By Eva Norlyk Herriott
As credit cards have become as ubiquitous as cell phones and video games, has our knowledge about how to best use credit cards kept pace? Do card holders know the basics about credit scores, credit reports, and how to avoid the most common pitfalls of credit cards? According to surveys, unfortunately the answer may be no. When it comes to financial literacy in general and credit card knowledge in particular, many Americans appear to fall short.
In the 2009 Consumer Financial Literacy Survey of 1000 adults commissioned by the National Foundation for Credit Counseling, more than 80% felt a need for greater financial knowledge. One in four graded themselves below average on their knowledge of personal finance, and more than 80% felt that they could benefit from getting advice on everyday financial questions from a professional.
Another major finding was that some parts of the population, particularly young adults and minorities, are further behind on basic financial literacy skills than others. In the areas of credit card usage, 25% of card holders admitted to not paying all their bills on time, however, among African-Americans that number was about 50%.
More than one third of the people surveyed didn’t know what their credit score was, and almost two thirds hadn’t ordered a copy of their credit report over the last year, even though it’s free. Again, this number was higher among minorities; almost three quarters of Hispanic Americans hadn’t pulled a copy of their credit report.
Six percent of the adults surveyed said that their household credit card debt load exceeded $10,000 or more, and about the same number were struggling with debts in collection or were considering filing for bankruptcy.
In other areas of personal finance, the record isn’t that great either. According to the survey, 32% reported that they had no savings and 33% said they don’t save any of their income toward retirement. Translated to the general population, that would mean that 74 million Americans are not saving for retirement. The proportion of non-savers was far larger in the Generation Y adults, where nearly half reported not having any savings.
The survey confirms what many have long pointed out: financial literacy among Americans falls far short of the mark. Although minorities and young adults are the weakest, financial literacy is limited across the whole population. Too many people learn financial management skills by trial and error, in the process often establishing bad habits and accumulating excessive credit card debt.
Take our financial literacy quiz: What Is Your Credit Card IQ?
