Stop and think about this for a moment: Are you better off now financially than you were during the Great Recession? Chances are you probably are better off, but that doesn't necessarily mean you're on solid financial footing, or prepared to retire comfortably at some point in the future -- at least according to the National Financial Capability Study, which was released by the FINRA Investor Education Foundation last month.
This release marked the third time that the NFCS study has been conducted (2009, 2012, and 2015), with more than 27,500 American adults from across the country taking part in the latest go-around. The NFCS gives us an all-encompassing view of how the financial well-being of Americans, divided into various age groups, has shifted as the U.S. economy recovers. While there were rays of sunshine interspersed throughout the NFCS, the general message is one of American adults, as a whole, remaining on shaky financial footing.
Here are eight particular findings from the NFCS that stood out.
1. Just 37% of respondents passed a financial literacy quiz
Perhaps the most telling statistic from the NFCS came toward the end under the "Financial Knowledge and Decision-Making" section. Only 37% of test takers passed a five-question basic knowledge financial literacy quiz, meaning they answered four of five questions correctly. Disappointingly, this was a drop from 39% in 2012, and 42% in 2009. Proving particularly difficult were the questions concerning bond prices and risk assessment.
However, the NFCS does point out that persons who were offered, and took advantage of, financial education scored a half-question higher than those who either weren't offered financial education or were offered it but refused to participate. In effect, people who take the initiative to seek out financial information tend to be more financially savvy.
2. 57% of Social Security recipients have no difficulty making ends meet
It probably comes as no surprise that respondents in the study who were receiving retirement income had the least amount of trouble making ends meet. Payments from a pension plan provided the most financial stability for respondents, with Social Security income coming in second.
But another way to look at the data is that 43% of Social Security beneficiaries are having some degree of difficulty making their financial ends meet. In other words, Social Security income alone isn't enough to give them financial security during retirement. Keep in mind that the Social Security Administration suggests that Social Security income only replace about 40% of your working wages. Relying on Social Security for any more simply isn't prudent.
3. 21% of all Americans surveyed have past-due medical debt
Medical bills are the leading cause of bankruptcy in the U.S., so it shouldn't be too surprising that around 1 American in 5 has past-due medical debt. The figures were notably skewed toward persons under the age of 54, of whom nearly a quarter (24%) had past-due medical bills, and women (23%), despite the fact that they are not less likely to be insured than men.
Two keys to avoid being buried by medical debt are: 1) make sure you have health insurance, which can limit what you spend out of pocket each year, and 2) consider opening a Health Savings Account (HSA) if you're enrolled in a high-deductible health plan and not enrolled in Medicare. An HSA offers the ability to take distributions for eligible medical expense at any age on a penalty-free and tax-free basis. Plus, you can roll money forward in an HSA that can be distributed on a tax-deferred basis during retirement.
4. 56% of Americans stick to a household budget
Considering America's poor personal savings rate relative to other developed countries, discovering that only 56% of respondents keep monthly budgets probably isn't a shock. Budgeting data was pretty consistent across a number of demographics.
Based on the NFCS, Americans with a budget were slightly more likely to spend less than their income relative to those without a budget (44% to 37%), but they were substantially more likely to have set aside money for an emergency (52% to 41%). A budget is essential if you want to understand your cash flow in order to optimize your ability to save. Thankfully, most budgets can be done online these days, making accountability the most difficult component.
5. Large disparity in emergency savings between college- and high-school-educated respondents
According to the study data, just shy of half (46%) of all respondents have set aside three months' worth of emergency savings. Most financial advisors would suggest that six months, or more, of emergency savings is what you should target.
What really stood out was the disparity in emergency savings between college-educated respondents and those with just a high school diploma. Some 62% of college-educated survey-takers had set aside at least three months' worth of savings, compared to just 36% of those with a high school diploma.
A 2014 study from the Pew Research Center pointed out that college grads earned a median of $17,500 more per year (in 2012 dollars) than high school graduates, which seems to help make a big difference in the savings column. This data suggests that a college degree can really improve your chances of saving more money and retiring comfortably.
6. Only 39% of Americans have tried to figure out their retirement number
One of the scarier statistics of the NFCS report is that just 39% of respondents admitted to trying to figure out how much they'd need to save in order to retire, compared to 56% who had not. Though this 39% was up two percentage points from 2012, this is still far lower than it should be. As the report notes, people who take the time to plan for retirement tend to accumulate more wealth heading into retirement.
One of the most important aspects of preparing a budget is setting measurable and specific goals, and this holds true for retirement planning as well. Goals can always be adjusted as your income and spending needs change, but it nonetheless remains important to take the initiative to set a realistic, specific, and measurable retirement goal to keep yourself accountable.
7. 56% of Americans worry about running out of money in retirement
You'd think that with 56% of Americans keeping a monthly budget this figure would be lower, but 56% of survey-takers noted that they were worried about running out of money during retirement. Comparatively, only 22% felt comfortable that they had sufficient funds for retirement. Another 18% were neutral. It's noteworthy that more than half (51%) of those making $75,000 annually still worried they'd run out of money during retirement.
What this suggests is that Americans probably aren't saving enough (as evidenced by the emergency fund data above); they may not be staying accountable to their budgets; and that they probably aren't investing in the right assets, which we'll get to in the next and final point.
8. A mere 30% of Americans have non-retirement account investments
A truly frightening statistic is that outside of retirement accounts, such as 401(k)s provided by employers, just 3 in 10 Americans have non-retirement investment accounts. In plainer English, just 30% have bought stocks, bonds, mutual funds, or some other security, in an account outside of a standard retirement account. This is down from 32% in 2012 and 34% in 2009, which is a bit confusing given the strong rally in the stock market since 2009, and respondents' growing willingness to take financial risks.
History has shown that having money invested in stocks is a smart financial move. For one, stocks have gained an average of 7% per year, historically, including dividend reinvestment. An annual return of 7% would handily outpace the rate of inflation, leading to real wealth creation. Other assets simply can't match the return of the stock market over the long-term.
The stock market has also erased every single stock market correction within weeks, months, or, in rarer cases, years. That's a big shot in the arm of confidence for prospective investors.
Things have definitely gotten better for Americans since 2009, but we clearly still have a long way to go as a country to get back onto solid financial footing.