Americans don't understand personal finance basics

[Laize]

Source

Can we please implement mandatory personal finance courses in high school now? This shit is dangerous... and a more informed public is less likely to be complicit in another recession (AKA: Less likely to think something like an adjustable rate mortgage is a good deal).

It’s the time of year when students nationwide head back to the classroom. Adults might want to hit the books, too.

When it comes to understanding basic concepts about investing, Americans come up woefully short. Consider that while 67% of respondents to a 2009 survey rated their own overall financial knowledge as “high,” only 53% answered this question correctly: “True or false: Buying a single company’s stock usually provides a safer return than a stock mutual fund.”

Only 6% got the answer wrong, choosing “True.” But fully 40% said they didn’t know the answer, and 1% declined to answer. The survey of about 28,000 U.S. respondents was by the Investor Education Foundation of the Financial Industry Regulatory Authority. Finra, as the authority is commonly referred to, is a private, industry-funded agency that regulates financial-services firms.

Another question on Finra’s survey: “If interest rates rise, what will typically happen to bond prices?” The possible answers were: rise, fall, stay the same, or there is no relationship.

Just 28% answered correctly (they will fall). More than one-third of respondents—37%—said they didn’t know; 18% said bond prices would rise if interest rates rise; 10% said there is no relationship between bond prices and interest rates; 5% said bond prices would stay the same; and a reluctant 2% said they preferred not to answer.

The FINRA survey also covers personal finance basics such as mortgages, savings interest and so forth.

It's not just an "investing illiteracy" problem.

[Gamdwelf]

In california economics is a required class during high school, maybe your state is just bad.

Also don't tell me what I do or don't know.

[Squaddles]

In my opinion, this is a huge factor as to why the US economy collapsed. People just wracking up too much debt, and not knowing how to manage their money. (Granted, sometimes you have to go into debt). That could also be applied to a larger scale too (The actual Govt. of the USA)

[Pendulous]

This just in: You don't have to invest in stocks and bonds to live. So who the hell cares?

[Puremallace]

The stock market is a river of cash running through the middle of the country.
1. Some people are swimming in it
2. Some are in the shallow section
3. Others are on the sidelines watching everyone else

[Djuntas]

This just in: You don't have to invest in stocks and bonds to live. So who the hell cares?

Kinda tough that aswell, then again - this is a survey about basic things - its a test, surely one could just see it as that, and nothing else, and answer it.

Edit: In before derailed thread. Stop arguing over wether stocks are just for "rich" folks >.> Any commen men should try once, and could invest inn it. There are many low-risk options, were not inn 1998-2001 during the IT-bubble thanks.

[Deleted]

This just in: You don't have to invest in stocks and bonds to live. So who the hell cares?

Yeah, I'm not American and have a limited understanding of stocks and bonds, but that's okay as they don't have a big demand for them in the east end of Glasgow. And everyone knew during the economic boom that we were on shaky ground, but when the moneymen ie people who have jobs were this knowledge is supposed to be mandatory are shovelling "easy money" through credit leveraged against pipe dreams then it's no wonder recessions happen. What caught people surprised was the scale of the blowback and not the recession itself.

[kingriku]

I find these threads where America is generalized really annoying. I took a finance class in highschool and get a certificate for it, if you take it and get in the top 5% they give you 15000$ for college. Its a perk alot of students take stupid electives though because they want to slide by highschool or like a certain teacher. That was a couple years ago and now that class in mandatory, so things are being done about it but please dont generalize titles like that.

[Wondercrab]

This just in: You don't have to invest in stocks and bonds to live. So who the hell cares?

I'd agree, I didn't know the answer to either of those questions, but I like to think I'm someone who knows enough not to get themselves into financial trouble. The problem only arises when you get these people who don't know anything about bonds or stocks actually investing in them, and that, I would say, is more to do with a person being a silly butt than it is because they're lacking in financial knowledge.

It's not necessary to know all the ins and outs of how your money works, but if you're going to throw that money into a pit without knowing what'll happen to it at the bottom, then it's probably a good idea to start learning.

[Laize]

This just in: You don't have to invest in stocks and bonds to live. So who the hell cares?

The survey was not just about investing. It's about basic financial concepts.

There were people who legitimately could not answer whether they'd pay more in interest on a 15 year mortgage vs a 30 year. Still others have no idea how to effectively pay down credit card debt. People who don't understand how debt IN GENERAL works.

This is a MUCH bigger problem than people not understanding how to invest. You can't even GET to investing without understanding how personal finance works.

---------- Post added 2012-09-04 at 08:52 PM ----------

I find these threads where America is generalized really annoying. I took a finance class in highschool and get a certificate for it, if you take it and get in the top 5% they give you 15000$ for college. Its a perk alot of students take stupid electives though because they want to slide by highschool or like a certain teacher. That was a couple years ago and now that class in mandatory, so things are being done about it but please dont generalize titles like that.

It's not my title. The facts in the article point that of the 50 states, only 13 require students to take a personal finance course.

[Grym]

I have to be honest here, both questions my answer is "I don't know".

