The good news is that roughly half to two-thirds of Americans understand basic finance terms and concepts. The bad news is that a sizable minority have never learned some basic money skills.
GoBankingRates, a personal finance news and features website, conducted a survey that measured respondents’ knowledge of fundamental financial terminology and concepts in personal finance to get an understanding of the average American’s level of financial literacy.
The survey posed six questions to 529 survey respondents from all 50 states and the District of Columbia on March 22.
Question 1: “Which of the following describes a 401k?
Sixty-three percent of respondents correctly responded, “Retirement savings vehicle,” including 60% of respondents 25 and older.
However, only 43% of 18-to-24 year olds did so, while at least one-fifth across all age groups incorrectly selected “tax credit for retirement.”
Question 2: “What does a CD offered by a bank stand for?”
This question got the most correct responses, as 68% of respondents correctly selected “Certificate of Deposit.” Seventy-one percent of women got the answer right, versus 65% of men.
However, the age breakdown revealed larger knowledge gaps about CDs:
- Only 36% of 18-to-24-year-olds answered correctly
- 60% of correct responses came from 25-to 34-year-olds, followed by 71% from 35—to-44-year-olds
- 80% or more of older respondents answered correctly
GoBankingRates noted that not knowing about CDs could mean missing out on an easy way to grow wealth.
Question 3: “What is net worth?”
Only 59% of respondents selected “value of someone’s assets minus their liabilities” as the correct formula to calculate net worth. Sixteen percent thought “income after taxes” defined the term.
Sixty-four percent of men and 56% of women answered the question correctly; still, 17% of women and 15% of men answered “income after taxes.”
GoBankRates speculated that the word “net” tripped up respondents because net income after taxes is an established accounting term. It said that like net worth, NIAT was an important concept to know.
Question 4: “Which of the following does not impact your credit score?”
As with the previous question, the responses did not break down neatly along demographic lines. Only 60% of respondents correctly selected “income,” meaning 40% might not know all the factors that can affect credit score.
Sixty-four percent of women vs. 56% of men answered this question correctly, with nearly a quarter of men incorrectly choosing “types of current credit” as not having an impact.
Only 55% of respondents 65 and older answered correctly, followed by 57% of 55-to-64-year-olds and 59% of those 18 to 24. Seventy-three percent of people 35 to 44 gave the correct response.