This is sure to get attention—over four in 10 Americans don’t know that a properly diversified portfolio is a safer investment than a single stock.
It’s just one of the findings to come from an attempt by robo advisor Stash to quantify the level of America’s financial literacy. As one would expect, the findings aren’t good.
Stash, which bills itself as “the digital investment advisor making investing easier and more accessible for American consumers,” notes the widespread misunderstanding among respondents about basic investing and financial planning concepts.
For instance, 40 percent of respondents don’t understand how inflation works; millennials are actually saving for retirement, but are failing to utilize a company sponsored (and offered) 401K; and, 40 percent fail to understand the simple concept of compounding.
“Poor financial literacy is an American epidemic, not confined to one gender or generation,” Brandon Krieg, CEO and co-founder of Stash, said in a statement. “Most Americans know they need to be saving and investing for their futures, but they do not understand the fundamentals of what that entails.”
Millennials Are Focused on the Future
Despite popular belief that millennials only care about today, they’re investing for milestones such as marriage, retirement, purchasing a home, and buying a car. In addition to these larger life events, more than any other group, millennials are also putting money away for shorter-term goals such as going on vacation.
Even though a majority of millennials said they are investing for retirement, fewer than half contribute to a 401k plan, and only 61 percent use a traditional savings account.
“When two out of five survey respondents don’t understand how compounding works, you can bet people are missing out on opportunities to maximize their savings,” Krieg added. “For millennials to really make their money work for them, they need to utilize more savings and investment tools that capitalize on compounding. This is an area where the lack of financial literacy is really detrimental to achieving long-term money goals.”
Women and Men Approach Investing Differently
The survey found that almost half of female respondents invest between $1 and $500 each year, compared to 36 percent of male respondents. However, women lag behind men when investing larger sums of money; 37 percent of male respondents invest over $1,000 per year compared to only 22 percent of women. While most women and men invest some money annually, nearly one in five female and one in ten male respondents admitted to investing nothing each year.
When asked about all the ways they are saving, half of both men and women are utilizing 401k plans, but men are almost twice as likely to use taxable investment accounts as women.