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Almost half of Americans don't understand inflation or interest rates, and this could lead to stress

Money-related stress could be caused by poor financial literacy, new research suggests
(Image credit: Getty)

Despite mortgage lenders dropping interest rates recently and the lowest unemployment figures in 50 years, new findings from J.D. Power have revealed that "Americans are stressed about their financial futures." 

The survey reveals that financial troubles in the U.S. may go deeper, with "a significant portion" of Americans rating their financial knowledge as “weak”. J.D Power also found that many do not understand basic financial functions, meaning they may not know how to improve their credit score or comprehend terms such as interest rates or inflation.

JD Power Inflation and Interest Rate Survey

The correct answer to the question is 'Less than today', but almost 48% of respondents got it wrong or didn't know. (Image credit: JD Power)

According to Bob Neuhaus, Vice President of Financial Services Intelligence at J.D. Power, the findings suggest that "by traditional metrics, we’re in a perfectly healthy-looking economy, but it is clear there are serious cracks in the foundation, and any setback could be met with disastrous ramifications at the individual level." Notably, he highlights that "75.4% of Americans are experiencing some level of stress over their current financial situation". This is in line with recent findings that financial stress could be stopping you sleeping, in turn impacting people's general health. 

The conclusion drawn by Nehaus is that banks ought to go to greater lengths to educate customers. Although there is an existing level of available resources, banks may not understand just how little the average American knows about finance. Nehaus emphasizes that "it is important to understand just how much education is needed. In many cases, basic financial literacy levels are incredibly low."

Low financial literacy: The real price

Although there is always the option of turning to debt settlement companies to avoid bankruptcy, or the debt consolidation companies to help make debt more manageable and avoid the trap of payday loans, Nehaus has argued that "to prosper in this environment, both banking institutions and individual consumers are going to need to address the gaps that currently exist in financial literacy and overall financial wellbeing."

Poor financial management has recently been “weighing on household finances and the broader economy", with 49% of student loan borrowers facing a higher student loan balance after 5 years of repayment. Furthermore, new analysis has found that American households have increasing amounts of unsecured borrowing, with those in debt owing average of $22,000 in credit card bills. It's no wonder, then, that 53.5% say that it's either “very difficult” or “somewhat difficult” for their household to cover all their expenses and pay all their bills on a monthly basis. This may not just be down to personal financial circumstances; J.D. Power has found that a lack of financial literacy could mean that households do not know how to pay off credit card debt, even if they are able to.

That being said, Nehaus is quick to assert that debt is driving financial instability. 25.2% say they have $10,000 or more in student loan debt, with 8.8% of those owing $50,000 or more. With nearly a third of American workers facing medical debts, and over half of them defaulting on this, it is no wonder that 15.7% say debt has delayed seeing a doctor or undergoing a medical procedure.