Americans short on financial smarts, experts, surveys say

Chris Togneri
| Sunday, Feb. 28, 2010

Many Americans think they have a firm grasp of their finances and know how to invest wisely.

Many Americans are wrong.

Economic experts and recent surveys paint of grim picture of the country's level of financial literacy.

Indeed, few Americans have adequate savings, and many people make losing investments, experts say. Compounding the problem is that many think they know more than they actually do.

"The surprise is not that people do not know, but how little people know," said Annamaria Lusardi, director of the New Financial Literacy Center. "There are some worrisome trends. And they stem from the young to the old."

Nearly half — 47 percent — of Americans born between 1977 and 1994, also known as Generation Y, are below average when it comes to financial literacy, with little understanding of how to budget and save efficiently, according to a survey by the National Foundation for Credit Counseling.

The survey, which polled 1,000 adults in March, also found that 45 percent of Generation Y adults have no savings.

Older Americans also are at risk, Lusardi said.

"They have the most to lose, they know the least and they think they know the most," she said. "They are going to be and are already ideal targets for scams. They have the financial means, but they don't have the knowledge. And they are not aware that their financial knowledge is low."

The Financial Literacy Center hopes to change that.

Started last year by the Rand Corp., Dartmouth College and the Wharton School of the University of Pennsylvania, the center will study current trends and develop educational materials and programs aimed at improving the nation's financial literacy.

The center will be funded by the Social Security Administration, which allocated more than $3 million for the first year.

"We will look at new programs, design new programs and evaluate their effectiveness," Lusardi said. "The best way to promote financial literacy is to show what works and what doesn't. We are very much at the beginning of the process. People are not very literate."

As a result, many people will find themselves unable to retire and working into the 70s, said James Craft, a professor at the University of Pittsburgh's Joseph Katz Graduate School of Business.

"We haven't done a good job in helping our populace understand and appreciate how to manage our financial resources well," he said. "It's not usually part of any school curriculum, other than what someone might take in college as an elective course."

Craft added: "We tend to think in terms of lifestyles we'd like to have and lifestyles we see on TV, rather than managing our own funds reasonably. We tend to live in the present, and not prepare for the future."

Additional Information:

If you need help

Local agencies offer classes or services aimed at improving financial literacy

• NeighborWorks, an Uptown nonprofit, offers counseling and classes on a variety of topics, including home ownership, foreclosure prevention, credit restoration and loan applications. 'My Money, My Life' is a class targeting 16- to 19-year olds and aims to improve teens' 'financial fitness.' All programs at NeighborWorks are free.

For more information, call 412-281-9773, or go to .

• SmartFutures, a Downtown nonprofit, offers several educational and career-related online programs including Keys2Work, PA eMentoring, My Career Journey and Financial Literacy 101. SmartFutures runs an online mentoring program matching thousands of high school students with UPMC employees, and offers free financial literacy classes for all Pennsylvania educators.

For more information, call 412-288-3900, or go to .

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