financial capability in the united states december 2009

8/9/2019 Financial Capability in the United States December 2009

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FINANCIAL CAPABILITY IN THE UNITED STATES

INITIAL REPORT OF RESEARCH FINDINGS

FROM THE2009 NATIONAL SURVEY

A COMPONENT OF THE

NATIONAL FINANCIAL CAPABILITY STUDY

Prepared for the

FINRA INVESTOR EDUCATION FOUNDATION

By

APPLIED RESEARCH & CONSULTING LLC

DECEMBER 1, 2009


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National Financial Capability Study 2 Initial Report, 2009 National Survey Decembe

TABLE OF CONTENTS

INTRODUCTION............................................................................................................. 3

RESEARCH OBJECTIVES................................................................................................... 42009 NATIONAL SURVEY ................................................................................................ 6

METHODOLOGY 2009 NATIONAL SURVEY ....................................................... 7

QUESTIONNAIRE DESIGN................................................................................................. 7PILOT TESTING ................................................................................................................ 7FIELDING ......................................................................................................................... 7SAMPLE ........................................................................................................................... 8WEIGHTING ..................................................................................................................... 9NOTE ON HOUSEHOLD INCOME AND DEMOGRAPHICS ................................................... 12

Ethnicity....................................................................................................................1 3

INITIAL FINDINGS 2009 NATIONAL SURVEY .................................................. 14

SATISFACTION AND FINANCIAL MANAGEMENT ............................................................ 14HOUSING AND MORTGAGES........................................................................................... 19RETIREMENT ACCOUNTS ............................................................................................... 24CREDIT CARDS .............................................................................................................. 30FINANCIAL LITERACY .................................................................................................... 35INSURANCE ................................................................................................................... 42FINANCIAL ADVISORS.................................................................................................... 45OTHER BORROWING METHODS ...................................................................................... 48INCOME SOURCES FOR RETIREES .................................................................................. 50

BANKING....................................................................................................................... 51Banked vs. Unbanked ...............................................................................................55

SUPPLEMENTAL ANALYSES ................................................................................... 56

SHOPPING AROUND........................................................................................................ 56SELF-PERCEPTION OF FINANCIAL CAPABILITY AND BEHAVIORS..................................... 56


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INTRODUCTION

In consultation with the U.S. Department of Treasury and the Presidents AdvisoryCouncil on Financial Literacy, the FINRA Investor Education Foundation commissioneda national study of the financial capability of American adults. The purpose of thisNational Financial Capability Study was to establish a baseline measure of the ability ofAmericans to manage their money.

The National Financial Capability Study consists of three linked surveys:

National Survey: A national, random-digit-dialed telephone survey of 1,488respondents with over-sampling to enable segmentation by selected demographicvariables (e.g., ethnicity and education level)

State-by-State Survey: A state-by-state online survey of approximately 25,000respondents (roughly 500 per state, plus DC)

Military Survey: An online survey of 800 military personnel and spouses

The Study was led by a multi-disciplinary team including Professor Annamaria Lusardiof Dartmouth College, Applied Research & Consulting LLC (ARC), the FINRA InvestorEducation Foundation and the Office of Financial Education of the U.S. TreasuryDepartment. Additional input was provided by Craig Copeland of the Employee BenefitResearch Institute (EBRI), the American Institute of Certified Public Accountants(AICPA) and Professor Robert Willis of the University of Michigan, among others.

The report that follows presents the initial findings from the National Survey. Findingsfrom the State-by-State Survey and the Military Survey will be reported separately in2010. Additionally, the datasets from these surveys will be made publicly available tofacilitate independent analyses.


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RESEARCH OBJECTIVES

The overarching research objectives were to:

1. Benchmark key measures of financial capability

2. Evaluate how those key measures vary with underlying demographic, behavioral,and attitudinal characteristics.

3. Provide data and estimates to inform public policy toward financial capability

(Note that while the survey was conducted in mid-2009, its purpose was not to measurereactions to the financial crisis.)

The survey questionnaire was designed to encompass a wide variety of subjects andquestion categories. Some questions and scales were adapted from earlier surveys, whileother questions were designed originally for this study. Following is an overview of themain content areas of the questionnaire.

