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Financial Capability in 2016

The report of the 2016 National Financial Capability Study published by the FINRA Investor Education Foundation found fewer respondents experiencing financial stress and more financial satisfaction than in the 2009 or 2012 studies.  However, the study also found that certain segments of the population, including younger people, individuals without college, African-Americans and Hispanics still experienced financial difficulties.

The 2016 survey found that fewer Americans find it difficult to cover their expenses and more are satisfied with their financial condition.  Thirty-one percent of respondents reported being “very satisfied” with their finances.  However, the survey did find areas of financial stress.  For example, 13% of non-retirees with retirement accounts have taken a loan from those accounts during the last year, and 10% have taken a hardship withdrawal.  In addition, 16% of people with mortgages have made a late payment during the past year, 19% “occasionally” overdraw their checking accounts, and one-third spend more than they earn.  While the survey did find that more people have health insurance (87%), 21% have unpaid, past-due medical expenses and more than one-quarter of people have foregone some medical service because of costs.

With respect to debt, more homeowners are making down payments of 20%.  In addition, more than half of credit card users report paying the balance in full every month.  However, 39% of credit card holders engage in behavior that increases expenses, including making the minimum payment due, paying late fees, paying over limit fees, or taking cash advances.

According to the survey, student loans are a challenge to many respondents.  Twenty six percent of adults have a student loan for themselves or a family member.  Students at four year colleges and universities are more likely to have loans than those who attend community college or vocational school.  A majority of people with loans did not attempt to estimate their monthly payments when they took out the loan.  Thirty seven percent of student loan holders have been late with at least one payment in the last year.  In addition, 48% have expressed concern that they will not be able to pay off the loan.  Fifty three percent of individuals with student loans reported that they would make a different decision about the loan.

Forty-six percent of respondents reported having emergency funds of three months of living expenses, up from 40% in the 2009 survey. Fewer than half of participants with financially dependent children reported saving for college.  In addition, less than one-third of people have investments in stocks, bonds, mutual funds, or other securities outside of their retirement accounts.

The survey also asked questions to measure the financial literacy of participants.  Questions covered economic and finance concepts that people may encounter in “everyday life.”  Only 14% of respondents answered all five questions correctly, while 37% answered at least four correctly.  These percentages represent a slight downward trend since 2009.  Despite the scores on the financial literacy questions, many respondents have positive self-perceptions regarding their financial knowledge.  For example, 42% of respondents who gave themselves the highest possible score regarding their financial knowledge, yet 29% of those individuals engage in costly credit card behaviors, 18% use non-bank borrowing, and 12% overdraw their checking account.

SEC Chair Mary Jo White expressed concern about the declining financial literacy.  She stated, “in today’s increasingly complex world, Americans need the financial skills to tackle life’s everyday challenges. They should have an understanding of how savings and investing can help meet their life goals and achieve a secure retirement. And investors must be well informed in order to understand risk and to detect and avoid fraud.”  She then highlighted the SEC’s Office of Investor Education initiatives that are designed to “inform investors — and potential investors — about the benefits and risks of investing, the impact of fees, and the red flags of investment fraud. And we are reaching more and more investors every day in different places and in new ways.”