Financial Incapability in America

December 15, 2009 by  
Filed under Fools of Finance

The U.S. Treasury Department, the President’s Advisory Council on Financial Literacy, and the FINRA Investor Education Foundation has discovered through a survey what Mr. ToughMoney and others could have told them for free:  Americans are pretty much financially incapable.

The “National Financial Capability Study”  didn’t find much in the way of financial capabilities. Instead, the following “highlights” are revealed about your fellow Americans:

  • Only 42 percent of all working Americans have ever tried to figure out how much they need to save for retirement. (I guess that’s our job, to figure it out for them.)
  • Just 51 percent of Americans between the ages of 45 and 59 have attempted to calculate how much they must accumulate to retire. (What are they waiting for – you tell me?)
  • Only 51 percent of survey respondents have a retirement plan at work and just 28 percent have retirement accounts separate from their workplace plan. (I wonder how many own flat screen TVs and have car payments?)
  • 17 percent of the survey respondents did not know whether their retirement funds were invested in stocks or stock mutual funds.  37 percent were unsure if their assets were invested primarily in a life-cycle or target-date fund. (But I’ll bet that a far larger percentage can name the channel, day, and time of the broadcast of their favorite sitcoms.)
  • While 66 percent of individuals who are not yet retired acknowledged receiving Social Security benefit statements, most said they did not use that information to make decisions about when to retire or when to sign up for benefits. (What the heck do these people do – wake up one day and say to themselves “I think today I’ll have some breakfast, read the funnies, and then retire.”)

And to top it all off, the survey participants were asked some basic questions about interest rates, inflation, bonds,  mortgages, and financial risk. Only 30% could correctly answer questions about inflation, interest rates, and risk, and a mere 10% answered all questions correctly.

Let’s just call it what it is: Financial literacy fail.

What is even more frightening is the disconnect between actual knowledge and self-perception. For example, 50% of those surveyed gave themselves the highest score on managing checking accounts and credit cards. However, one-quarter of these self-appointed geniuses reported incurring late fees, overdraft fees, and over-limit fees on their own accounts. Heya!

By now you are probably thinking  “Why should I care about these dopes? I know what I’m doing.”

This is why you should care: These financial illiterates vote and they love politicians who will spend your tax dollars.

Sorry about that.

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19 Responses to “Financial Incapability in America”
  1. Ken says:

    Our culture is so caught up in “now” thinking. They somehow surmise they’ll get to those other things like retirement later. For most, much later. I have made some mistakes of my own but I’m learning.

  2. Ken says:

    1)Reduce my credit card debt by $5000.00
    2)Create a $100 month through blogging

  3. M says:

    I don’t use my social security benefits statement in retirement planning. I assume its value is zero.

  4. cjbr549 says:

    I saw an interesting article the other day about octopuses that use coconut shells to build a shelter. Scientists debate long and hard about whether animals think or not. Maybe they should determine if humans think first. The percentage would be pretty small, indeed.

  5. Rick Beagle says:

    “This is why you should care: These financial illiterates vote and they love politicians who will spend your tax dollars.”

    I think you have mentioned in past articles a fondness for Ronald Reagan and some other Republicans? It would seem the literates are as foolish as the illiterates? I’m certainly not a financial genius, but supporting tax cuts while increasing spending seemed a bit foolish.

  6. M: Ignoring SS in retirement planning can be a mistake, particularly when it leads to excessive risk taking. Do you really believe that SS will disappear? Have you heard even one politician express support for that?

    Rick: Reagan is old news. Bush was bad news. Financial illiterates voting is depressing news.

    • Rick Beagle says:

      “Rick: Reagan is old news. Bush was bad news. Financial illiterates voting is depressing news.”

      I think you missed the point, the “literates” voted the first two people you mentioned. And given the choice between someone who is interested in improving the country/planet or a snake oil salesman offering to “reign in government spending, and give taxes back to the people”, these greedy err literate people will pick the latter every time. Given the state we are in, maybe the “illiterates” should get two votes…. glass house, rock kind of thing….

      • JimmyDaGeek says:


        This game can be played long and hard. Literates voted the current liar in, too. People are lazy, selfish, and greed. As long as their trough is being filled, they don’t care.

  7. Lefty33 says:


    This problem is multi-faceted.

    Children are taught zero about money or finance either in grade school or in high school. Or when the school may have a class it’s taught with a thirty year old text book by an assistant football coach who’s worried about whether to run a 4-3 or a 3-4 this Friday and even if he knows what he’s doing doesn’t care enough to actually administer any information.
    Just show up and get an A.

    This also applies to a lot of college Accounting 101 and Economics 101 classes where the Prof. has a room or 100+ and can’t actually administer any real info. For most majors and people that’s all the “finance” knowledge you are taught.

    If you don’t have good fiscally literate parent or, the thing that’s lacking most today in this country IMHO, a sense of self-betterment and learning you go through life constantly hitting your financial head into the wall again and again.

    A quick personal example

    My wife was raised and taught that the man handles the finances in the house and the women should more or less just spend and not ask questions. The problem for me is that my wife is exactly like the example you mention. She has no clue what we spend on anything, how much is in the checking account, E-fund, 401K. Nada, no idea. I’ve tried and she just doesn’t care.

    Is she very good at her job, and being mom to our kids? Yes. But when it comes to money she runs the other way. Most of her co-workers who are women age 30-45 are the exact same way.

    It’s scary and pathetic.