Key measures of financial capability:

Banked status (i.e., having a checking and/or savings account) and assetownership

Access to and participation in pension and/or retirement savings plans

Debt burden, with particular focus on mortgage and credit card debt

Financial literacy measures:

Ability to do financial calculations (e.g., compound interest)

Understanding of financial concepts (e.g., relationship between interest ratesand bond prices)

Financial behaviors:

Credit card payment habits

Mortgage financing choices

Saving and financial planning behaviors

Usage of expensive non-bank borrowing mechanisms

Access to professional financial advice


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Financial attitudes:

Personal engagement with financial matters (e.g., attention to rates and fees,

keeping up with financial news)

Self-perceptions (e.g., satisfaction with financial condition, perception ofones one skills and financial knowledge)

Preferences (e.g., appetite for risk)

Standard demographic characteristics:

Age and gender

Race and ethnicity

Education

Household income

Geography

Marital status

Employment status

Please note that all of the data collected in this survey are self-reported by therespondents themselves and are not independently checked or corroborated by othersources (e.g., account statements, follow-up interviews with third parties). Therefore,while the survey can be reasonably assumed to present an accurate reflection of the U.S.adult populations opinions, beliefs, knowledge, and attitudes, it does not necessarilypresent an accurate reflection of behaviors or of the valuations of assets and liabilities.


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2009 NATIONAL SURVEY

This document is an initial report on the findings from the 2009 National Survey, one ofthree surveys that collectively constitute the National Financial Capability Study. Inaddition to a description of the survey methodology, this report provides totals anddemographic breakdowns of responses to nearly all of the closed-ended questions in thesurvey. The demographic breaks in this report are as follows:

Gender

Age (18-29, 30-44, 45-59, 60+)

Household income (less than $25,000, $25,000 to $75,000, more than $75,000)

Ethnicity (Caucasian, African-American, Hispanic, Asian)

Education (non-high school grad, high school grad/no college, some college,college graduate/post-grad)

Note that for demographic breaks where cell sizes fall below 100 respondents, data arenot reported due to insufficient sample (indicated throughout the report by --).


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METHODOLOGY 2009 NATIONAL SURVEY

QUESTIONNAIRE DESIGN

The survey instrument was designed by Professor Annamaria Lusardi (DartmouthCollege), Applied Research & Consulting LLC (ARC), the Office of Financial Educationof the U.S. Department of the Treasury Department, and the FINRA Investor EducationFoundation. At various stages of the design process, input was provided by CraigCopeland (Employee Benefit Research Institute (EBRI)), the American Institute ofCertified Public Accountants (AICPA), and Professor Robert Willis (University ofMichigan, former P.I. of the U.S. Health and Retirement Study), among others.

PILOT TESTING

The instrument was piloted in two separate phases.

I. In-Person Interviews

ARC conducted a series of 20 in-person interviews in which the survey instrument wasadministered to respondents one-on-one by a researcher. These interviews allowed us toidentify questions that were unclear or confusing, and adjust the survey accordingly.

II. CATI Pilot

Upon completion of the questionnaire development, the survey instrument wasprogrammed using Computer Aided Telephone Interview (CATI) software and 100 initialinterviews were conducted over the telephone with a sample of 100 respondents obtainedthrough random-digit dialing (RDD). Based on feedback from these interviews, a fewminor adjustments in question wording were made, and some additional explanatory textwas added.

FIELDING

The survey was administered to respondents over the telephone by an interviewer usingCATI software. Fielding was conducted from May July 2009.


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SAMPLE

Households were contacted using standard random-digit-dialing techniques. Within eachhousehold, the adult with the most recent birthday was selected to be interviewed, inorder to minimize selection bias. If the selected respondent was not available, anappointment was made to conduct the interview at a later time.

Note: The sample consists of adults randomly selected within their households.We did not specifically target heads of households or primary financial decision-makers.

The final sample consisted of 1,488 adults (18+) across the U.S., broken down asfollows:

Primary Sample: N = 1,200

The primary sample was constructed to be representative of the general adult U.S.population.

Quotas were set to approximate Census distributions for age by gender,income, ethnicity, education level, and region (source: 2007 AmericanCommunity Survey).

Oversamples: Minimum N = 150 per group

To ensure sufficient respondents for analysis, oversamples were obtained forAfrican-Americans, Hispanics, Asians, and adults with less than high schooleducation, so that the total number of respondents in each of these groups reacheda minimum of 150 (including those in the primary sample).

Loose quotas were set to ensure that none of the oversamples were too highlyconcentrated within a given gender or age group.


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WEIGHTING

Because of oversampling for ethnicity and education groups, the raw distributions forthese variables do not match Census distributions.

Ethnic oversampling resulted mainly in overrepresentation of Asians.

Ethnicity Raw N Raw % 2008 ACSWhite (Non-Hispanic) 952 64% 69%

Black (Non-Hispanic) 184 12% 11%

Hispanic (any race) 152 10% 13%

Asian (Non-Hispanic) 150 10% 5%

Other (Non-Hispanic; Nat. Am., 2+ races) 50 3% 2%

Total 1488 100% 100%

In terms of education, the raw numbers show that our sample was relatively moreeducated than Census distributions would predict. Even though we were able toget over 150 respondents with less than high school education, this group wasunderrepresented relative to Census population estimates, and those with collegedegrees or higher were overrepresented.

