By John Halterman Chances are, if you’re reading this article, you are more financially literate than most. But that’s not the case for everyone, especially in America. While you don’t need to be an expert on the stock market, bond prices, or the history of inflation, understanding basic financial concepts and how they impact your balance sheet can save you from making financial mistakes that haunt you for years. The stats make it clear: there is a dire need for more financial education. In the past 10 years, financial literacy has declined in the U.S. Although nearly three-quarters of Americans think they are financially literate, their true lack of knowledge causes them to regularly engage in costly financial habits. (1) Worldwide, the S&P Global FinLit Survey tells us that only 1 in 3 adults is financially literate, based on their answers to questions about four basic financial concepts: risk diversification, numeracy, inflation, and interest compounding. Those surveyed had to respond correctly to three out of the four topics to be considered financially literate. How did we do? Financial Literacy Findings Here are some of the survey’s findings: (2) In the U.S., 57% of adults are financially literate. Worldwide, only 33% of adults are financially literate. The U.S. ranks about the same as Belgium, Switzerland, New Zealand, and Singapore. Americans with less education and lower incomes have lower financial literacy levels than their counterparts in other wealthy nations. College-educated adults in the U.S. rank 28 percentage points higher in financial literacy than those with only a high school education. Interest is the least-understood concept in the U.S., and of adults who own a credit card, 43% answered this question incorrectly. Only 58% of adults who save at a financial institution answered the compound interest topic correctly. There is a 10 percentage point financial literacy gap between men and women in the U.S., which is twice as large as the global gender gap. Of the 62% of U.S. women who have a credit card, only half of them answered the interest question correctly. The financial literacy gap based on income is 17 percentage points in the U.S., compared to 9 percentage points globally. Almost 10% of U.S. adults have borrowed money to pay for school fees in the last year, but only half of them correctly answered the interest topic. In the U.S., about a third of adults finance their houses, but only 62% of them answered the interest topic correctly. Why Does Financial Literacy Matter? It’s clear that we have a financial illiteracy problem here in the U.S. and worldwide. But how much does it really matter? Consider these statistics: Though we are the wealthiest nation, the U.S. ranks 14th in financial literacy worldwide. (3) Finances are the #1 cause of stress in America. (4) Money is the #1 cause of arguments between spouses. (5) Disagreements about money are the second leading cause of divorce, just behind infidelity. (6,7) When you consider how stress affects health, causing headaches, upset stomach, elevated blood pressure, chest pain, problems sleeping, (8) and increasing the likelihood of engaging in unhealthy behaviors like alcohol, tobacco, or overeating, it’s even more alarming. Why is financial literacy important? Because it affects our relationships, our health, and every area of our lives. How Financially Literate Are You? By now you’re probably curious about how you would do on the survey. How do you compare to the global statistics? Do you know as much as you think you do? Answer the following questions to find out: 1. Suppose you have some money. Is it safer to put your money into one business or investment, or to put your money into multiple businesses or investments? A. One B. Multiple C. I don’t know 2. Suppose over the next 10 years, the prices of the items you buy double. If your income ALSO doubles, will you be able to buy less than you can buy today, the same as you can buy today, or more than you can buy today? A. Less B. The same C. More D. I don’t know 3. Suppose you need to borrow $100. Which is the lower amount to pay back: $105 or $100 plus 3 percent? A. $105 B. $100 + 3% C. I don’t know 4. Suppose you put money in the bank for two years and the bank agrees to add 15 percent per year to your account. Will the bank add MORE money to your account the second year than it did the first year, or will it add the SAME amount of money both years? A. More B. The same C. I don’t know 5. Suppose you had $100 in a savings account and the bank adds 10 percent per year to the account. How much money would you have in the account after 5 years if you did not remove any money from the account: more than $150, exactly $150, or less than $150? A. More than $150 B. Exactly $150 C. Less than $150 D. I don’t know ANSWERS: 1. B. Multiple This question is about risk diversification, and 69% of U.S. adults answered correctly. 2. B. The same This question is about inflation, and 63% of U.S. adults answered correctly. 3. B. $100 + 3% This question is about interest, and 52% of U.S. adults answered this question correctly. 4. A. More 5. A. More than $150 The last two questions are about compound interest, and 61% of U.S. adults answered this section correctly. Do You Want To Improve Your Financial Literacy? What were your results? Are you already jumping on Google to brush up on some topics? With the convenience of the Internet, it is easy to find financial information to fill in the gaps in your knowledge. But the Internet also has a lot of information that either isn’t correct or that assumes you already have a strong foundation of financial literacy from which to work. At Beacon Wealth Management, we don’t want you to make devastating financial mistakes just because you didn’t know enough. It’s just not worth it. If you’re ready to become part of the minority that knows their stuff and makes knock-out financial decisions, call (304) 626-3900 or email me at [email protected] About John John Halterman, best-selling author and nationally published blogger, has been featured as a financial guest expert on the shows of self-help gurus Brian Tracy and Jack Canfield, author of Chicken Soup for the Soul, and has appeared on ABC, FOX, BRAVO, NBC, CBS, and A&E. John is the expert host of the weekly WDTV News 5 segment “Solutions 4 Financial Independence.” As an authority on wealth management, he has been invited by hundreds of institutions such as universities, federal agencies, professional associations, and large energy and utility corporations to be a guest speaker and educational event host. Event topics include retire ready, managing down market investment risk, how to reduce your tax burden, and transferring your family wealth in the most tax advantageous way. John is the founder and owner of Beacon Wealth Management, specializing in helping entrepreneurs, professional practitioners, and retirees overcome the 5 major challenges facing successful families. He is a warm communicator with a passion for helping people transform their financial futures. John understands the multifaceted set of financial worries people face as they become more successful and enter the Retirement Red Zone. He empathizes personally with each client and delivers a collaborative client experience that empowers people to reach their life goals. With more than two decades of experience, John’s professional credentials include Certified Wealth Strategist, Accredited Investment Fiduciary, Certified Estate Planner, Chartered Federal Employee Benefits Consultant, Professional Plan Consultant, and Registered Financial Consultant. He is also a past member of Ed Slott’s Master Elite IRA Study Group. A native of Weston, West Virginia, John served in the United States Air Force prior to becoming a wealth advisor. Today, he resides with his family in Clarksburg, West Virginia. He and his wife, Lisa, have been married since 2005 and have three amazing children. A family-oriented man, he enjoys giving back to his community, coaching youth sports, landscaping, architectural design, and playing racquetball. ____________ (1) (2) (3) (4) (5) (6) (7) (8)