Failing to understand personal finance

When we were in school, a grade of C, D, or F would have meant big trouble for us at home, often resulting in our parents putting us into “time-out.” According to the National Foundation for Credit Counseling’s (NFCC) annual Consumer Financial Literacy Survey, many Americans would be well-served by a self-imposed “time-out” during which they could improve their grasp of financial literacy. The NFCC survey allowed consumers to grade themselves on their knowledge of personal finance, and 34 percent gave themselves a grade of C, D, or F.

Although the survey did show some improvements in consumer behavior as it relates to personal finance, there are still serious deficiencies which impact consumers’ ability to properly manage their money, particularly during an economic crisis. Consider that one-third of adults do not put any part of their annual household income toward retirement. Although remaining level since 2009, this figure has increased by five percent since the 2008 survey, putting consumers in danger of being ill-prepared for retirement.

Of further concern is the finding that 30 percent of adults report that they have no savings. These people are on a very slippery slope when the inevitable emergency arises. Indeed, one in four say that if faced with an emergency, they would charge that expense to a credit card (25 percent) or take out a loan (29 percent), adding to their debt load with yet another bill to pay.

It is no surprise that millions of adults struggle to pay their bills each month, with 28 percent admitting to not paying bills on time. The ramifications include negative marks on the credit report and a lowered credit score, resulting in higher interest assessed on loans and credit cards, further exacerbating an already difficult financial situation. This is a very serious problem for two in five adults who report that their household carries credit card debt over from month-to-month, with more than 11 million indicating the amount of that debt to be $10,000.

Part of the silver lining is that consumers appear to be aware of their need for improvement in the area of financial education, with the survey showing that four in five adults agree that they would benefit from advice and answers to everyday financial questions from a professional.

The 2010 Financial Literacy survey was conducted by telephone within the United States by Harris Interactive on behalf of the NFCC between March 4 and March 8, 2010 among 2,028 adults ages 18+. Results were weighted for age, sex, geographic region and race where necessary to align them with their actual proportions in the population. The full survey is available at www.NFCC.org in the Newsroom section.

Kim McGrigg is the former Manager of Community and Media Relations for MMI.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.