Education Raw N Raw % 2008 ACSDid not complete high school 152 10% 15%

High school graduate 411 28% 29%Some college 431 29% 31%

College graduate 307 21% 16%

Post graduate education 187 13% 9%

Total 1488 100% 100%

Therefore, we weighted the data by ethnicity and education in order to match Censusdistributions using the full sample of 1,488 respondents. Since the distribution ofeducation levels varies among different ethnic groups, separate education weights wereconstructed for each ethnic group (i.e., the data were weighted by education within each

ethnic group, in addition to weighting the ethnic groups themselves to their representativeproportions).

[Note: Source for data on education within each ethnic group for the population 18+:2008 Current Population Survey. We were not able to locate this data in the AmericanCommunity Survey. Note that CPS estimates differ slightly from the ACS estimates.]


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Unweighted% of total Cauc.

Afr.-Amer. Hisp. Asian Other Total

Did not complete high school 6.4% 1.4% 1.6% 0.2% 0.6% 10.2%High school graduate 18.2% 4.4% 2.9% 1.4% 0.7% 27.6%

Some college 18.9% 3.7% 3.1% 2.0% 1.3% 29.0%

College graduate 13.4% 2.2% 1.7% 3.0% 0.5% 20.6%

Post graduate education 7.1% 0.7% 0.9% 3.5% 0.3% 12.6%

Total 64.0% 12.4% 10.2% 10.1% 3.4% 100.0%

Weighted% of total Cauc.

Afr.-Amer. Hisp. Asian Other Total

Did not complete high school 6.4% 2.1% 5.0% 0.5% 0.3% 14.2%

High school graduate 21.3% 4.0% 4.0% 0.9% 0.6% 30.9%Some college 20.0% 3.4% 2.8% 0.9% 0.7% 27.9%

College graduate 13.6% 1.4% 1.1% 1.4% 0.3% 17.9%

Post graduate education 7.0% 0.6% 0.5% 0.9% 0.1% 9.1%

Total 68.4% 11.5% 13.4% 4.6% 2.0% 100.0%

We then checked our weighted distributions against Census estimates to see whetherfurther weighting would be required.

As the tables below show, our weighted data approximate Census distributions on all keydemographic variables except income.

Census Divisions Raw % Weighted % 2008 ACSDivision 1: New England 5% 5% 5%

Division 2: Middle Atlantic 14% 14% 14%

Division 3: East North Central 16% 16% 15%

Division 4: West North Central 6% 7% 7%

Division 5: South Atlantic 18% 19% 19%

Division 6: East South Central 6% 6% 6%

Division 7: West South Central 10% 10% 11%

Division 8: Mountain 7% 7% 7%Division 9: Pacific 18% 17% 16%

Total 100% 100% 100%


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Gender Raw % Weighted % 2008 ACSMale 48% 49% 49%

Female 52% 51% 51%Total 100% 100% 100%

Age Raw % Weighted % 2008 ACS18-24 14% 14% 13%

25-34 17% 17% 18%

35-44 19% 18% 19%

45-54 18% 19% 19%

55-64 15% 14% 15%

65+ 17% 18% 17%

Total 100% 100% 100%

Age by Gender Raw % Weighted % 2008 ACSMale 18-24 6% 7% 7%

Male 25-34 9% 9% 9%

Male 35-44 9% 9% 9%

Male 45-54 9% 9% 10%

Male 55-64 7% 7% 7%

Male 65+ 8% 8% 7%

Female 18-24 7% 7% 6%

Female 25-34 8% 8% 9%

Female 35-44 10% 9% 9%

Female 45-54 9% 9% 10%

Female 55-64 8% 7% 8%

Female 65+ 9% 10% 10%

Total 100% 100% 100%

Ethnicity Raw % Weighted % 2008 ACSWhite (Non-Hispanic) 64% 69% 69%

Black (Non-Hispanic) 12% 11% 11%Hispanic (any race) 10% 13% 13%

Asian (Non-Hispanic) 10% 5% 5%

Other (Non-Hispanic; Nat. Am., 2+ races) 3% 2% 2%

Total 100% 100% 100%


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Education Raw % Weighted % 2008 CPSDid not complete high school 10% 14% 14%

High school graduate 28% 31% 31%Some college 29% 28% 28%

College graduate 21% 18% 18%

Post graduate education 13% 9% 9%

Total 100% 100% 100%

[Note that CPS estimates differ slightly from ACS estimates. Because CPS data wereused to construct the education weights, we have presented them here, rather than theACS data.]

NOTE ON HOUSEHOLD INCOME AND DEMOGRAPHICS

Income

Neither the raw nor the weighted data approximate Census estimates at the upper andlower ends of the income distribution. More respondents report lower incomes, andfewer report higher incomes, than would be expected from the Census.

