Many Americans are sorely lacking in knowledge when it comes to basic financial terms, according to new research.
A recent study of 1,000 Americans over the age of 30 found less than half of participants could confidently explain what a 401(k) is.
The research examining people’s grasp of financial terminology found many struggled to define common terms such as understanding what interest is (48 percent), the concept of bankruptcy (48 percent) or how inflation works (34 percent).
The research, commissioned by GuideVine — a service matching people with financial advisers — revealed over half of those polled (55 percent) feel lost when it comes to a long-term and stable financial plan.
And only 30 percent of those studied said their current earning and budget enabled them to make a proper financial plan. Just 13 percent of the 1,000 studied had a 5-year plan for their finances.
That might be why many forecast a less than positive future for themselves financially, more than a quarter (27 percent) of the over 30’s polled felt they’ll never become a homeowner.
Nearly a third (31 percent) could never envisage a life for themselves where they would never be in some sort of debt and a similar number (36 percent) said a comfortable retirement isn’t on the cards for them.
Raghav Sharma, CEO at GuideVine, said, “The results of GuideVine’s survey, while alarming, aren’t shocking. GuideVine has helped thousands of people find the best financial resources and time and again, the biggest barrier is low financial literacy and not feeling confident enough about finances and money to even know where to begin.
“There is also a certain inertia to taking action. Unlike a broken bone where you’d immediately seek the advice of a doctor, people routinely postpone researching and making important long-term financial decisions.”
As many as a quarter of the over 30’s polled were currently unable to make any savings at all each month (24 percent).
Although the majority of survey respondents say they have a budget (66 percent), seven in ten budgeters struggle to stick to it.
Men are less likely to stick to their budget and spend an average of $125 over their budget per month, while women spend an average of $71 over their budgets.
Even then, on average men put more money into savings, retirement and other long-term investment plans ($237 vs. $123).
The most common financial mistake people over the age of 30 admit to making is not saving enough (51 percent).
Other financial mistakes include not having enough emergency cash (40 percent), accumulating unnecessary debt (37 percent) and saving too late (28 percent).
The majority of respondents had never sought financial advice before (64 percent), which may be because only 49 percent of people believe that financial advisers are trustworthy.
According to Sharma, part of distrust stems from the lack of transparency because “making sense of all the different financial professionals is very confusing; there are literally hundreds of thousands of representatives in the industry.”
As Americans get older, they are less likely to have confidence in financial advisers — people aged 30-36 agreed much more strongly than advisers can be trusted, compared to those 55+ (35 percent vs. 4 percent).
Americans aged 30-36 are the most likely to get financial advice (50 percent).
They are also the age group most likely to get financial knowledge and tips from social media sites like Facebook and Twitter (67 percent).
According to Sharma, “even with everything younger Americans have seen during the Great Recession, they are financially optimistic when it comes to achieving their long-term financial goals and are willing to seek help to get there. So far, this help has been informal — family, blogs, etc. — but they do want professional advice and are more likely to trust an advisor, by a 4-1 margin, than other generations.”
Seventy-one percent of respondents aged 30 to 45 are likely to research online before meeting a financial professional and 46 percent of this age group would be more likely to meet the advisor if they watched a short intro video about the adviser.
