Are You as Financially Literate as You Think You Are?

As a financial writer, I see all the hand-wringing about the low financial literacy in America. It’s not just those immersed in finances that see the problem, though. Many regular Americans agree that financial literacy is somewhat lacking.

However, many Americans think that they aren’t the problem; it’s always someone else who needs to know more about finances. Are you financially literate?

Unfortunately, the latest National Financial Capability Survey from FINRA highlights the fact that most Americans do not have high levels of financial literacy, no matter what they think of their own performance. So, even though about 75% of respondents gave themselves high marks for financial literacy, only 39% were able to answer four questions on a five-question quiz correctly, and only 14% could answer all five questions correctly.

How Much Do You Really Know?

I took the quiz, and felt surprised at how “easy” the questions seemed. I got them all right. But I write about finances for a living. I took a few minutes to honestly consider my performance, and my situation. Would I have been able to answer all five questions correctly eight or nine years ago? The depressingly honest answer to that question is no.

If I hadn’t been living and breathing personal finance for the last seven years, I probably would only have answered two or three questions correctly. But, back then, I thought I was pretty smart about money. It’s only looking back that I see some of the mistakes I made, and see that I really wasn’t all that smart about money at all.

Do Your Actions Match Up with What You Know?

The Financial Capability survey also brings to light some interesting questions about the types of financial actions we take – even when we should know better.

On one hand, it is somewhat encouraging to see that only 19% of Americans spend more than they earn. That number is a little lower than the 20% seen in 2009. However, that’s still a big chunk of the population living beyond their means. A little more disturbing is the fact that the survey indicates that 56% of Americans do not have an emergency fund capable of covering three months’ worth of expenses. Forget an emergency fund of six to nine months; America will be doing better if its citizens could be supported for three months.

Most of us know that an emergency fund is essential to long-term financial security. However, more than half of us don’t have a remotely adequate emergency fund. On top of that, nearly half of Americans don’t pay off their credit card balances each month. It’s nice to think that a rewards card is paying off big, but if you carry a balance (and chances are that you do), you are defeating the purpose of rewards credit cards.

Even though many of us know what we should be doing, we aren’t doing it. And, if the financial literacy quiz results are indication, there is a large swath of the population that thinks it is doing the smart thing, when really it is making poor financial decisions that can result in difficulty.

Bottom Line

It’s time to take stock of your financial situation. Be honest with yourself. Are you really doing what you should with your finances? Do you truly even know what you should be doing with your money? Take the time to get educated about how money works, and what you can do to improve your situation, then make a plan to follow good financial principles and get back on track.

Did you take the quiz? How did you do? Leave a comment!

Miranda writes about personal finance almost every day. An experienced freelance writer, she's covered your money online and in print from every angle and is always looking for new ones.

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