Income Raw % Weighted % 2008 ACSLess than $15,000 18% 20% 13%

At least $15,000 but less than $25,000 12% 13% 11%


At least $35,000 but less than $50,000 14% 14% 14%At least $50,000 but less than $75,000 18% 18% 19%



$150,000 or more 7% 6% 9%

Total 100% 100% 100%

Given that the survey was conducted during the recession, and that 32% of respondents(unweighted) indicated that they had experienced a recent large drop in income, we feltthat the overall economic conditions at the time of the survey were likely to account for

why our sample appeared to have lower incomes relative to 2008 Census figures. Wetherefore decided against additional weighting to match the Census on income.

It would be interesting to see if our numbers more closely match 2009 Census data, onceit becomes available.


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Ethnicity

As the tables below show, ethnicity is highly correlated with income and education.Because this report presents univariate comparisons only, it is important to keep in mindthat when looking at findings by ethnicity, income or education, there is likely to be aconsiderable amount of shared variance among these three variables.

Income Cauc.Afr.-

Amer. Hisp. Asian Total


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INITIAL FINDINGS 2009 NATIONAL SURVEY

SATISFACTION AND FINANCIAL MANAGEMENT

The survey included several questions designed to gauge respondents overall views oftheir financial condition, and some detailed information about their spending, saving, andplanning habits and practices.

Overall satisfaction with personal financial condition was measured on a ten-point scale.The mean response was 5.55, very close to the precise mid-point of the scale.Satisfaction varied by demographics, with the greatest variation occurring acrosshousehold income.

Overall, thinking of your assets, debts and savings, how satisfied are you with yourcurrent personal financial condition? (1 = Not at all satisfied, 10 = Extremely satisfied)

Total Male Fem. 18-29 30-44 45-59 60+


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Only one in eight respondents (12%) reported that their spending in the past yearexceeded their income. However, nearly half (49%) indicated that it was at leastsomewhat difficult for them to cover their expenses and pay their bills in a typical month.

On both of these measures, the percentages were higher for African-Americans, thosewithout a high school diploma, those with lower household income, and young adults.

Over the past year, would you say your (household's) spending was less than, more than,or about equal to your (household's) income?

Total Male Fem. 18-29 30-44 45-59 60+


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At the time the survey was fielded, one third (33%) of all respondents reported that theirhousehold had experienced a large, unexpected drop in income over the past 12 months.This measure showed somewhat less demographic variation overall than the above two

questions, but 43% of Hispanics reported experiencing a large drop in income.

In the past 12 months, have you (has your household) experienced a large drop in incomewhich you did not expect?

Total Male Fem. 18-29 30-44 45-59 60+


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Are you setting aside any money for your children's college education? (n = 718respondents with financially dependent children)

Total Male Fem. 18-29 30-44 45-59 60+


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The percentage of respondents saying they had obtained a copy of their credit reports andhad checked their credit scores over the past 12 months were 38% and 36% respectively.The sharpest variations in these measures were by income and education.

In the past 12 months, have you obtained a copy of your credit report?

Total Male Fem. 18-29 30-44 45-59 60+


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HOUSING AND MORTGAGES

A central topic of the survey was home ownership and mortgages, since these comprisesuch an important component of the financial condition of American households.Overall, 61% of respondents reported owning their home. This percentage was muchlower (22%) for young adults. Home ownership also varied greatly with education and,especially, with income. Caucasians reported a higher rate of home ownership thanAfrican-Americans, Hispanics, or Asian-Americans.

Do you (or your spouse/partner) currently own?

% Yes Total Male Fem. 18-29 30-44 45-59 60+


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Respondents were asked how recently they had bought their home and some follow-upquestions about the mortgage decision-making process were only asked of those who saidthey had bought their home within the past five years.

How long ago did you buy your current home? (n = 909 homeowners)

Total Male Fem. 18-29 30-44 45-59 60+


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Do you have a home equity loan? (n = 909 homeowners)

Total Male Fem. 18-29 30-44 45-59 60+


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Only a small minority (8%) of mortgage borrowers indicated that their mortgage had anadjustable rate, although some (2%) didnt know. Surprisingly, a higher percentage(16%) stated that their mortgage was interest only or had an interest only option. [Note

that 20% of respondents answered Dont know to the question about interest onlymortgages, suggesting that there may be some confusion on this issue.]

Is your mortgage a fixed-rate mortgage or an adjustable-rate mortgage? (n = 553homeowners with mortgages)

Total Male Fem. 18-29 30-44 45-59 60+


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One out of six (16%) mortgage borrowers reported that they had been late with theirmortgage payments at least once in the past two years, including 10% who had been latemore than once. Only 2% said they had been involved in a foreclosure in the last two

years.

