This Survey Says 1 in 3 Americans Can’t Define These Basic Finance Terms
Surprise! It’s time for a pop quiz.
Do you know what a 401(k) is?
What does HELOC stand for?
Can you name the three major credit bureaus?
If you’re feeling a bit stumped, you’re not alone — a recent survey by GoBankingRates revealed one in three Americans don’t understand “simple finance terms and concepts.”
The survey included 529 responders from all 50 states, who were asked the following questions:
- Which of the below describes a 401(k)?
- What does a CD offered by a bank stand for?
- What is net worth?
- What does HELOC stand for?
- What are the 3 major credit bureaus?
- Which of the following does not impact your credit score?
Around one-third of respondents answered questions incorrectly, according to the survey, meaning financial literacy isn’t as common as you may think.
Here are some notable financial literacy wins and losses revealed in the survey:
Win: We Know 401(k)s Have To Do With Retirement
The good news is, 63% of respondents knew what a 401(k) is. Those ages 25 and older had the highest correct answer rate, whereas the 18- to 24-year-old group answered incorrectly. However, they did still associate it with retirement.
For the young’uns out there who aren’t exactly sure what a 401(k) is, don’t worry — I didn’t either until I was offered one.
The basics of a 401(k) are simple: it’s a company-sponsored retirement plan that commonly offers matched contributions from your employer.
Basically, you have a percentage of your salary taken out of your paycheck before taxes and it’s put into an investment account. Then your employer contributes the same amount to your account.
Ta da! Free money.
Loss: We Aren’t Sure What “Net Worth” Means
Middle-aged respondents (aged 45-54) and young millennials had the most incorrect answers as to what the definition of net worth is.
These groups thought it was “income after taxes.”
I wish it were that simple.
Your net worth is defined by GoBankingRates as “what you own minus what you owe.” The difference between the two can reveal how healthy your asset-to-debt ratio is; the lower your net worth, the worse your personal wealth will be.
Loss: Millennials Don’t Know the Three Major Credit Bureaus
OK, young millennials — this isn’t good. Only 29% of you could identify the three major credit bureaus. Ouch.
The worst part? A whopping 46% of the 18-24 year-old group selected “Visa, Mastercard, American Express” as their answer.
No. Just no.
GoBankingRates suggests this group lacks knowledge on the three major credit bureaus because “they have had fewer situations that require pulling their credit scores.”
For the record, the three major credit bureaus are Experian, TransUnion and Equifax.
Read them. Write them down. Memorize them.
Your credit score will determine interest rates on car loans and whether or not you have to put a deposit down when opening utility bills. It will even come into play when you’re looking to rent an apartment.
Win: It’s Not All Bad News
Aside from being shaky at best when it came to personal wealth and credit card bureaus, respondents were savvy in a few areas of financial literacy.
Older groups correctly identified what a HELOC is, which is good news considering they’re the ones still buying houses and millennials aren’t.
The biggest win of all? The question “What does a CD offered by a bank stand for?” had the most correct responses. Of those surveyed, 68% knew that a CD stands for “certificate of deposit.”
These high-interest savings accounts can stretch your money farther than most traditional savings accounts — hopefully we’re all taking advantage of those!
Knowing how to define basic financial terms can help you make responsible financial decisions. With more knowledge about the basics, your everyday money choices can be less of a challenge.
Time to hit the books!
Source: Kelly Anne Smith at The Penny Hoarder