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From Securities Regulation Daily, May 30, 2013

FINRA Foundation Study Reveals Disparities in National Financial Capability

By John M. Jascob, J.D.

The FINRA Investor Education Foundation (FINRA Foundation) has released results from a national study which has found a significant disparity in financial capability among the 50 states. The study found that the citizens of California, Massachusetts, and New Jersey who were surveyed ranked in the top five in at least three of the study's five measures of financial capability, while Mississippi, Arkansas, and Kentucky ranked as the least financially capable states. The findings were based on an online survey of over 25,000 adults in all 50 states and the District of Columbia that was conducted from July through October 2012.

Measures of financial capability. The survey, which the FINRA Foundation developed in consultation with the Treasury Department, other federal agencies, and the President's Advisory Council on Financial Capability, sought to measure financial capability by gathering data on multiple aspects of individual Americans’ financial behavior. The study used five key measures of financial capability in order to measure how individuals manage their resources, make financial decisions, and save for the future. The 2012 study updates a similar study that was conducted by the FINRA Foundation in 2009 and also attempts to deepen exploration of topics that are highly relevant today, such as student loans and medical debt.

For example, the study found that less than half of those surveyed (41 percent) reported spending less than their income, while 26 percent reported having unpaid medical bills. Of those surveyed, 56 percent reported that they do not have a "rainy-day fund" to cover three months of emergency expenses, and 34 percent of respondents reported paying only the minimum credit card payment during the past year. On a test of five basic financial literacy questions, the national average was slightly less than three correct answers.

Demographic differences. The state-by-state results break down financial decisions and literacy by gender, age bracket, and region. For example, the survey revealed that Americans who are 34 and under are more likely to show signs of financial stress, including taking a loan or hardship withdrawal from their retirement accounts or making late mortgage payments. Younger Americans are also more likely to have unpaid medical bills, with 31 percent of Americans aged 18 to 34 reporting having unpaid medical bills, as compared to 17 percent for Americans aged 55 or older.

The survey findings are available in an online clickable map of the United States at The interactive map permits viewers to compare the financial capabilities of Americans across all 50 states and the nation as a whole. The FINRA Foundation said that it will make the information in the study available to policymakers and researchers, allowing them to look at individual financial behavior from various perspectives and use the state-specific data to tailor new programs and policies to promote greater financial capability.

SEC investor education efforts. At a news conference announcing the survey results, SEC Chairman Mary Jo White observed that the study reveals that Americans are now willing to take on more risk than they were in 2009, despite a troubling lack of basic knowledge among investors. For example, most investors still are not aware that market interest rates and bond prices move in opposite directions. Accordingly, the SEC’s Office of Investor Education and Advocacy is creating a nationwide program focused on teaching individuals how to make better decisions about investing in the capital markets. White noted that the Office recently created a series of investor bulletins on investing in bonds. Additionally, the SEC has created a website at that is focused exclusively on investor education and allows investors to research public companies and other filers using the SEC's EDGAR database.

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