FINRA Releases Study Indicating Floridians Are Too Confident in Assessing Their Financial Knowledge

By Netaly Masica

In 2012, the FINRA Investor Education Foundation commissioned its second national study of the financial capability, which evaluates how key indicators—categorized as “making ends meet,” “planning ahead,” “managing financial products,” and “financial knowledge and decision-making”—vary with underlying demographic, behavioral, attitudinal, and financial literacy characteristics.

The study, released on May 29, 2013 and available at, compares the financial capabilities across all 50 states and the District of Columbia, and across the nation as a whole. This blog entry explores the financial capabilities of Floridians compared to the national average with specific emphasis on the fourth factor, “financial knowledge and decision-making.”

Making Ends Meet. This indicator encompasses the extent to which Americans balance monthly income and expenses (spending vs. saving) and how they deal with everyday financial matters (e.g., medical debt). This indicator is at least partially influenced by general economic conditions.

Floridians tied for fifth in the country in spending less than their household income, meaning that Floridians are more likely than the national average to save their money. 44% of Floridians reported spending less than their household income, while the national average was 41%. This is not surprising considering that over 20% of Florida’s respondents indicated that they are retired, and according to the survey, respondents who receive retirement income are less likely to have difficulty in making ends meet.

Planning Ahead. This indicator shows the ability of Americans to make necessary changes to buffer themselves against financial emergencies. In Florida, 49% of respondents reported having “rainy day” savings to cover three months of unanticipated financial emergencies. While Florida did not rank in this category, this is still significantly more than the national average of 44%.

Managing Financial Products. This indicator encompasses how money inflows and outflows are managed (i.e., methods of receiving income and payment methods), where money is stored (e.g., banking, investments), and how money is borrowed (i.e., debt).

Floridians ranked third in avoiding only making the minimum payment on their credit card. In other words, 27% of Floridians reported paying only the minimum payment during the past year compared with 34% of all Americans.

Financial Knowledge and Decision-Making. This indicator measures the level of financial knowledge and the skills to apply the knowledge to actual decision-making situations. Of principal importance is the gap that exists between self-reported knowledge and real-world behavior.

On a test of five basic financial literacy questions, Floridians answered an average of 2.8 questions correctly compared to the national average of 2.88 questions. Financial literacy is strongly correlated with behavior that is indicative of financial capability. Those with higher literacy are more likely to plan for retirement and to have an emergency fund, and less likely to engage in expensive credit card behaviors.

Despite the relatively low levels of financial literacy as measured by the questions, Americans tend to have positively biased self-perceptions of their financial knowledge. When asked to assess their own financial knowledge, nearly three-quarters of respondents (73%, nationwide and 74% for Florida) gave themselves high marks. In reality however, only 14% of respondents nationwide (11% for Florida) were able to answer all five questions correctly and only 39% (37% for Florida) were able to answer four or more questions correctly.

Those respondents who stated they received financial education scored higher than those who did not; however, the study indicated that these findings did not imply a causal relationship between financial education and financial literacy, and may be attributable solely to the differences in education levels, employment, and other demographic factors.

In conclusion, financial capability encompasses multiple aspects of behavior relating to how individuals manage their resources and how they make financial decisions, including the factors they consider and the skill sets they use. The information provided by this survey allows the public, policymakers, and researchers to compare trends that lead to sound and unsound investments, and will hopefully encourage education on investment.