It’s doubtful many banking professionals view financial education programs as a serious marketing tool. Such initiatives often feel like little more than an obligatory community service, and thus receive perfunctory attention from the senior leadership team. And that’s typically where it ends.
However, data suggests that financial literacy is much more than just a feel-good exercise that garners an approving nod from regulators. According to a study by Raddon Research Insights, people who understand the basics of personal finance are both more engaged and more profitable for the banks and credit unions that provide them with financial education. But a 15-question financial literacy quiz that accompanied the survey indicated otherwise. More than half failed. Only 6% scored an “A.”
Here is one of the questions from the quiz, along with the percentages of respondents who chose each of the possible answers.
Q14: A typical emergency fund should have how many months’ worth of expenses?
(A) 3 months (28%)
(B) 6 months (57% – correct answer)
(C) 9 months (12%)
(D) Don’t know (3%)
Lynne Cornelison, author of the Raddon report, says consumers are generally more likely to identify themselves as “extremely” or “very” financially literate as they age or rise into higher income brackets. The only exception to that, she says, was with Gen X (currently people between the ages of 39 and 52), many of whom took the brunt of the Great Recession of 2008. Difficulty can be humbling.
Consumers Get an ‘F’ for Financial Literacy
Raddon found that average the American grossly overrates their level of financial literacy. The research and consulting firm, a unit of Fiserv, fielded a survey to 1,200 participants. Almost half (44%) the respondents identified themselves as “extremely” or “very” financially literate.
What’s In It for Financial Institutions?
Raddon’s research found that consumers overall are most likely to turn to their primary financial institution (55%) when seeking resources for financial literacy, followed by online sources (45%), and their family and friends (39%).
Over a third (38%) said that if their primary financial institution offered a financial education program, they would find it “extremely” or “very” valuable. Even stronger responses came from Millennials and credit-sensitive consumers.