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Where do residents of your state rank?
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
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.
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.
Source: EBRI. For complete results including financial literacy and behavior scores for each state, see the November 2011
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.
Retirement Plans Resource Page
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