What’s Your Financial IQ

By: Roberto Espinosa
Monday, November 24, 2014

Imagine you’re on a TV quiz show. The host turns to you and offers a list of topics, one of which is Your Personal Finances. Based on your knowledge, is this a category you would choose?

If you answered no, you’re not alone. Four out of five Americans admit they know more about a variety of topics than their own finances. That’s about the same share that would choose to answer questions about subjects far less personal, such as current events, entertainment, or science and technology.

These results were gathered as part of a research study sponsored by Northwestern Mutual to help gauge the American public’s overall financial knowledge — as measured by a financial IQ index — and its understanding of insurance products.

For me, the results were a powerful reminder of the reason I make it a point to help clients fully understand their personal finances so they can make the informed choices that are right for them.

The survey found that some basic financial concepts are well understood, including the best way to minimize losses in investments (88 percent answered correctly), asset allocation (79 percent) and dollar-cost averaging (57 percent). Likely because of their self-explanatory names, high numbers of Americans also recognize what disability income insurance and long-term care insurance are designed to do.

More often than not, however, Americans fail to understand many key financial concepts — such as the average inflation rate over the past decade (known by about one in three), or the product that has traditionally mitigated inflation risk the best (less than one-third answered correctly). The lack of financial knowledge appears to be particularly acute when it comes to permanent life insurance, as only a small percentage of Americans seem to know even the basics of this type of risk protection.

Knowledge is power, though, and Americans recognize it. Nearly eight out of 10 consumers feel the need to learn as much as possible about their personal financial situation. I’ve certainly seen this to be true in my practice.

As for where they find that information and whom they trust, I was glad to learn that, when asked to rate the reliability of several sources of financial information, Americans rated financial advisors as the most reliable source.

Are you curious what your financial IQ might be? Find out by completing the survey at http://financialmattersquiz.com/.

About the Research

On behalf of Northwestern Mutual, independent research firm Mathew Greenwald & Associates, Inc. conducted an online survey of 1,664 Americans ages 25 to 65 between June 1 and June 8, 2010. Study participants were members of Synovate’s leading Global Opinion Panel. Survey data were weighted by gender, age, education and household income to reflect the makeup of the U.S. population ages 25 to 65. Population statistics were based on data from the 2008 Current Population Survey.


Roberto EspinosaArticle prepared by Northwestern Mutual with the cooperation of licensed insurance agent Roberto Espinosa, a financial advisor Northwestern Mutual in San Antonio. Espinosa is known for making physicians think as business owners. His concepts of trust, care and knowledge have led him to be featured in Forbes publisher Richard Karlgaard’s latest book The Soft Edge. To contact Espinosa, please call 210-446-5754 or email roberto.espinosa@nm.com. Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM), Milwaukee, Wisconsin, and its subsidiaries.