For Financial Literacy Month, we are putting together a three part series on the national epidemic that is financial illiteracy. The first of the three parts will focus on identifying what the problem is, captured through statistics on financial literacy, particularly among females. Next week, the second part will focus on what the causes of the problem are. Lastly, the third part (which will be released in two weeks) will focus on what we can do, and are doing, to help combat this crisis.
Part 1: Identfying The Problem
As the old saying goes, the first step in solving a problem is acknowledging you have one. Well, cue Tom Hanks…
Except it’s not just Houston on alert, it’s the entire United States–and the rest of the world for that matter. In this article, we will take you through some of the most baffling and disturbing statistics on the matter, starting with the country as a whole, and then focusing on women specifically and the gender financially literacy gap. Without further ado… number one.
1. 40% of Americans don’t have enough cash to cover a $400 emergency.
While this may seem shocking, this is the reality for many Americans. Raise the $400 emergency to $1000 and the amount of people not prepared rises to 61% (see graphs below). It is not as if people are not being hit with financial emergencies either. According to CNBC, 34% of Americans faced a major financial emergency within the last year.
This leads me into stat number two, which certainly won’t make you feel better…
2. American financial literacy rates are DECREASING.
You would think with the amount of information readily available to the average American, he/she would have a better understanding of personal finance. Well, you would be wrong. Every three years, FINRA-the major US financial regulator-surveys the population. Below are their results.
Likely some of you out there, particularly those who have been around the block once or twice, might have the answer to this. “It’s those millennials,” you’ll say, and you’ll actually be right, well at least partially, because…
3. 76% of millennials lack basic financial knowledge
That’s right. While millennials may know how to ride hoverboards and do anything on their phones, over three out of four failed to demonstrate basic financial knowledge when tested. This matters a lot because of the rising student loan debt crisis that you may have heard about (see below).
So, what happens when you couple a large amount of debt with an individual who has a poor understanding of how to pay it off?
4. Over 40% of student loan borrowers are either not making payments or are late on payments.
This is from a WSJ article published back in 2016 as well, so we can only assume this number has risen with the increase in student loan debt. This will only contribute to more debt in the future because of interest, but the people paying these loans don’t have an accurate understanding of how interest works. Obviously, this greatly effects their ability to put away money for things like buying a home or retirement, which leads us to stat number five.
5. Nearly half of all Americans do not have a retirement savings account.
Now, as easy as it would be to continue to throw this at the feet of millennials, we cannot do that because the data tells a different story. In fact, nearly 40% of people aged 56-61 do not have retirement accounts! These are people who are likely to retire within the next ten years of their lives, and they do not have a retirement account.
And if we dive into the numbers, we see an even scarier picture.
6. The median retirement savings account has only $5000 in it.
Granted, you might assume that this number is low because of the amount of young people who have not started saving seriously yet. However, even for those approaching retirement (56-61), the median retirement account has only $17,000.
While these numbers are low across the board, data shows that some demographic groups are in much more dire straights than others come retirement.
7. Women, particularly married women, have far lower income throughout retirement (scroll down on graph).
As you can tell from the graphic, women, minorities, and those with lower education levels tend to have the lowest savings rates. As to why women have lower income in retirement, one only needs to look at a breakdown in the types of income to understand why.
8. Women are relying almost entirely on social security for retirement (scroll down on graph).
As you can see in the graph below, women, particularly unmarried women, are relying extensively on social security for their retirement income. For married and unmarried women alike, social security makes up the lion’s share of their retirement income.
Where did this disparity come from? Well…
9. Women live longer than men, work less time due to child raising, and earn less income when they are working.
These three factors are quite well known and well documented. The combination of the three factors means women will often earn significantly less money throughout their lives, and the money they do earn will have to last them longer. Further, many women outlive their husbands, which can make retirement even more challenging.
10. Lastly, women are significantly less financially literate than men.
We will explore the reasons for this in part two of this series (they are quite complex and have everything to do with home life, schooling, and identity). For now, let’s consider the impact of this statistic, since it is vitally important and why RTSWS cares about increasing financial literacy among women. If women are making less throughout their lives, and then investing less due to financial illiteracy (both of these we know to be true), then the gender wage gap that we know all about actually COMPOUNDS throughout a woman’s lifetime, leading to a huge gender retirement gap (seen in statistics seven and eight). What is causing this? Read on in part two…