Most Americans have an inadequate understanding of financial products and concepts, according to a new study.
Northwestern Mutual Life Insurance Co., Milwaukee, published this finding in a report conducted by Mathew Greenwald & Associates, Inc., Washington.
The research revealed that 69% would receive a failing grade on a quiz about financial products and concepts.
When asked to rank the importance of understanding their own personal finances, 79% gave it a 7 or above on a scale of one (“what I don’t know won’t hurt me”) to 10 (“I feel the need to know all I can about my financial situation”).
Among the report’s other findings:
–35% of respondents knew that the average rate of inflation is closer to 3% than 6% or 9%.
–50% believed (incorrectly) that bonds offer the best protection against inflation compared to stocks.
–32% knew that index funds seek to match the returns of stock or bond benchmarks, and 34% acknowledged they had no knowledge of how index funds work.
–35% knew that money market funds are comprised of short-term investment vehicles.
–27% realized that permanent life insurance can pay dividends.
–49% believed (incorrectly) that term life insurance is more likely to have cash value than permanent life insurance.
–32% knew that permanent life insurance policy owners have access to their cash value for any reason.