Confidently Incorrect: The Decline of Financial Literacy – Presented by Mark K. Lund, Financial Advisor in Utah

Financial Advisor UtahA friend tells the story about asking his neighbor to help him jumpstart an old car. The neighbor, who had pulled his truck into position to provide the power, took the jumper cables out of our friend’s hands and proceeded like he had done this procedure a hundred times before.

He attached the black cable to both batteries with no problem. But just as he was clamping the red cable to his truck’s battery there was a loud snap accompanied by a huge spark.

He had, of course, accidentally connected the batteries the wrong way—black to positive and red to negative. (It’s ALWAYS black to black and red to red.)

The friend admitted that while the cable connecting process was happening, he hadn’t been entirely sure his neighbor was making the correct connections. But the older man had seemed so confident that our friend assumed he knew what he was doing. Fortunately, no one was hurt and neither car was damaged.

Part of our human nature seems to dictate that the less we know on a subject, the more confident we are about being right about it.

You might remember the study from a few years ago that found that while U.S. 8th graders lagged far behind their Asian peers in math skills. All the while, the U.S. students had far higher confidence that they were good at math.1

A similar disconnect exists today in financial literacy.

Sherman Hanna, a professor of consumer sciences at The Ohio State University, headed up a study that tracked the progress of financial knowledge of Americans over nearly a decade. Using data gathered through the National Financial Capability study, which surveys respondents every three years, Hanna and colleagues analyzed four rounds of financial knowledge scores, controlling for variables like age, ethnicity, and education.2

They found that from 2009–2018 people’s measurable financial knowledge declined steadily. While at the same time their personal rating of their own financial knowledge increased. According to a release about the study, the percentage of people who believed they were above average in financial literacy, but actually scored below average on the test, increased from 15% up to 21% during that period.

The obvious takeaway from this is to be very careful about acting on financial advice from friends and relatives, especially when they’re adamant that they know what they’re talking about. A close second would be to cultivate humility about your own level of knowledge. Be open to the idea that you still have lots to learn.

There’s little you can do to reverse the national trend of financial ignorance. But you can make improvements in your own case. Ask your trusted financial advisor where he or she sees the greatest lack of knowledge in their clients. And make it a point to learn more in those areas. The better educated you are, the less likely you are to make costly decisions.

If you ever have any questions about your investments or retirement plans, please feel free to give me a call at 801-545-0696.

Mark Lund
Stonecreek Wealth Advisors, Inc.
11576 S State Street, Bldg. 1002
Draper, UT 84020


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