I am currently working as an assistant management accountant, and studying for my ACCA on the side. My job involve me to know how to do the account, knowing how to invest or have economics background might help in some cases, but in the end it isn't a requirment for me to do my job well. Not everyone is into investing, and yes it is easier now and everyone can afford to try it, but it doesn't mean everyone HAVE to do it, I myself are totally un-interested in the stock market, I wouldn't want to work in it, or invest in it, even if it can make me lots of money fast, I am happy with slowly working toward becoming a charted accountant, that alone would give me a pretty comfortable lifestyle.

Altho my F9 Financial Management is coming up soon, I have a feeling there will be some of those involved....

[Purlina]

You don't need much education to answer those questions, you just need some common sense.

[Catta]

If i want to know about personal finances i would book a time with my adviser in the bank - and then just ask him/her a whole bunch of questions and ask them to explain it all reeeeeeally slowly for me

[Sunseeker]

I'm still seeing that this is more "Americans don't understand investments and interest." more than "Americans don't understand how to manage their pocketbook." You're not really demonstrating the questions that actually relate to personal finances as opposed to the questions about investments, interest rates, bonds and all sorts of other things the average person doesn't even have.

[Faroth]

“True or false: Buying a single company’s stock usually provides a safer return than a stock mutual fund.”

Response: I prefer to avoid the ponzy scheme backed by the government and big businesses known as the Stock Market entirely.

I agree a personal finance course would be good. My mom taught home ec (now called life development) and she had to stop some days and do an impromptu class on balancing checkbooks.

If people even understood the power of not using credit cards (or better, how and when to use them for benefit without getting stuck in the trap) they'd be ahead.

I've got a number of credit cards. Home Depot, Best Buy, 2 Chase cards, Amazon card, Care Credit.... I can't remember the last time I paid interest on a credit card and most cards I have open have no activity on them except when absolutely necessary (and then I make sure I use no interest options and pay it off a month before it's due).

I'm a home owner now and I'm not struggling with bills. I don't have a lot in savings because I'm juggling the first time home expenses (when it rains it pours, right?) but I have enough to cover a few months mortgage and even without the expenses I'm juggling I'll be aggressively putting extra principle to reduce to the mortgage and kill it early.

I'm no financial guru, I just understand the basics of making credit cards work in my favor and never EEEEVER letting a credit card executive buy a car on my dime.

[Daelak]

The vast majority of Americans will never own a financial instrument. Hell even middle class wage earners don't really get the great pay-offs that people with a net worth of 2 million dollars would get in the financial markets. Once you hit millions of dollars in net worth then you really see the upper bound of the stock market. It is catered to the wealthy.

[Pendulous]

If i want to know about personal finances i would book a time with my adviser in the bank - and then just ask him/her a whole bunch of questions and ask them to explain it all reeeeeeally slowly for me

Exactly, this is why we pay these people hundreds of dollars, like lawyers to read our contracts.

I'm still seeing that this is more "Americans don't understand investments and interest." more than "Americans don't understand how to manage their pocketbook." You're not really demonstrating the questions that actually relate to personal finances as opposed to the questions about investments, interest rates, bonds and all sorts of other things the average person doesn't even have.

Yeah, I mean, this doesn't really say anything, other than x percent of Americans don't have knowledge of a particular area or subject.

[Laize]

I'm still seeing that this is more "Americans don't understand investments and interest." more than "Americans don't understand how to manage their pocketbook." You're not really demonstrating the questions that actually relate to personal finances as opposed to the questions about investments, interest rates, bonds and all sorts of other things the average person doesn't even have.

So you really think that if Americans weren't better educated in personal finance, they'd have still gone for adjustable rate mortgages? They'd still carry insane credit balances?

Come now... surely you don't think that a person carrying $10,000 of credit card debt at 15% is paying $125/month just in interest because he doesn't care?

---------- Post added 2012-09-04 at 09:03 PM ----------

The vast majority of Americans will never own a financial instrument. Hell even middle class wage earners don't really get the great pay-offs that people with a net worth of 2 million dollars would get in the financial markets. Once you hit millions of dollars in net worth then you really see the upper bound of the stock market. It is catered to the wealthy.

So the vast majority of Americans will never have a credit card, car loan or mortgage?

Do you guys even understand what personal finance IS?

[Daelak]

So you really think that if Americans weren't better educated in personal finance, they'd have still gone for adjustable rate mortgages? They'd still carry insane credit balances?

Come now... surely you don't think that a person carrying $10,000 of credit card debt at 15% is paying $125/month just in interest because he doesn't care?

---------- Post added 2012-09-04 at 09:03 PM ----------



So the vast majority of Americans will never have a credit card, car loan or mortgage?

Do you guys even understand what personal finance IS?

Your two questions in your post were about financial instruments, not about a mortgage.

[Laize]

Your two questions in your post were about financial instruments, not about a mortgage.

I just copied the first 3 paragraphs.

The article itself is about the lack of personal finance education in America. Especially that it's not required.

Personal Finance is an incredibly important topic that covers aspects of EVERYONE'S lives regardless of economic status.

If you don't think it's important to teach kids Personal Finance then you're effectively stating that it's okay to dump kids into the complicated world of student and car loans, credit cards, mortgages, CDs, savings accounts, bank fees, payday loans and other instruments that are FAR more complex than they first appear without any preparation.

This is not an okay thing.