FINRA Study Shows Growth In Financial Capability

Nearly one-third of American consumers find it easier to pay their bills, have more opportunities to save money for the future and more confidence in their overall financial situation. That signals a large statistical improvement from 2009 and indicates a steady upgrade from the worst days of the severe U.S. economic downturn.

Savor that good news. Then prepare for some grim realities.

The 2015 National Financial Capability Study (NFCS), released by the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation, also determined that American consumers have an increased student-loan burden, a significant population that still makes only the minimum credit-card payment some months, poor trends in overall long-term savings and a general lack of financial knowledge.

In short, according to NFCS researchers, there has been progress since the Great Recession … but not nearly enough.

Financial Capability Gains Not Shared By All

Additionally, the study said African-Americans, women, Hispanics, Millennials and those without a college education are particularly vulnerable and face a much more difficult time in securing their financial future.

The NFCS study polled 27,564 American adults (roughly 500 per state, plus the District of Columbia) on four major areas of their financial health:

FINRA first released the Financial Capability study in 2009 and has conducted it every three years since then, helping to provide an understanding of how consumers view their financial health.

In 2009, only 16% of Americans were satisfied with their personal financial condition. In 2015, that figure nearly doubled, reaching 31%. Still, experts view the increase with caution.

“In a sense, it’s good news and bad news,’’ said Annamaria Lusardi, a professor at George Washington University and an author of the study. “The majority (69%) doesn’t seem to be happy with personal finances. They don’t feel the economy is working for them.

“It takes a while for things to recover. The worst days are behind us. Overall, what we see are people doing better in several areas. But (31%) satisfied is low and lower than we should expect with unemployment down.’’

Another way to say it: 69% of consumers are NOT satisfied with their personal financial condition.

FINRA Study Highlights

  • 46% of consumers say they have three months of emergency funds (an increase from 35% in 2009). But that also means more than half of American consumers (54%) don’t have a suitable financial fallback plan.
  • The number of people paying off credit card debt in full every month has increased to 52% (it was 41% in 2009). But that still means that nearly half (48%) of consumers carry a credit card balance forward from one month to the next.
  • Only 39% of consumers have tried to determine their retirement savings needs, a figure that has remained consistent through the life of the three NFCS surveys. Yet 56% say they are worried about running out of money in retirement, indicating that not enough people are willing or able to forecast solutions for future financial issues.
  • Only 37% of consumers (a drop of 5% from 2009) could correctly answer four of five questions on financial literacy topics, such as compound-interest concepts, the  effect of inflation and how shorter-term mortgages mean smaller total interest payments over the life of the loan.

Nearly half of the people (45%) in the 18-34 age group have student loan debt and 60% of current students in a four-year school have a student loan. But the front-end knowledge seems to be severely lacking: 54% said they took loans without estimating monthly payments, while 53% said they would make a change if they could start the student-loan process again.

“The fact that half the people with student loans would do something different if they had the chance is troubling,’’ said Gary Mottola, research director at FINRA Investor Education Foundation. “Student loans are a complicated issue and it’s difficult for people to fully understand what they’ve got themselves into.’’

“These findings are alarming,’’ Lusardi said. “They indicate that people take on student loans without understanding or being fully informed. These loans are complex, so it’s not surprising. But people do not know what type of loan they have — or how to repay it. They don’t have a sense of what they will pay and how much they will have to earn to pay them off.’’

Credit Card Management Still Poor For 50% Of Population

Meanwhile, the overall improvement in credit card payment discipline is augmented by what the authors describe as “expensive’’ behaviors. It is reckless debt management when a consumer continually makes the minimum monthly payment, pays late fees, pays over-the-limit fees or uses the card for cash advances, all of which are practiced by 56% of consumers, according to the study.

“We’re seeing improvement with credit cards, but again, absolute levels are a concern,’’ Mottola said. “We had a nice jump in the number of people paying off their credit cards at the end of every month, but we’ve still got a good number making only the minimum payment every month.

“We hope to see improvement again in 2018. Financial literacy levels are still pretty low and debt literacy is even lower.’’

Mottola said the lack of education is troubling, particularly when considering issues such as retirement savings. The National Institute on Retirement Security reported that 62% of workers between the ages of 55 and 64 have retirement savings that are less than one times their annual income. Most of those workers are cognizant of a potential problem — hence the 56% of consumers worried about their lack of retirement funds — but there’s no evidence of increased education or action plans to address the concern.

“American consumers have a short time horizon for financial planning,’’ Mottola said. “They don’t want to budget more than a few months or a year ahead. That is why we see no improvement in retirement savings.’’

Helpful Resources


Joey Johnston has more than 30 years of experience as a journalist with the Tampa Tribune and St. Petersburg Times. He has won a dozen national writing awards and his work has appeared in the New York Times, Washington Post, Sports Illustrated and People Magazine. He started writing for InCharge Debt Solutions in 2016.

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