Study: Most Americans ignorant of bond market, financial risk

The FINRA Investor Education Foundation’s 2015 National Financial Capability Study, released Tuesday, shows 63 percent of Americans are financially illiterate — with only 28 and 46 percent of respondents correctly answering questions about bonds and financial risk, respectively.

The study, which surveyed 27,564 people between June and October 2015, asked five questions about economics and personal finance, the majority of whom responded appropriately to only three.

Americans turn out to be most knowledgeable about mortgages and interest rates, with a 75 percent correct response rate.  59 percent of those surveyed answered the inflation question correctly.

“This research underscores the critical need for innovative strategies to equip consumers with the tools and education required to effectively manage their financial lives,” FINRA Foundation chairman Richard Ketchum said in a press release. “My hope is that policymakers, researchers, and advocates will use these findings to make more informed decisions about how to best reaches underserved populations.”

Another significant finding shows that substantially less people are living paycheck-to-paycheck since the end of the last decade. In 2009, only 36 percent of Americans said they have no problem paying bills and meeting daily expenses every month, compared to 48 percent who said the same in 2015.

In addition, over 50 percent of respondents reported consistently paying their monthly credit card balance(s) in full.

On the negative side, 21 percent of all survey-takers said they have outstanding medical bills, while 29 percent of millennials (18–34 years of age) admitted to having been late on a mortgage payment, compared to only 16 percent of 35–54 year-olds who said the same.

The results from one particular question about personal savings, in which 45 percent of respondents without a college degree said they don’t have enough money in the bank to pay for an emergency situation requiring a $2,000 expenditure, compares favorably to two separate surveys conducted in 2015, both finding that over 60 percent of Americans have less than $1,000 to pay for such an unexpected event.

The prevalence of financial hardship bodes poorly for many given that economic analysts at Deutsche Bank recently released a report which gives the U.S. a 60 percent chance of falling into a recession within the next 12 months.

Deutsche’s forecast cites a narrowing spread between long and short-term bond rates, referred to as a “flattening yield curve”.  Typically, long-term bonds yield higher returns, but the difference between longer and shorter-term interest has been shrinking over the past several months.

If the trend continues and short-term bond yields surpass those in the longer-term market, a macroeconomic downturn is nearly inevitable, as such a phenomenon has occurred before each of the last seven U.S. recessions.


[Fortune via Time] [MarketWatch] [Photo courtesy]