  8. Lefty33 says:

    I almost forgot.

    A lot of my wife’s co-workers think that the government will somehow “bail them out” if they are unprepared come retirement time. Or they assume that they will never retire and just punch the time clock and then report to the casket.

    In my experience, the percentage of people that I’ve met who have thought about retirement amounts or what their 401K/Roth blend should be or even what it is a lot lower than those mentioned in the article.
    I think if a larger nationwide survey were done the percentages would be pathetic if people answered honestly.

  9. JimmyDaGeek says:

    Unfortunately, the credit industry has won the battle, temporarily, in that they convinced both the literates and illiterates that “buy now, pay later” is the way to live and to treat credit card debt something like a utility, where you pay for it for the rest of your life. That is how they control those who refuse to pay their cards off.

  10. MasterPo says:

    Consider this:

    Two people work at the same company, same jobs, same salaries.

    One person spends every penny they make, moderate debt level (defined however you want), and not a dime saved or invested. Files a 1040-EZ and usually gets money back.

    The other person lives faaaaar under their income level, has a 6-figure investment portfolio, is rapidly approaching AMT levels, and usually has to write a check on April 15. Plus, this person is vilified in the media for being “greedy” and “selfish” and said to have stolen their worth from others.

    Tell me again *why* one should be financial savy?

    • TMN says:

      Don’t you think that’s a little extreme? The media vilification of the rich is not nearly as pervasive as you imply, and even within the sectors where that does happen it’s almost never targeted at middle class wage earners who are careful with their money.

      Also, you present only two options when there are many more to choose from. Your “smart” investor is, I’m assuming, investing in traditional stocks, bonds, and possibly some option trading on the side. Well, traditional stocks are at best not productive in any way, and at worst theft, because non-dividend stocks are literally a zero sum system. There are plenty of investment opportunities out there that derive their returns directly from the success of the businesses they invest in. Why not form an investment group with a few other like-minded individuals and invest in sustainable local businesses in lower-income areas of their city? I dare you to find me someone who’s made a good nest egg for themselves off of responsible local investing and been vilified for it.

  11. kitty says:

    While it’s not really surprising that Americans for the most part don’t save money – no news here, I find some of their criteria a bit meaningless:

    For example: “Only 51 percent of survey respondents have a retirement plan at work and just 28 percent have retirement accounts separate from their workplace plan. (I wonder how many own flat screen TVs and have car payments?)”

    Having a retirement plan at work doesn’t depend on a person – not every company offers a retirement plan. Maybe instead of (or in addition to) flat screen TVs, some of these people have millions in taxable accounts? OK, I know they don’t, I am just saying that the test itself doesn’t mean much. But really, 49% who don’t have retirement plan at work may 1) work for a small business that doesn’t offer one 2) have no match and such terrible choices that it makes sense to save money elsewhere. On the other hand 28% who don’t have additional retirement accounts may have a very generous plan at work and prefer to keep the rest of the money in taxable accounts. Case in point – my 50 year old co-worker whose net worth is over 2M, maybe 3M, and who could retire tomorrow except for being a well-known in his field scientist who is very interested in his research he doesn’t want to. We discussed it. He told that he’d be bored; if he is retired against his wish he may teach at a university – he had offers – or retire, but if they keep him he’ll work for 10 more years or so. He doesn’t have IRAs (except for maybe inherited ones – I am not sure, but certainly not personal ones), he maxes his 401K and he also has A LOT of investments in taxable accounts. He earns too much for Roth and he doesn’t bother with opening after-tax IRA now to convert: he says he doesn’t trust the government not to change rules and it’s too little money to bother with. Oh, and unlike some of the “smart” people who had great plans, he moved all his 401K to stable value long before this crash; he also significantly reduced stock holdings in taxable accounts in 2008. So he hardly lost any money at all. Now, while he is probably not indicative of an average American, he would still be among those 28% who don’t have other “retirement” accounts.

    There is this perception that if you don’t have money specifically labeled “retirement”, than you don’t have money. This is wrong. Nobody knows what tax situation will be when we retire; any money not spent today will be there for retirement whether they are labeled “retirement” or not.

    Additionally, this friend of mine never bothered to calculate how much he’d need. He knows he has enough. Frankly, I don’t have a specific number either. I know that if I retire today, it’ll be tough, but I also know that if I can keep my job for the next 10 years or so I’d have more than enough. Oh, and my retired parents did no calculations either, they just saved as much as they could. BTW, I did try a couple of calculators, and they give me different results. I have a ball park figure of how much I want to have, and I save what I feel is a reasonable amount which include maxing out retirement accounts and saving whatever I don’t spend in taxable accounts — which at the moment about half of my net, but I am not really trying. But the real calculations of how much one needs have way too many unknowns: how long you’d live, what the tax rate will be, what the return will be, how much medical care would cost. It’s like looking at crystal ball.

    I would think that questions about current net worth, current amount of savings by age and saving rate (in all accounts) would be much more useful criteria.

  12. Rainer says:

    I’m curious how many “literates” actually responded to the survey. I know I never get called for surveys (and wouldn’t have the time if I did). My parents always declined to respond to those surveys and were very financially literate and responsible throughout their careers.

    So, it’s possible it’s not as bad as the numbers seem. It is a government sponsored survey, after all. Do they even know how to calculate a sample size?

  13. Great site and enjoyed reading a few of your articles. This one made me smile and could be applied to U.K too. So wonder if we could borrow you to teach some much needed financial sense to the British public.

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