plan Participation Lowest in South, West

Wage and salary workers in the South and West of the U.S. have the lowest participation levels in employment-based retirement plans (including both 401(k)-type defined contribution plans and defined benefit pensions), while workers in the upper Midwest, Mid-Atlantic and Northeast had the highest levels, according to a separate analysis by EBRI.

Using data from the U.S. Census Bureau’s March 2011 Current Population Survey, EBRI found that full-time, full-year wage and salary workers ages 21−64 in Florida had the lowest percentage participating in a retirement plan, at 43.7 percent. In contrast, West Virginia had the highest participation level, at 64.4 percent.

Nationwide, 54.5 percent of full-time, full-year wage and salary workers ages 21−64 participate in an employment-based plan.

Related Articles:

Report: Driving Improved Savings Behaviors, SHRM Online Benefits Discipline, October 2011

Retirement Preparedness: the ‘New Normal,’ SHRM Online Benefits Discipline, September 2011

Retirement Education Isn't Enough, SHRM Online Benefits Discipline, June 2011

Quick Links:

SHRM Online Benefits Discipline

SHRM Online Retirement Plans Resource Page

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