How many times have you been late with your mortgage payments in the last 2 years? (n= 553 homeowners with mortgages)

Total Male Fem. 18-29 30-44 45-59 60+


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RETIREMENT ACCOUNTS

Measuring access to and usage of various kinds of retirement accounts was a criticalcomponent of the survey, especially since fewer retirees in the future are expected tohave pensions and more will be expected to finance their own retirement. The questionsin this section were only asked of those respondents who are not already retired.

Past studies have shown that it is very difficult to obtain accurate information aboutretirement accounts through surveys that rely solely on self-reported data, due to the factthat many people are not familiar with all of the technical terms and distinctions used inthe retirement account category. This Financial Capability survey employed a relativelysimple sequence of plain language questions in an attempt to enable respondents todistinguish among the main types of retirement accounts, without requiring them to

provide a high level of detail.

Respondents were first asked if they had any kind of retirement plans through anemployer, like a pension plan or a 401(k).

If they answered yes, they were then asked if any of these plans were the kindwhere you choose how the money is invested. This was the used as a laypersonsproxy to distinguish defined contribution (DC) plans from defined benefit (DB)plans.

Regardless of the answers to those first two questions, respondents were then

asked if they had any non-employer retirement accounts they had set upthemselves, like an IRA, Keogh, SEP.

Synthesizing the results from these questions, it can be observed that 58% of non-retiredrespondents had at least one kind of retirement account. The distinctions in this measureacross income groups and education groups was extreme, ranging from 15% for lowerincome respondents to 91% for higher income respondents, and from 23% for non-highschool graduates to 87% for college graduates. African-Americans (42%) and Hispanics(36%) were also much less likely to report having some kind of retirement account thanCaucasians (65%) and Asian-Americans (64%).


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Among those respondents who have a retirement plan through their employer, 72% reporthaving a plan that allows them to decide how the money is invested. While it is certainlypossible that some of these respondents also have access to a traditional, defined benefit

pension, it seems likely that most of these respondents will be dependent solely ondefined contribution plans and Social Security when they retire. It is instructive to lookat a trend across two age cohorts: the 30-44 year olds and the 45-59 year olds. Amongthe older of these two cohorts, who are closer to retirement, 26% of those with employer-based retirement plans report that they do notget to decide how the plans funds areinvested (suggesting that their plan is of the DB type). Among the younger cohort, thispercentage drops to 19%.

Do you (or your spouse/partner) have any retirement plans through a current or previousemployer, like a pension plan or a 401(k)? (n = 1,211 non-retired respondents)

Total Male Fem. 18-29 30-44 45-59 60+


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Do you (or your spouse/partner) have any other retirement accounts NOT through anemployer, like an IRA, Keogh, SEP, or any other type of retirement account that you haveset up yourself? (n = 1,211 non-retired respondents)

Total Male Fem. 18-29 30-44 45-59 60+


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Among respondents who have some kind of self-directed retirement plan (either throughan employer or independently), nearly four out of five (79%) said they regularlycontribute to a retirement account.

Do you (or your spouse/partner) regularly contribute to a retirement account like a401(k) or IRA? (n = 576 respondents with self-directed plans)

Total Male Fem. 18-29 30-44 45-59 60+


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Are your (household's) retirement assets primarily invested in a life-cycle or target-datefund? (n = 576 respondents with self-directed plans)

Total Male Fem. 18-29 30-44 45-59 60+


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Finally, respondents with self-directed retirement accounts were asked if they had taken aloan or a hardship withdrawal from their accounts over the last 12 months. Nearly one inten (9%) said they had taken a loan and 5% reported having taken a hardship withdrawal.

In the last 12 months, have you (or your spouse/partner) taken a loan from yourretirement account(s)? (n = 576 respondents with self-directed plans)

Total Male Fem. 18-29 30-44 45-59 60+


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CREDIT CARDS

Respondents were asked some questions about their usage of credit cards, with particularattention paid to understanding their payment habits.

Overall, 68% of respondents reported having at least one credit card, with 26% reportingthey had at least four credit cards. Young adults were much less likely to have any creditcards than those who were 30 and above, and African-Americans and Hispanics were lesslikely to have credit cards than Caucasians and Asian-Americans. A majority of peoplewith household incomes under $25,000 and a majority of those without a high schooldiploma reported having no credit cards.

How many credit cards do you have? Please include store and gas station credit cards

but NOT debit cards.Total Male Fem. 18-29 30-44 45-59 60+


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Respondents with at least one credit card vs. no credit cards

Total Male Fem. 18-29 30-44 45-59 60+


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In the past 12 months, which of the following describes your experience with creditcards? (n = 1,018 respondents with credit cards)



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Cardholders who said they didnt always pay their balance in full were asked for theapproximate interest rate on the card where they had the largest balance. Cardholderswho said they didalways pay in full were asked for the rate on the card they used most

often. The open-ended numeric responses to these questions require more processing andanalysis before they can be reported, but it is interesting to look at the percentage ofcardholders who said they did not know the answer. Among cardholders who dontalways pay their balance in full, 12% said they didnt know their interest rate. Notsurprisingly, among those who do pay their balances in full, many (36%) said they didntknow the interest rate on the card they use most often.

