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Milan KovacevicSep 013 min read

The Average American Gets a Passing Grade in Financial Literacy, Albeit a D

When it comes to personal finance knowledge, the typical American gets barely a passing grade. Since January, more than 18,000 people have taken Finny Gauge, Finny's financial literacy quiz, which covers key financial topics ranging from compound interest and credit scores to the basics of the US taxation system.  The average Finny member scored 67%.  That's a D.

Our members first encounter Finny Gauge as they embark on their personal finance education journey.  Not everyone enjoys taking a literacy test, so we've recently made it optional.  We do, however, recommend taking it, as it helps us understand what an individual knows about money, and then we can better customize their curriculum and line up only those lessons that the member will find educational and useful.

We've analyzed our members' test scores to understand what they're good at, and what are the things they need help with.  We've learned a ton from the analysis.

Here's the good news:

  • Most of Finny’s members know that insurance premiums are not refundable. When asked “True or false: with insurance policies, if you never file an insurance claim, you get your money back,” 86% of the respondents knew that this was actually false.
  • Most people also know that stocks, on average, are riskier than mutual funds and ETFs. When asked the question “True or false: investing in a company’s stock is usually safer than a stock mutual fund or exchange-traded fund (ETF),” 85% of our members knew that is incorrect. Despite the knowledge of single-stock risks, investors are still betting big on individual stocks. The meme stock movement is likely a result of conscious, risk-loving decision-making!

Here’s what the majority of Finny users got right but many still don’t know:

  • 73% understand that pre-tax contributions into retirement accounts may reduce your current taxes.
  • 72% know that your income and assets don’t impact your credit score (at least not in a direct way).
  • 71% know that a 15-year mortgage usually has higher monthly payments than a 30-year mortgage, but the total interest paid over the life of the mortgage will be lower than that of a 30-year mortgage.
  • 68% understand that if you put $100 in a non-taxable account yielding 1% a year, after 5 years you’ll have more than $105 in the account. This is also known as the power of compounding returns.

Here is what most of our members aren’t so sure about:

  • Tuition deductibility. Say you have a child in a private elementary school. True or false: their tuition is tax-deductible? 48% answered that it’s not, which is the correct answer.
  • Rule of 72. It helps you estimate how long it takes for your money to double in value. Let’s imagine you have a $1,000 credit card balance, and the interest rate you’re charged is 15% per year compounded annually. If you don’t pay this credit card balance at all, do you know how many years it’ll take for your balance to double to $2,000? Only 36% know that it will take between 3 and 5 years. And here is the math according to the rule of 72: 72/15=4.8 years.

Here is the summary of Finny's financial literacy test scores by topic:

All of these concepts are very applicable to real-life situations, but they are not taught consistently in schools. And that’s why Finny exists — to help working adults learn what they need to know about money so that they can make better-informed financial decisions and live prosperously!

To inquire more about how Finny can help your organization as a financial education and wellness platform, please fill out and submit this short contact form.

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