Courtesy of Susan Hindman

A new survey by the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation paints “a troubling picture of the current state of financial capability in the U.S. adult population.” The “National Survey” is the first of a three-part survey—titled The National Financial Capability Study—and is meant to measure the financial aptitude of adults and show how they save, borrow, and plan for their financial future. 

Survey results, released in December, showed the following:

• Nearly half of the 1,488 respondents reported facing difficulties in covering monthly expenses and paying bills. Household expenses have been greater than income for 12% of Americans and about equal to income for 36%.
• The majority do not have a “rainy day” fund for unanticipated financial emergencies and are not adequately preparing for their own retirement.
• More than one in five uses high-cost, alternative borrowing methods, such as payday loans or pawnshops.
• Only 46% correctly answered two basic questions about how interest rates and inflation work. Many couldn’t do basic interest calculations and other math-oriented tasks. In addition, few compared the terms of financial products or shopped around before making financial decisions.

In addition, for as much as reverse mortgages have been touted as helping older adults, only 1% of retired respondents said they were using a reverse mortgage for living expenses. (Reverse mortgages let homeowners convert the equity in their home into cash and are considered an option for seniors who don’t want to sell their homes but need more income.) Current retirees instead rely primarily on Social Security (81%) and payments from benefit pension plans (63%). Other sources for living expenses include withdrawals from savings, investments, or retirement accounts (26%); dividends or interest income from those accounts (23%); salary, wages, or self-employment income (17%); rental income or proceeds from the sale of real estate (12%); and financial support from the family (3%).

Other numbers specific to adults age 60 and older show that 73% own their home, 23% own other real estate, and 16% own part or all of a business or farm. Of the homeowners, 75% have owned their home more than 10 years, and 66% no longer have a mortgage.

“Not only must individuals take greater charge of their financial well-being once they retire, but they must also forecast future financial needs, navigate increasingly complex financial markets, and manage risk, both during and after their working years,” the report noted. This requires the skills to make wise choices that carry “greater risks in getting it wrong.”

In an effort to address these financial education needs, the FINRA Foundation announced a new partnership with United Way Worldwide to reach low- and middle-income Americans with education programs. The Foundation is also expanding its Smart investing@your library partnership with the American Library Association, which reaches 23 million people in 26 states. In total, the Foundation is funding 31 new grants to help community-based organizations provide effective and unbiased financial education.

The survey—developed in consultation with the U.S. Department of the Treasury and the President’s Advisory Council on Financial Literacy—is the first of its kind in the United States. The FINRA Foundation will release the other two components of the survey in early 2010: a state-by-state survey of around 25,000 respondents, and a military survey of 800 military personnel and spouses.