Approximately what interest rate do you pay on the card where you have the largestbalance? (n = 471 respondents who do not pay in full each month)

Total Male Fem. 18-29 30-44 45-59 60+


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Unlike some other financial products, when it comes to credit cards, most respondentsindicated that they dont shop around. Only 34% of cardholders said they collectedinformation about different cards from more than one company for comparison purposes

when they last obtained a credit card.

Thinking about when you obtained your most recent credit card, did you collectinformation about different cards from more than one company in order to comparethem? (n = 1,018 respondents with credit cards)

Total Male Fem. 18-29 30-44 45-59 60+


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FINANCIAL LITERACY

A core component of the financial capability survey was a battery of self-assessmentquestions on financial literacy and competence, followed by a series of quiz-stylequestions designed to yield an independent, objective assessment of the respondentsfinancial literacy.

In general, the self-assessment questions revealed that most respondents believethemselves to be highly competent and knowledgeable. Using seven-point agree/disagreescales, roughly three quarters of respondents agreed (5, 6, or 7 on the scale) that theywere good at dealing with day-to-day financial matters and that they were pretty good atmath. Also, 70% assessed their overall financial knowledge at the higher end (5, 6, or 7)of a seven-point scale.

I am good at dealing with day-to-day financial matters, such as checking accounts, creditand debit cards, and tracking expenses.

Total Male Fem. 18-29 30-44 45-59 60+


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I am pretty good at math.

Total Male Fem. 18-29 30-44 45-59 60+


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On a scale from 1 to 7, where 1 means very low and 7 means very high, how would youassess your overall financial knowledge?

Total Male Fem. 18-29 30-44 45-59 60+


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Suppose you had $100 in a savings account and the interest rate was 2% per year. After5 years, how much do you think you would have in the account if you left the money togrow?

Total Male Fem. 18-29 30-44 45-59 60+


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Buying a single company's stock usually provides a safer return than a stock mutual fund.

Total Male Fem. 18-29 30-44 45-59 60+


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As the tables below show, on average, respondents answered 2.72 of the five financialliteracy quiz questions correctly and 1.14 of them incorrectly, and selected the Dontknow option 1.08 times.

On average, men (3.00) gave more correct answers than women (2.46), but there was nodiscernible difference between the sexes in the average number of incorrect answers.

Young adults performed worst among the age cohorts, both in terms of their low averagenumber of correct responses (2.16) and their high average number of incorrect responses(1.45). The highest performing age cohort, in terms of average number of correctresponses, was the 45 to 59 year olds (3.04).

The sharpest distinctions in financial literacy quiz performance appeared across incomeand education groups. Both the high-income group and the college graduate group

averaged 3.42 correct answers and averaged less than 1 incorrect answer.

African-Americans and Hispanics scored lower than Caucasians and Asian-Americans.Hispanics had the lowest average number of correct answers (2.07) among ethnic/racialgroups. African-Americans had the highest average number of incorrect answers (1.61)among ethnic/racial groups.

Average across all five quiz questions

Total Male Fem. 18-29 30-44 45-59 60+


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INSURANCE

The survey included a small number of questions about insurance, including a basicinventory of which kinds of insurance respondents were covered by. The inventoryconsisted of health, homeowners/renters, life, and auto insurance. Of these, the mostprevalent were auto insurance and health insurance, with 85% and 81% of respondents,respectively, having reported being covered by them.

Young adults, those with low household incomes, Hispanics, and those without a highschool diploma were least likely to report being covered by health insurance. Theprevalence of life insurance and homeowners/renters insurance were very highlycorrelated with household income and education.

Are you covered by health insurance?Total Male Fem. 18-29 30-44 45-59 60+


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Do you have a life insurance policy?

Total Male Fem. 18-29 30-44 45-59 60+


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Half of those respondents who reported having at least one of the four kinds of insurancesaid they reviewed their insurance coverage at least once a year. One in seven (14%) ofthose respondents said they never reviewed their coverage.

How often do you review your insurance coverage? (n = 1,406 respondents with somekind of insurance)

Total Male Fem. 18-29 30-44 45-59 60+


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FINANCIAL ADVISORS

The survey asked a few questions about respondents experience working with financialprofessionals, along with some attitudes towards financial professionals.

More than half (55%) of respondents said they had asked for advice from a financialprofessional over the last five years. The most common types of advice reported beingasked for were advice about savings and investments (32%) and insurance (32%).

