Despite having trouble saving for retirement, paying off student loans or reducing credit card debt, most Americans actually have a good grip on basic financial concepts, according to a new survey.
Almost nine in 10 Americans surveyed by Fifth Third Bank knew that APR stood for “annual percentage rate,” a key term on loans. Almost three-fourths successfully noted that DTI stood for debt-to-income, one factor lenders use for loan approvals, especially mortgages.
"It's encouraging to see Americans are generally knowledgeable about basic finance concepts," said Jada Grandy, senior vice president and Community Reinvestment Act strategies director at Fifth Third, in a statement. "There's still a long way to go in terms of transferring that knowledge from concept to practice.”
For example, the overwhelming majority of Americans know how much of their credit they should use (30 percent) and how best to pay off debts (highest interest rate first). But three in five still struggle with credit card debt and three out of four carry some kind of debt.
Millennials reported they have at least two months of living expenses saved, but the recommendation is six months. Forty-five percent of those surveyed know they should set aside 20 percent of their income for savings, but the savings rate is only at 5.4 percent — the highest point in three years, but still woefully below the ideal.
That last part is changing. A Gallup survey last week found that nearly two-thirds of Americans prefer saving money than spending it, a continuation of a pro-savings trend that took hold after the Great Recession. Fidelity also reported last week that a record number of Americans in its 401(k) retirement plans increased their contributions in the first quarter.