We Don't Know We Don't Know

In this political season, I’ve read multiple reports that we are politically ignorant with large percentages of American’s unable to even name the three branches of US government. While this knowledge gap might lead to poor election decisions, there is another lack of knowledge that can ruin your life, financial knowledge. The problem is that we don’t know what we don’t know and yet think we know more than we know. When it comes to basic financial knowledge, instead of getting smarter we’re getting dumber.

Every three years, FINRA – the Financial Industry Regulatory Authority, conducts a simple financial literacy survey that starts by asking Americans to rate their level of financial knowledge followed by five relatively straightforward questions about money.

Their most recent study found that 76% of us believe we have a very high level of financial knowledge. Yet, the basic knowledge quiz found that only 28% knew that when interests rates rise, bond prices fall. The other – multiple choice or true/false questions – required only simple knowledge of basic math, compound interest, and market risk.

You might think that, given our burgeoning access to financial information, we would be getting smarter over time. Instead, we have grown more fiscally illiterate.

In their first study in 2009, 42% correctly answered 4 or more, out of 5 questions, correctly. In 2012 that number dropped to 39%. Three years later only 37% were considered just basically fiscally literate getting four or more, of the exact same questions, right. 

While we failed to gain actual knowledge our confidence hasn’t suffered. Each time the survey has been done respondents monetary moxie has grown. In 2009, 67% felt they had a high level of financial knowledge. That percentage rose to 73% by 2013. Over three-quarters of Americans now believe themselves to be highly money smart and yet almost three-quarters of that group are deluding themselves.

Finally, the survey found that we overwhelmingly claim to be concerned about our financial future. Apparently, a majority of Americans aren’t just delusional; they’re liars because it doesn’t seem that most are doing much to improve their financial knowledge. As a nation, we should be embarrassed.

Don McDonaldComment