Only 16 percent of Americans have a high level of financial literacy, according to a recently released index measuring working knowledge of personal finance.
The P-Fin Index, developed by the TIAA Institute and George Washington University’s Global Financial Literacy Excellence Center (GFLEC), aims to understand where Americans fall short when it comes to making sound financial choices.
TIAA and GFLEC asked 1,043 adults 28 questions about routine financial decisions. These questions centered on topics such as saving, investing, borrowing, and earning money. The questions were designed to gauge how well Americans understand and manage money.
The result? U.S. adults are split about 50/50 between those who answered one-half of the questions correctly and those who didn’t. A whopping 20 percent of respondents answered fewer than a quarter of questions correctly, indicating that Americans have a way to go when it comes to financial education.
Younger Americans struggle more with financial literacy
Only 10 percent of Americans under the age of 45 have a relatively high level of financial literacy. Nearly a third (30 percent) have a relatively low level of financial knowledge.
Younger Americans find it especially hard to understand concepts related to risk and insurance, according to the P-Fin Index.
This can be a problem for the future, said financial planning expert Tom Anderson, founder and CEO of financial tech company Supernova Companies and the author of a series of books about the value of debt.
“Most people are making big financial decisions in their 20s and 30s,” Anderson explained. “They don’t understand the realities of money and make poor decisions that can impact them later.”
Anderson pointed specifically to young adults’ lack of knowledge about investing. If you don’t take advantage of investing opportunities when you’re younger, for example, you’ll miss out on the power of compounding interest.
Education level can help
According to the P-Fin Index, higher levels of education led to a better ability to answer questions about financial literacy. Unsurprisingly, those with a financial education also answered more questions correctly.
The study also showed that those with better financial literacy were also more likely to have positive money experiences. On top of that, they were more likely to have thought about their retirement needs and were better prepared for financial emergencies.
How to improve your knowledge
Think you might need to brush up on your financial literacy? There are plenty of resources available.
One good place to start is MyMoney.gov, a portal with information for all age groups. There are also plenty of online and offline publications about personal finances; The Kiplinger Letter, The Financial Times, Forbes, and the Wall Street Journal all offer insights into money.
You can even have some fun while learning about this potentially boring topic — innovative games such as those offered by Practical Money Skills are designed to help you learn about money.
Finally, you can sit down with a financial professional to help you learn concepts and map out a plan for your specific goals.
You don’t have to be one of the 20 percent of Americans with a low level of financial knowledge. Take your money chops to the next level and prepare for a brighter future.
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
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The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
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4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
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