Americans struggle to make the grade on basic finance knowledge.
Dollars and Sense: How what you don't know about money is costing you a pretty penny.
BLOOMINGTON - In a test of personal finance wit, Americans aren’t making the grade, according to the latest COUNTRY Financial Security Index®. When quizzed on their knowledge of pertinent personal finance facts - from spending to retirement savings, Americans need to spend more time studying if they want to receive a passing grade on this report card.
Q: What is the recommended percentage of income you should spend on housing?
A: 30 percent. Many financial planners and experts stick to approximately this amount so you don’t overextend and end up “house rich and cash poor.”
Just one in three (31 percent) Americans answered correctly; leaving 69 percent unaware of how much housing costs today and the impact it has on the ability to build a solid financial future.
“It’s alarming to see only a small population of Americans getting this question right,” says Troy Frerichs, director of Investments-Wealth Management at COUNTRY Financial®. “However, it’s never too late to equip yourself with information or to talk to a professional. It’s important to start with what’s probably your largest expense, your housing, to make sure you’re not buying “too much” house. If you max out your income on your home, you may not have enough left over for personal savings and retirement funding.”
Q: If you save 10 percent of your income annually, will you have enough money to retire and live in the way you are accustomed?
A: Probably not. Frerichs notes that a sound retirement plan is one set up like a three-legged stool, drawing on personal savings, employer contributions in a pension or 401(k) and Social Security. While people with a very generous employer program and modest lifestyle may only need to save 10 percent of their income, this is probably not the case for most Americans.
Nearly half of Americans may not be on track to retire comfortably, as 44 percent either agree or are unsure if saving 10 percent of their income annually is enough. And men (30 percent) are even more likely to say yes than women (18 percent). Perhaps because of this, they are putting their money elsewhere or aren’t aware of the appropriate vehicles for the best return on investment.
Forty-three percent of the general population say saving for their child’s college education is more important than saving for their own retirement, and another 11 percent are unsure. Lower income groups are even more likely to say saving for their child’s education is more important.
Just 38 percent of Americans chose correctly when asked about the difference between a traditional and Roth IRA. Thirty-two percent chose incorrectly and another 30 percent were just altogether unsure.
“You can borrow for college, but not for your retirement,” notes Frerichs. “As a rule of thumb, retirement savings should come first, however we often see Americans putting the priority on education expenses.”
Q: Is it better to get a large tax refund or have fewer taxes withheld from your paycheck throughout the year?
A: It’s better to have fewer taxes withheld. While getting a big refund check can feel great, this can be an expensive way to save – think about the lost interest throughout the year as well as what you could have done with extra money on each paycheck.
While a majority (59 percent) of Americans say having fewer taxes withheld is the better choice to make more money in the long-term, there are still a significant number who don’t. Even fewer Gen Y Americans (46 percent) say the same. Perhaps this is why 26 percent said the appropriate amount for emergency savings is much less than recommended (four to six months) or were unsure.
“No matter how you choose to educate yourself about money matters or where you get your information, financial literacy is an important part of building a financially secure future,” continues Frerichs. “Knowing the basics of how to prioritize your spending and savings can go a long way in achieving your short and long-term financial goals.”
The COUNTRY Financial Security Index
Since 2007, the COUNTRY Financial Security Index has measured Americans’ sentiments of their personal financial security. The COUNTRY Index also delves deeper into individual personal finance topics to better inform Americans about the issues impacting their finances. Survey data, videos and analysis are available at www.countryfinancialsecurityblog.com and on Twitter at @FinanceSecure.
The COUNTRY Index was created by COUNTRY Financial and is compiled by Rasmussen Reports, LLC, an independent research firm, based on a national telephone and online survey of at least 3,000 Americans.
The margin of sampling error for a survey based on this many interviews is approximately +/- 2 percentage points with a 95 percent level of confidence.
About COUNTRY Financial
COUNTRY Financial (www.countryfinancial.com) serves about one million households and businesses throughout the United States. It offers a full range of financial products and services from auto, home and life insurance to retirement planning services, investment management and annuities.
Ogilvy Public Relations