There are so many indicators that Americans’ lack of knowledge about financial concepts and products is undermining their financial security.
Take LIMRA's Financial Literacy Quiz!
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Newly released LIMRA research finds that just 1 in 8 have a high level of financial literacy, based on a 10-question quiz provided to nearly 1,000 American adults. This aligns with consumers’ self-reported knowledge from a prior survey (only 12% said they have a high level of knowledge). The quiz revealed that more than a third of consumers answered three or fewer questions correctly and, on average, Americans answered only four questions correctly.
Testing for financial literacy is not just a novelty — LIMRA research shows a correlation between higher knowledge of financial topics and products with increased life insurance ownership and likelihood to save for retirement.
New research from the 2021 Insurance Barometer Study shows only about a third of consumers reported a high level of knowledge about life insurance. Women and Baby Boomers reported the lowest levels of knowledge. The power of knowledge is illustrated by the fact that 41% of those who said they are ‘very’ or ‘extremely’ knowledgeable own life insurance, while to just 19% of non-owners say the same.
Today, life insurance is at an all-time low. Just 52% of Americans own life insurance and many more don’t have enough coverage. There are 102 million uninsured and underinsured Americans who believe they need more life insurance.
LIMRA research also shows a connection between financial literacy and saving for retirement. Even controlling for age and household income, those who rate their knowledge of financial products and investments higher are nearly 30% more likely to be saving for retirement. When you consider that less than half of American workers (49%) are confident they will be able to live the retirement lifestyle they want, it is clear the lack of financial knowledge is undermining their future retirement security.
COVID-19 didn’t help. Recent LIMRA research finds 44% of workers said the pandemic has had a negative impact on their household’s ability to save for retirement. According to new data from PwC, 1 in 4 Americans have no retirement savings at all and those who are saving aren’t saving enough.
Results from LIMRA’s financial literacy study also uncovered another fact. Lack of financial knowledge is associated with increased stress levels. Consumers who scored poorly on the quiz were more likely than those who demonstrated high financial knowledge to report high levels of stress (38% versus 23%). The study also found financial stress was lower among people who work with financial professionals. Just 27% of those who work with a financial professional reported high levels of stress, compared with 41% of those who didn’t work with a financial professional. Prior research finds people working with a financial professional are more likely to have a financial plan in place and tend to be more confident in their future financial security, which could contribute to their lower stress levels.
Since April is Financial Literacy Month, it’s the perfect time for consumers to seek out a trusted financial professional to learn more about the steps to secure their financial future through life insurance and saving and planning for retirement.
To learn how the industry is working together to support carriers and help financial security professionals engage and educate consumers about the importance of life insurance and close the U.S. coverage gap, please visit: Help Protect Our Families.