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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.

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

Sources:
1. http://go.pardot.com/e/91522/d-raise-test-scores-944390-php/9314pz/1870611146?h=Jp30yBtLP66c9Tzrns3VeVzXUjFvPrut4fwmax0X9IY
2. http://go.pardot.com/e/91522/inances–despite-the-evidence-/9314q3/1870611146?h=Jp30yBtLP66c9Tzrns3VeVzXUjFvPrut4fwmax0X9IY

Disclosure:
This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This material was prepared by Efficient Advisors, LLC (“EA’) for Mark Lund, Mark is a Financial Advisor in Utah. He is known as a Wealth Advisor, The 401k Advisor, Investor Coach, Financial Planner, Investment Advisor and author of The Effective Investor. Mark offers investment advisory services through Stonecreek Wealth Advisors, Inc. a fiduciary, independent, fee-only, Registered Investment Advisor firm providing investment management and retirement planning for individuals and 401k consulting for small businesses. Mark’s newsletter is called The Effective Investor Newsletter. Cities served in Utah are: Salt Lake City, Salt Lake County, Utah County, Park City, Murray City, West Jordan City, Sandy City, Draper City, South Jordan City, Provo City, Orem City, Lehi City, Highland City, Alpine City, American Fork City. The views expressed herein are exclusively those of Efficient Advisors, LLC (‘EA’), and are not meant as investment advice and are subject to change. All charts and graphs are presented for informational and analytical purposes only. No chart or graph is intended to be used as a guide to investing. EA portfolios may contain specific securities that have been mentioned herein. EA makes no claim as to the suitability of these securities. Past performance is not a guarantee of future performance. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.

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