How good are Americans – and more specifically Rhode Islanders – at managing their money? Well, the National Financial Capability Study – released last week by the education foundation of the Financial Industry Regulatory Authority, or FINRA – is intended to give a sense of their abilities. Jim Hedemark, executive director of the financial literacy nonprofit Rhode Island Jump$tart Coalition, agreed to answer five questions about the study’s highlights.
PBN: How did Rhode Islanders perform in the financial capability study?
HEDEMARK: The FINRA Foundation reports that Rhode Islanders scored largely on par with national averages. The following are five categories from the survey with Rhode Island and national average scores.
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- Spending vs. saving. Twenty-three percent of Rhode Islanders reported that over the past year their household spent more than their income (not including the purchase of a new home, car or other big investment). The national average is 20 percent.
- “Rainy day” funds. Fifty-nine percent of Rhode Islanders reported lacking a rainy day fund to cover expenses for three months, in case of emergencies such as sickness, job loss or economic downturn. The national average is 60 percent.
- Nonbank borrowing. Twenty-three percent of Rhode Islanders reported using one or more nonbank borrowing methods, such as an auto title loan or payday loan in the past five years. The national average is 24 percent.
- Financial literacy. On average Rhode Islanders answered three of the survey’s financial literacy questions correctly [out of five]. The national average was three.
- Comparison shopping. Fifty-three percent of Rhode Islanders reported that when obtaining their most recent credit card, they did not collect and compare information about cards from more than one company. The national average is 62 percent.
PBN: Which states stood out in the study?
HEDEMARK: According to the survey, citizens of New Jersey, New York and New Hampshire are the most financially capable. Those states ranked in the top five among all states in at least three of five measures of financial capability.
Conversely, the survey reveals that Kentucky and Montana stood out as having lower financial capability when compared to other states.
PBN: The Jump$tart Coalition is focused on youth personal financial capability. Does the survey reveal any data related to young people?
HEDEMARK: The survey does find that young American adults (age 18 to 34) are more likely to be less financially capable than older American adults, and they are significantly more likely to engage in nonbank borrowing. I find this especially troubling, because the lack of personal financial capability and risky personal financial practices early in life can lead to long-lasting consequences that can take years to overcome. The price of the “trial and error” model of personal financial education is just too high, especially given today’s economy.
PBN: Why is this new research important?
HEDEMARK: As far as I am aware, this is the first state-by-state national study of American adults that provides data regarding personal financial knowledge and personal financial behavior.
The FINRA Foundation conducted research with more than 28,000 U.S. respondents (approximately 500 per state) in an effort to “allow the public, policy-makers and researchers to delve into and compare the financial capabilities of Americans in every state and geographic region.”
PBN: How should people use this new capability study and other resources provided by the FINRA Foundation?
HEDEMARK: The website www.usfinancialcapability.org provides a financial literacy quiz that anyone can take and compare performance with survey results at the state, regional and national levels. Further, I would encourage any organization that provides personal financial education to spend time on the site, exploring the wealth of data that is offered. There is much more content available than the summary data provided above, such as age and gender results. An interactive map allows visitors to click on any state and receive a full report on that state’s survey results.
