Data and Research

Common Misunderstandings in Financial Literacy

Among other results, the digital investment advisor company Stash found a lack of 401(k) utilization from Millennials. 

By Amanda Umpierrez editors@plansponsor.com | April 05, 2017

In starting off Financial Literacy Month, Stash, a digital investment advisor company, has released findings revealing common misunderstandings many Americans have on investing and finance.

Their first annual financial literacy survey, points out errors exemplifying the lack of knowledge that many have regarding financial literacy. The survey found, among other findings, that 40% of respondents have little knowledge about inflation, 38% have no familiarity with compounding, and 16% cannot make a decision whether they would choose a higher or lower interest rate on their mortgage.

While Americans may realize the significance in retirement saving and focusing on the years ahead, Brandon Krieg, CEO and co-founder of Stash, notes the lack of knowledge that follows this recognition.

“As the survey shows, financial literacy is a problem in America – not one confined to a specific age or gender,” he says. “Our findings demonstrate the need to help all Americans establish a strong base of financial literacy to help them create smarter financial habits.”

Even though Americans, in general, continue to struggle with saving for retirement, the survey highlights several groups that can benefit from better knowledge: Millennials, women and beginner investors.

Data found shows that while 61.4% of Millennials are investing for retirement, only 48% of respondents are currently contributing to a 401(k), while 61% employ a traditional savings account.

Krieg suggests Millennials should begin utilizing and understanding the advantages of compounding investments.

“For Millennials to really make their money work for them, they need to utilize more savings and investment tools that capitalize on compounding,” he says. “This is an area where the lack of financial literacy is really detrimental to achieving long-term money goals.”

Although Millennials are investing for marriage, retirement and other future objectives, the survey found this age group also stores away for shorter-term goals—including vacations—more than any other generation, at 32.9% compared to Generation Xers (23.2%) and Baby Boomers (16.2%).

Surprisingly, Millennials came in first with investing for health care, at 8.9%, while Gen Xers came in second (6.7%); and Boomers at 7.3%.

Regarding women, survey results saw 47% of female respondents are investing somewhere in the middle between $1 to $500 a year, whereas only 36% of men are doing so. However, when it comes to investing more money, Stash reported that 37% of males are investing over $1,000 each year, while only 22% of women are saving larger sums.

Moreover, according to the survey, 50% of men and 49% of women save using 401(k) plans, but males are “twice as likely to use taxable investment accounts than women,” at 15% of men and 9% of women.

For beginner investors, findings demonstrated the importance in gaining investment experience, including knowledge in 401(k)s, 529 Plans; and Traditional Roth/IRAs, among other investment products. Adding to the large gap in investment knowledge between advanced and beginner investors, experienced investors are also "more than twice as likely to save using an IRA, and four times more likely to use a taxable investment account," according to the survey. 

When it came to 401(k)s, only 50.9% of beginner investors said they used the tool to save, while 65.9% of advanced investors reported utilizing it. Additionally, 11.8% of beginner investors are not saving at all for the future, while only 6.5% of advanced investor respondents are not putting any money away.

More survey findings can be found here

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