The groups least likely to have asked for advice from a professional were those with lowhousehold incomes (32%) and those without a high school diploma (32%). Hispanics(38%) were less likely than other ethnic/racial groups to have asked for professionaladvice.

In the last 5 years, have you asked for any advice from a financial professional about anyof the following?



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Only a little more than half (56%) of those who have worked with a financialprofessional said that they typically met or talked with more than one advisor beforemaking a choice. Interestingly, the percentage who said they did shop around in this

way declined with age from 66% for young adults to 43% for those 60 and above.

Typically, when looking for a financial professional, do you meet with or talk to morethan one advisor before making a choice? (n = 816 respondents who have used a

financial professional in past 5 years)

Total Male Fem. 18-29 30-44 45-59 60+


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In general, respondents were somewhat more likely to agree that financial professionalsare too expensive for me (40%) than to agree that it is hard to find the right financialprofessional (30%). Only 32% agreed to the statement I would trust financial

professionals and accept what they recommend.

How strongly do you agree or disagree with the following statements?

% Agree (5-7) Total Male Fem. 18-29 30-44 45-59 60+


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OTHER BORROWING METHODS

The survey included a battery of items designed to measure the incidence in the adultU.S. population of the usage of a variety of alternative borrowing mechanisms thattypically charge much higher interest rates than are charged on bank loans. For each ofthe five types of borrowing methods, fewer than 10% of respondents overall indicatedhaving used it in the past five years. African-Americans were the ethnic/racial groupmost likely to have used refund anticipation loans (13%) and pawn shops (17%).Hispanics were the most likely to have used payday loans (11%).

Please tell me if you've done any of the following in the past 5 years.



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There were only modest degrees of overlap in the usage of these five different borrowingmethods. Overall, while 23% of respondents engaged in at least one of these methodsover the past five years, only 7% had engaged in two or more of them, and only 2% had

engaged in three or more.

Number of alternative borrowing methods used in past five years

Total Male Fem. 18-29 30-44 45-59 60+


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INCOME SOURCES FOR RETIREES

The survey included a section of questions that were directed specifically to retirees andnon-working spouses of retirees. Overall, 19% of the survey sample fell into thiscategory. Not surprisingly, most of the respondents in this sub-population were 60 andabove.

Retirement status

Total Male Fem. 18-29 30-44 45-59 60+


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BANKING

The survey included some basic questions about usage of bank accounts, with a series offollow-up questions designed specifically for the unbanked (i.e., those without any kindof depository account).

Among all respondents, 85% reported having a checking account and 72% reportedhaving a savings account, money market account, or CDs. Not surprisingly, there was agreat deal of overlap between those with checking accounts and those with other types ofbank accounts. For example, 55% of Hispanic respondents reported having a non-checking type of bank account (i.e., a savings account, money market account, or CDs).However, the great majority of these respondents also reported having a checkingaccount. Very few (5%) Hispanics reported that their only bank accounts were non-

checking accounts.

Combining the responses to these two questions, it could be determined that 12% of allrespondents were unbanked (lacking both checking and non-checking accounts). Theunbanked represent considerably higher percentages of certain demographic groups:

Young adults (22%)

Lower income households (31%)

African-Americans (28%)

Hispanics (30%)

Non-high school graduates (36%)

Do you (Does your household) have a checking account?

Total Male Fem. 18-29 30-44 45-59 60+


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Do you (Does your household) have a savings account, money market account, or CDs?

Total Male Fem. 18-29 30-44 45-59 60+


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Among the respondents with checking accounts nearly three quarters (73%) reportedusing a debit card tied to their bank account, and almost one quarter (23%) reportedoverdrawing their checking account occasionally.

Do you (or your spouse/partner) use a debit card tied to your bank account? (n = 1,260respondents with checking account)

Total Male Fem. 18-29 30-44 45-59 60+


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Unbanked respondents were given a list of reasons that might explain why they didnthave bank accounts and were asked to specify which reasons applied to them. Multipleresponses were allowed. The reason that was picked most commonly (more than twice as

many unbanked respondents picked it than any other single reason) was do not haveenough money to make it worthwhile. However, roughly one third of the unbankedagreed that bank fees are too high, a third said that they do not like dealing withbanks, and a third said they do not want to share my personal information.

Which of the following are reasons why you do not have a checking or savings account?(n = 180 unbanked respondents)

Total% Yes

Do not have enough money to make it worthwhile 72%

Do not want to share my personal information 35%

Bank fees are too high 35%

Do not like dealing with banks 34%

Inconvenient hours or location 23%

Banks would not let me open an account 22%

The unbanked respondents were also asked about their usage of alternatives to bankservices (e.g., check cashing facilities and money orders).

