Filed Under:Life Insurance, Life Planning Strategies

Survey: Two-thirds of middle class Americans acknowledge having made costly financial mistakes



Two-thirds of middle class Americans acknowledge having made financial mistakes, the cost of such errors averaging $23,000, according to a new study.

Primerica, Duluth, Ga. and the Consumer Federation of America, Washington, D.C., published this finding in a summary of results from a new report, “The Financial Status and Decision-Making of the American Middle Class." The analysis includes a national survey of 2,015 adult Americans by ORC International in July of this year and a statistical examination of the Federal Reserve Board’s 2010 Survey of Consumer Finances.

According to the report, two-thirds of middle class Americans (67%) say they have made at least one “really bad financial decision.” And nearly half of those questioned (47%) acknowledge they had made more than one bad decision.

The typical (median) cost of these bad decisions was $5,000, but the average cost was $23,000.

Few of these Americans say their main source of information or advice about specific financial decisions would be from the Internet, books, magazines or TV. And a number said they would not seek information or advice in making these decisions.

For example, for “saving and investing,” only 15% say they would rely on the Internet, publications or TV for the information. Another 17% say they “wouldn’t seek any information or advice, and just make a decision.”

However, for this kind of decision, 45% say they would use information and advice from a financial professional.

These middle class Americans are more risk-averse than those with higher incomes. If given $1,000,000 to invest for retirement, only 21% of middle class Americans, compared to 48% of higher-income persons (incomes $100,000 and over), would invest mainly in “stocks, bonds, and/or mutual funds.”

And 19% of the middle class group would “invest” most of their funds in a savings account while 25% would invest mainly in real estate.

Large majorities of these Americans believe their ability to make financial decisions is “good” or “excellent." For example, 8 in 10 say their ability to budget income (81%) and manage credit card debt (80%) is good or excellent.

But only 6  in 10 (63%) give such high marks for their ability to save for retirement and 67% for their ability to purchase a mortgage loan.

Among the report's other key finding:

--Only 21% of the middle class families have a cash value life insurance policy, 15% stocks outside a retirement account, 14% certificates of deposit and 13% U.S. savings bonds.

--Over half of these families (53%) have installment debt whose typical amount was $13,500. Almost all of this debt represents auto loans and student loans.

--These families held consumer and mortgage debt that was, typically, $85,400 in 2007 and $84,400 in 2010.

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Nichole Morford

Nichole Morford
Managing Editor

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