Financial Literacy
Washington Ranks in the Top Five for Financial Capability By Amy O’Donnell,WSCPA Financial Literacy Program Manager
T
he Employee Benefits Research Institute (EBRI) recently released the results of a study examining the financial capability and behavior of individuals on a state by state level. EBRI used data from the National Financial Capability Study (NFCS), designed by the FINRA Investor Education Foundation with input from the AICPA. A state-by-state online survey was conducted to collect the information for the study. It was designed to measure financial literacy and financial behavior and see if these vary across states. The study was designed to isolate factors that can be attributed to state residency instead of other individual characteristics such as age group, ethnicity, gender, education, income, marital status and labor force status. To get a better understanding of an individual’s financial capability, the survey asked questions such as:
Answer choices: a) True; b) False As many of us know, it’s one thing to have knowledge, but it’s another to actually put it into practice.To assess this, participants were asked questions like: • Have you set aside emergency or rainy day funds that would cover your expenses for three months, in case of sickness, job loss, economic downturn, or other emergencies? Answer choices: a) Yes; b) No.
• Imagine that the interest rate on your savings account was one percent per year and inflation was two percent per year. After one year, how much would you be able to buy with the money in this account? Answer choices: a) More than today; b) Exactly the same; c) Less than today. •
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A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage, but the total interest paid over the life of the loan will be less. Answer choices: a) True; b) False. Buying a single company’s stock usually provides a safer return than a stock mutual fund.
• Have you ever tried to figure out how much you need to save for retirement? Answer choices: a) Yes; b) No. The survey may be able to serve as a tool for policymakers, educators and community based groups to determine how to help their citizens. To see the whole report and sample questions, go to:xwww.ebri.org/pdf/notespdf/EBRI_ Notes_11_Nov-11.HCS-FinLit.pdf.
WashingtonCPA January/February 2012
Even when accounting for demographic factors, the study found that where you live makes a difference. Washington ranked high—number five for capability with a score of 66.4% and number eight for financial behavior with a score of 57.7%. The highest score for capability was 69.3% (New Hampshire) and the highest behavior is 60.3% (Alaska). Although Washingtonians did well in the standings the scores still show we have more work to do. The good news is something seems to be working in Washington. We’re fortunate to live in a state that has many people working on creating more opportunities for financial education. This is taking place at schools, colleges, nonprofits, workplaces and through coalitions across the state. Campaigns such as America Saves Week, Financial Literacy Month and Money Smart Week highlight national and local resources for financial education. CPAs, along with other financial professionals, have played a vital role in all of these efforts.The next generation of CPAs is also contributing to the efforts as well through Beta Alpha Psi and Association of Student Accountants clubs. With all hands on deck, we may see a bump in the scores and Washington moving up through the ranks. Amy O’Donnell can be reached at aodonnell@wscpa.org. www.wscpa.org