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"Plan for retirement? I'll do that later"

The Wall Street Journal's Real Time Economics blog reports on a "working paper" from the National Bureau of Economic Research that finds that many Americans are remarkably ill-informed and ill-prepared financially.

The paper, based on 2009 data and authored by economist Annamaria Lusardi of the George Washington School of Business, is titled "Americans' Financial Capability." The WSJ presents some of the key findings:

– When given a basic list of questions on economics and finance in everyday life, less than 10% of respondents are able to answer all questions correctly.

– Half of survey respondents said they had trouble keeping up with monthly expenses such as bills. Only [about] half of those surveyed...had rainy day funds set aside that would cover them for three months in the event of a severe loss of income, such as a layoff or illness....

– As much as a quarter (23%) of those surveyed said they have used some flavor of high-cost borrowing, such as a pawn shop, advance on tax refund or payday loan....

– "[T]he majority of Americans have not done any retirement planning," Prof. Lusardi writes. Only 42% of those surveyed said they have tried to figure out how much to save for retirement....

– When respondents [who had retirement accounts] were asked [if] their retirement savings were invested primarily in a target-date fund, 37% said they didn't know the answer....

– [A]bout one in ten (9%) of respondents who have a retirement account such as a 401(k) or IRA said they tapped their retirement savings. Most of those withdrawals were seen among those earning between $25,000 and $75,000 a year....

– About 20% of consumers surveyed who had auto loans didn't know the interest rate they pay. Of the 46% of credit-card holders who carry a balance, 12% didn't know the interest rate on the card in their wallet with the largest balance.

Back in the days when it was much more difficult to get financial information than it is now, it may have been understandable that many people were in the dark about financial matters. Today, such information is widely and freely available. It is a shame that so many Americans stay willfully ill-informed about things they need to know for their own good — and for the good of society.

By the way, economist Anna Lusardi, who authored the paper reference above, runs a blog titled, "Financial Literacy and Ignorance." The subtitle is: "What do people actually know about personal finance? Not much, it seems."

Don't let that describe you!

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