As chairman of the Michigan Association of CPAs’ (MICPA) Financial Literacy Task Force, I’m committed to helping both clients, and the people of our state, become better educated about their finances. And while there’s still a lot of work to do in this area, I was pleased last week to see the results of a FINRA Foundation Study that shows Americans’ financial capability is improving. The study found that while “making ends meet” remains a daily struggle for many, Americans generally are feeling less financial stress than they did previously.
The study measures four “buckets” of financial capability: making ends meet, planning ahead, managing financial products, and financial knowledge and decision-making. Here’s how Michigan fared against the U.S. as a whole:
Making Ends Meet
In 2015, just 14 percent of Michiganders reported spending more than they saved, and the same number said they spent more than their household income (not including the purchase of a new home, car or other big investment). In this regard, Michigan is doing better than average. Across America, 18 percent reported spending more than they saved and more than their household income. The trend for Michigan is excellent – in 2012, 19 percent of our state’s residents said they spent more than their household income, so a five percent improvement is worth cheering!
Michigan is also doing slightly better than the national average when it comes to medical debt. In our state, 18 percent of residents say they have medical debt, and the same number report having medical bills overdue. This compares to 21 percent nationwide.
Unfortunately, nearly half of Michigan residents still don’t have a rainy-day fund set aside to cover expenses for three months in the event of an emergency. However, the study showed the number of Michiganders with an emergency fund has increased nine percent – from 36 percent to 45 percent – since 2012. The U.S. numbers are similar (50 percent don’t have a rainy day fund), but our progress in Michigan seems to be moving faster. Since 2012, the total number of U.S. residents with an emergency fund only grew by six percent.
Managing Financial Products
The number of Michigan residents who used non-bank borrowing (such as payday loans or pawn shops) has remained steady at 24 percent (compared to 26 percent nationally). Since non-bank borrowing methods usually have higher interest rates and target individuals with poor credit histories, this is a number we still need to reduce.
It’s similarly disconcerting to see that nearly a third (31 percent) of Michigan residents paid only the minimum on their credit cards in 2015 (compared to 32 percent nationally). While the trend is moving downward, we could do better. Credit card debt means consumers pay much more for items over the long term, hampering their ability to save for the future.
Financial Knowledge and Decision-Making
In a five-question test of their financial capability, more than 60 percent of Michigan residents scored three or fewer correct answers, exactly the same as the U.S. average. Try taking the test yourself, and let me know how you do (and get your kids to try it!). The quiz covers basic, but fundamental concepts that everyone should know to become good stewards of their money.
Finally, do you compare credit card interest rates and terms to get the best deal? If your answer is no, you may be one of 60 percent of Michigan residents (and 58 percent of Americans) who said they do not compare cards. If you use credit cards but don’t shop around for the best terms, you could be leaving money on the table every time you make a purchase, and more if you fail to pay off your card each month!
There’s considerable debate among regulators and academics as to whether financial education actually works. Some experts believe it should be incorporated into school curricula at an early age. Others advocate for “just-in-time” learning – enabling consumers to gain access to important information just as they are about to make a crucial financial decision. If you feel your financial capability could be stronger, I encourage you to take advantage of the resources on MICPA’s website. At AMDG Financial, our credo is “From financial wisdom, better stewardship.” Our mission is to help clients understand and benefit from their financial decisions, and we look forward to helping you.