Being financially illiterate means you can’t manage your own finances, who knew? A lack of proficiency in basic math doesn’t help either.
The more someone understood about interest rates, inflation, risk diversification and other financial concepts, the less likely they show signs of financial “fragility” at a time of serious money pressures for many people across the country, a new study concludes.
There is a link between financial literacy and financial resilience, according to Olivia Mitchell of University of Pennsylvania’s Wharton School, Annamaria Lusardi of George Washington University’s School of Business, and Robert Clark of North Carolina State University’s Poole College of Management.
Their survey, published Monday, polled 3,000 people, ages 45 to 75, between April and May.
At the beginning of the first coronavirus surge in March, 40% of households making under $40,000 per year lost the jobs they had one month earlier. In April, the jobless rate soared to 14.7% and $1,200 direct checks and supplemental $600 federal-unemployment benefits from the $2.2 trillion started rolling out.
Against this backdrop, the researchers asked who could come up with $2,000 for an unexpected emergency within the next month. Overall, 18.9% said they certainly couldn’t, or probably couldn’t do that, which the researchers said made them “financially fragile.”