In case spiraling credit card debt and overdrawn bank accounts weren’t enough of a clue, there’s now more evidence that many Americans are out of their depth when it comes to personal finance. GoBankingRates asked more than 500 people a few questions about money, loans, and credit, and their answers reveal a nation where a sizable minority is struggling with basic financial literacy.
Overall, between a half and two-thirds of survey respondents answered the questions correctly. But many didn’t know what a 401(k) was, had a hazy understanding of net worth, and couldn’t identify key factors that affect their credit score. That jibes with other surveys that have found many Americans are clueless when it comes to personal finance 101. Forty percent of people who investment app Stash surveyed didn’t understand how inflation works, while 16% didn’t know whether it was better to have a higher or lower interest rate on their mortgage.
Many people do realize their financial knowledge isn’t quite up to snuff, at least. Only 15% of Americans Equifax surveyed gave themselves an “A” in financial literacy, though many also said they were taking steps to learn more about money matters. That’s good news because being familiar with how interest works, what goes in to determining a credit score, how to save for retirement, and other personal finance basics makes it easier to achieve your long-term goals.
Curious how your personal finance knowledge measures up to that of your fellow Americans? Check out the questions many respondents to the GoBankingRates survey bungled, and see whether you can get them right.
Question: Which of the following describes a 401k?
Only 63% of survey respondents correctly identified a 401(k) as a retirement savings vehicle. Twenty percent were on the right track but missed the mark by saying a 401(k) was a tax credit for retirement. Smaller shares of people said it was a kind of insurance claim, type of tax form, or a tax-free Health Savings Account. Older people were more likely to get this question right than younger respondents.
Next: Got this question wrong? Find out what a 401(k) really is and how it works.