(n = 180 unbanked respondents)Total%Yes

Do you (or your spouse/partner) sometimes pay your bills with money orders? 71%

Do you (or your spouse/partner) sometimes cash checks at a grocery store or supermarket? 49%Do you (or your spouse/partner) sometimes go to a check cashing store to cash checks? 47%


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Banked vs. Unbanked

The following tables provide an in-depth comparison of the unbanked population to thebanked population across a variety of measures in the survey, including borrowingpractices, banking literacy, and credit card usage.

Please tell me if you've done any of the following in the past 5 years.% Yes Unbanked

(n = 180)Banked

(n = 1,303)

Have you taken out an auto title loan? 5% 7%

Have you taken out a short term "payday" loan? 8% 5%

Have you gotten an advance on your tax refund? This is sometimes called a"refund anticipation loan" or "Rapid Refund." (Note not e-filing)

16% 6%

Have you used a pawn shop? 26% 6%

Have you used a rent-to-own store? 14% 3%

Suppose you had $100 in a savings account and the interest rate was 2% per year. After5 years, how much do you think you would have in the account if you left the money togrow?

Unbanked Banked

More than $102 52% 67%

Exactly $102 12% 11%

Less than $102 13% 9%

Don't know 23% 12%

Refused 1% 1%

Imagine that the interest rate on your savings account was 1% per year and inflation was2% per year. After 1 year, how much would you be able to buy with the money in thisaccount?

Unbanked Banked

More than today 19% 10%

Exactly the same 17% 8%

Less than today 41% 68%

Don't know 22% 13%

Refused 1% 1%

Credit card statusUnbanked Banked

No credit cards 88% 23%

1 or more credit cards 12% 76%

Undetermined 0% 1%


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SUPPLEMENTAL ANALYSES

SHOPPING AROUND

At three different points in the survey, respondents were asked about their financialshopping behavior regarding various financial products. The table below compares theresults from these questions. Shopping for a mortgage is most common; shopping for acredit card is least common; shopping for a car loan falls in between.

Total% Yes

When you were getting your mortgage, did you compare offers from different lenders ormortgage brokers? (n = 194)

66%

Thinking about when you obtained your most recent credit card, did you collect information

about different cards from more than one company in order to compare them? ( n = 1,018)

34%

Thinking about your most recent auto loan, did you compare offers from different lenders? (n= 428)

49%

SELF-PERCEPTION OF FINANCIAL CAPABILITY AND BEHAVIORS

The following tables show comparisons on questions of financial management betweenrespondents who agree vs. disagree with the statement I am good at dealing with day-to-day financial matters, such as checking accounts, credit and debit cards, and trackingexpenses.

Some questions that showed sharp distinctions between those who said they were good atday-to-day finances and those who didnt were:

Difficulty of covering expenses and paying bills in a typical month

Experienced a large, unexpected drop in income over the last 12 months

Usage of refund anticipation loans and pawn shops


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Over the past year, would you say your (household's) spending was less than, more than,or about equal to your (household's) income?

I am good at dealing withfinancial matters

Agree Disagree

Spending LESS than income 55% 37%

Spending MORE than income 11% 16%

Spending about EQUAL to income 34% 46%

Don't know 0% 1%

Refused 0% 0%

In a typical month, how difficult is it for you to cover your expenses and pay all yourbills?


Agree DisagreeVery difficult 9% 30%

Somewhat difficult 35% 35%

Not at all difficult 56% 35%

Don't know 0% 1%

Refused 0% 0%

In the past 12 months, have you (has your household) experienced a large drop in incomewhich you did not expect?


Agree Disagree

Yes 31% 43%

No 69% 56%

Don't know 0% 0%

Refused 0% 1%

Do you (or your spouse/partner) overdraw your checking account occasionally?(respondents with checking accounts)


Agree Disagree

Yes 20% 33%

No80% 65%

Don't know 0% 2%

Refused 0% 0%


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Have you been involved in a foreclosure process on your home in the last 2 years?I am good at dealing with

financial matters

Agree Disagree

Yes 1% 3%

No 99% 97%

Don't know 0% 0%

Refused 0% 0%

Have you declared bankruptcy in the last two years?I am good at dealing with

financial matters

Agree Disagree

Yes 1% 2%

No 99% 96%

Don't know0% 2%

Refused 0% 0%

Please tell me if you've done any of the following in the past 5 years.I am good at dealing with

financial matters% Yes Agree Disagree

Have you taken out an auto title loan? 7% 7%

Have you taken out a short term "payday" loan? 5% 9%

Have you gotten an advance on your tax refund? This is sometimes called a"refund anticipation loan" or "Rapid Refund." (Note not e-filing)

6% 11%

Have you used a pawn shop? 7% 14%

Have you used a rent-to-own store? 4% 7%

financial capability in the united states december 2009

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