The Financial Industry National Regulatory Authority (FINRA) has just released the latest report by the National Financial Capability Study (NFCS), which measured four key components of financial capability using data sets compiled from responses from 27,000 adults in the United States.
The four areas that the report gauged include how people are making ends meet, including planning ahead for the future, managing financial products, and their financial knowledge and decision-making, according to a description by FINRA about the study.
As the report is the largest of its kind, it can be useful for emerging and mature fintech companies that look to provide services to the underbanked and as the area of financial inclusion is an important theme, along with socially-responsible investments and technologies.
This research underscores the critical need for innovative strategies to equip consumers with the tools and education required to effectively manage their financial lives.
Financial struggles
One of the findings highlighted by FINRA in its announcement is that while Americans are feeling less financial stress overall, millions of people still struggle to get by, and noted in particular those lacking a high school education, millennials, women, African Americans, and Hispanics, as being among some of those who face challenges financially.
The report highlighted that of those who had a high school education or less, nearly 45% could not come up with $2,000 in 30 days in the event of an emergency versus 18% of respondents that had a college degree.
Women were noted as more likely than men to put off medical services because of cost, whether seeing a doctor, buying prescriptions or having a medical procedure, and 21% of Americans (more than one in five) have unpaid medical debt.
From the millennials surveyed (in the age bracket of 18-34) that had a mortgage, 29% had been late with a mortgage payment, versus 7% of the 55+ age group (mostly baby boomer bracket). An excerpt from the National Financial Capability Study using 2015 data compared to prior year studies can be seen below - showing a negligible improvement over the last six years.
Source: USfinancialcapability.org
Financial Literacy declining
Hard money loans or high-cost forms of borrowing were more likely to be used by African Americans and Hispanics surveyed with 39% and 34% respectively versus 21% for whites, as noted in the update from FINRA.
In addition, only 37% of respondents were considered to have high financial literacy – on the basis that they answered four out of five questions correctly on a related quiz.
This percentage fall or two points is a small change from 39% in 2012, after decreasing from 42% in 2009, yet reflects the increasing complexity of financial investment products as financial literacy rates continue to decline.
Annamaria Lusardi
Source: LinkedIn
“This research underscores the critical need for innovative strategies to equip consumers with the tools and education required to effectively manage their financial lives,” said FINRA Foundation Chairman Richard Ketchum, commenting in an official statement.
Mr. Ketchum added: “My hope is that policymakers, researchers and advocates will use these findings to make more informed decisions about how to best reach underserved populations.”
The National Financial Capability Study is one of most important sources of data to understand Americans' personal finances.
Event in D.C. today
GFLEC Academic Director and founder, Annamaria Lusardi, a Professor of Economics at George Washington University, added in a statement: “The National Financial Capability Study is one of most important sources of data to understand Americans' personal finances. It has advanced our knowledge of both financial literacy and financial capability and made it possible to study policy-relevant questions.”
A copy of the full National Financial Capability Study can be seen on FINRA Foundation's website at USfinancialcapability.org
Around the time of coverage by Finance Magnates, industry regulators and academics are speaking at an event co-hosted by The George Washington University’s Global Financial Literacy Excellence Center (GFLEC) in Washington D.C. today where the study is being discussed.
