Balancing Priorities

You, smart about money? Your behavior suggests otherwise

A firm grasp of financial literacy doesn't always translate into making smarter money moves.

U.S. adults are split, 50-50, in their ability to correctly answer questions about financial decision-making and money management, according to a new joint report from the TIAA Institute and the Global Financial Literacy Excellence Center at George Washington University School of Business. The groups polled 1,043 adults in September 2016, asking 28 questions in subjects where respondents routinely make financial decisions, such as borrowing, saving and earning.

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On average, survey respondents got 49 percent of the questions correct. Just 16 percent could answer at least 22 of the questions correctly (putting them in the top-scoring bucket), while 20 percent of people got seven or fewer questions right. (See chart below for subject areas where consumers knew the most, and least.)

"Higher scores often correlated with smarter behaviors," said report co-author Paul Yakoboski, senior economist at the TIAA Institute.

"Those individuals are less likely to report being financially fragile," he said.

Consumers with top scores were much more likely than other respondents to have figured out how much they need for retirement, and to have investment accounts other than those for retirement. But 22 percent are still carrying credit card debt from month to month, and 17 percent aren't certain they could come up with $2,000 in an emergency. (See charts below.)

"Knowledge of the principle is low, and that translation of the principle in knowledge and outcomes can also be improved upon," said report co-author Annamaria Lusardi, a professor of economics at George Washington University.

"When it comes to personal finance, people have to be proactive," she said.

People who know more about personal finance are often more likely to seek help, she said. Recognizing a knowledge gap should spur you to educate yourself.

Look to see where you're currently falling short on money management, said Paul Golden, a spokesman for the National Endowment for Financial Education. That will also tell you where you might benefit from new goals and a refresher on strategies to get there.

"Behavior shifts don't come easy," he said. "You have to take time to understand where you are and set reasonable benchmarks for change."