As part of FINRA’s continuing research, this financial literacy questionnaire is always active: http://www.usfinancialcapability.org/quiz.php . The link leads to an on-going survey with five general questions about economics and finance. These questions cover topics from compound interest, inflation, risk and diversification principles, the relationship between bond prices and interest rates as well as the impact of a shorter loan term on total interest paid on a mortgage. While never solid, the results of this questionnaire have gotten worse in recent years.
In 2009, well over half, 58%, of Americans answered 3 or fewer of the 5 questions correctly. This number rose to 61% in 2012 and to nearly two-thirds, 63%, by 2015. This lack of basic financial and economic knowledge is one that further compounds the issues and deficiencies listed above, leading a cycle of rising debt and lower expectations, less ability to save for emergencies or retirement.
These results cannot be construed as a positive except for one aspect. For financial advisors, this can be seen as a wonderful opportunity for new business.
For more on this under-reported study, look for our new article tomorrow.