What’s your financial IQ?
Provided By: Lanny Joseph Ribes, Northwestern Mutual Financial Network
Imagine you’re on a TV quiz show. The host turns to you and offers a list of topics, one
of which is Your Personal Finances. Based on your knowledge, is this a category you would
choose?
If you answered no, you’re not alone. Four out of five Americans admit they know more
about a variety of topics than their own finances. That’s about the same share that would choose
to answer questions about subjects far less personal, such as current events, entertainment, or
science and technology.
These results were gathered as part of a research study, sponsored by Northwestern
Mutual, to help gauge the American public’s overall financial knowledge – as measured by a
financial IQ index – and its understanding of insurance products.
For me, the results were a powerful reminder of the reason I make it a point to help
clients fully understand their personal finances, so they can make the informed choices that are
right for them.
The survey found that some basic financial concepts are well-understood, including the
best way to minimize losses in investments (88% answered correctly), asset allocation (79%),
and dollar-cost averaging (57%). Likely because of their self-explanatory names, high numbers
of Americans also recognize what disability income insurance and long-term care insurance are
designed to do.
More often than not, however, Americans fail to understand many key financial concepts
– like the average inflation rate over the past decade (known by about one in three), or the
product that has traditionally mitigated inflation risk the best (less than one-third answered
correctly). The lack of financial knowledge appears to be particularly acute when it comes to
permanent life insurance, as only a small percentage of Americans seem to know even the basics
of this type of risk protection.
Knowledge is power, though – and Americans recognize it. Nearly eight out of ten
consumers feel the need to learn as much as possible about their personal financial situation. I’ve
certainly seen this to be true in my practice.
As for where they find that information and whom they trust, I was glad to learn that,
when asked to rate the reliability of several sources of financial information, Americans rated
financial advisors as the most reliable source.
Are you curious what your financial IQ might be? Find out by completing an abbreviated
form of the survey “Financial Matters Quiz” at www.facebook.com/northwesternmutual .
About the research
On behalf of Northwestern Mutual, independent research firm Mathew Greenwald &
Associates, Inc. conducted an online survey of 1,664 Americans ages 25 to 65, between June 1
and June 8, 2010. Study participants were members of Synovate’s leading Global Opinion Panel.
Survey data were weighted by gender, age, education, and household income to reflect the
makeup of the U.S. population ages 25 to 65. Population statistics were based on data from the
2008 Current Population Survey.
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Article prepared by Northwestern Mutual with the cooperation of Lanny Joseph Ribes.
Lanny Joseph Ribes is a Financial Representative with the Northwestern Mutual Financial Network based in Glen Carbon, IL for The Northwestern Mutual Life Insurance Company,
Milwaukee, Wisconsin. To contact Lanny Joseph Ribes, please call (618) 791-0471 or e-mail him at lanny.ribes@nmfn.com .
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