Many Americans are sorely lacking in knowledge when it comes to basic finances, according to new research.
A recent study of 1,000 Americans sought to discover how much people know about their own finances, as well as common financial concepts like interest, bankruptcy, and inflation.
Most dishearteningly, it found that less than half of participants over the age of 30 could confidently explain what a 401(k) is.
Rough: A recent study of 1,000 Americans sought to example financial literacy
The research, commissioned by GuideVine — a service matching people with financial advisers — focused on 1,000 people age 30 and over
It revealed that over half of those polled (55 per cent) feel lost when it comes to a long-term and stable financial plan.
And only 30 per cent of those studied said their current earning and budget enabled them to make a proper financial plan. Just 13 per cent had a five-year plan for their finances.
That might be why many forecast a less-than-positive future for themselves financially. More than a quarter (27 percent) of the over-30’s polled felt they’ll never become homeowners.
Nearly a third (31 per cent) could never envisage a life for themselves where they would never be in some sort of debt, and a similar number (36 percent) said a comfortable retirement isn’t on the cards for them.
Yikes! Many don’t feel like they have a stable financial plan
Much of that may be due to lack of financial literacy. While less than half could explain what a 401k is, 48 per cent could define interest, 34 per cent could explain inflation, and 48 percent said they understood the concept of bankruptcy.
(While the statistics about understanding a 401k seem bleak, it’s actually worse: According to Census data, just 32 per cent of Americans are actually saving into a 401k.)
Raghav Sharma, CEO at GuideVine, said, ‘The results of GuideVine’s survey, while alarming, aren’t shocking. GuideVine has helped thousands of people find the best financial resources, and time and again, the biggest barrier is low financial literacy and not feeling confident enough about finances and money to even know where to begin.
‘There is also a certain inertia to taking action. Unlike a broken bone where you’d immediately seek the advice of a doctor, people routinely postpone researching and making important long-term financial decisions.’
Paycheck to paycheck: A quarter said they don’t save anything from month to month
Nearly a quarter of those polled admitted that they are currently unable to save any money at all each month.
Although the majority of survey respondents say they have a budget (66 per cent), seven in ten struggle to stick to it.
Men are less likely to stick to their budget and spend an average of $125 over per month, while women spend an average of $71 over their budgets.
Even then, on average men put more money into savings, retirement, and other long-term investment plans ($237 vs. $123).
The most common financial mistake people over the age of 30 admit to making is not saving enough (51 per cent).
Overspending: While the majority have a budget, not everyone sticks to it — and men go over by more than women do
Other financial mistakes include not having enough emergency cash (40 per cent), accumulating unnecessary debt (37 per cent) and saving too late (28 per cent).
The majority of respondents had never sought financial advice before (64 per cent), which may be because only 49 per cent of people believe that financial advisers are trustworthy.
According to Sharma, part of distrust stems from the lack of transparency because ‘making sense of all the different financial professionals is very confusing; there are literally hundreds of thousands of representatives in the industry.’
As Americans get older, they are less likely to have confidence in financial advisers. People aged 30 to 36 agreed much more strongly that advisers can be trusted, compared to those 55+ (35 per cent vs. 4 per cent).
Ignorance is bliss… or broke? Despite not knowing things, most don’t seek out financial advice
So naturally, Americans aged 30 to 36 are the most likely to get financial advice (50 per cent).
They are also the age group most likely to get financial knowledge and tips from social media, like Facebook and Twitter (67 per cent).
According to Sharma, ‘Even with everything younger Americans have seen during the Great Recession, they are financially optimistic when it comes to achieving their long term financial goals and are willing to seek help to get there.
‘So far, this help has been informal — family, blogs, etc. — but they do want professional advice and are more likely to trust an advisor, by a 4 to 1 margin, than other generations.”