Color of Money: When it comes to personal finance, seeing is believing
A.: "Spending and payment," one young woman answered.
Q.: At what age can you start collecting Social Security?
A: "Is 34 an option?" one guy replied.
Their answers were comical and yet a little worrisome, because not knowing this stuff can lead to bad financial decisions that cost you real money. And, that's not cute or funny.
For example, the GoBankingRates survey found that almost 40 percent of respondents couldn't describe a 401(k), with some thinking it was a tax credit for retirement. At least they were in the ballpark. It's an important savings vehicle for retirement -- and not enough people are investing enough money in these accounts.
Most respondents 45 and older answered correctly that a CD is a certificate of deposit, but only 36 percent of 18- to 24-year-olds got the question right.
Net worth stumped a lot of people. Only 59 percent of folks knew it's the value of what you own minus what you owe. A lot of respondents thought it was income after taxes. Your net worth is a good barometer of how you're doing financially overall. When I meet with folks to go over their finances, it's the first thing we do. Because people incorrectly think their income tells the story of how well they're doing.
Twenty-two percent of respondents thought a HELOC -- or home equity line of credit -- was a made-up term. It's a real way to borrow money.
I spend a lot of time with financial literacy advocates, and we're always debating why some people score so poorly on these types of tests. I think it's because often the way personal finance is taught is too technical. It's too dense.
If we want people to be better informed, we have to meet them where they are and tailor teaching techniques to best fit various learning styles. For the visual learners, for example, we've got to create material that's visually engaging. If this is your style, then you'll like my choice for this month's Color of Money Book Club. It's "The Infographic Guide to Personal Finance" ($16.99, Adams Media) by Michele Cagan and Elisabeth Lariviere.