WASHINGTON (9/21/12)--Two-thirds of middle-class Americans acknowledge having made financial mistakes--often at a steep price, according to a new report from the Consumer Federation of America and Primerica. The results of the study reveal financial education opportunities for credit unions.
The new report, "The Financial Status and Decision-Making of the American Middle Class," also concluded that the financial condition of most middle class families is challenging. For example, in 2010 the typical middle-class family had financial assets of $27,300--including retirement savings but not pensions--which was 28% less than the $37,800 held in 2007.
The analysis includes a national survey of 2,015 representative 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, by Professor Catherine Montalto of The Ohio State University.
In the ORC International survey, 843 out of the 2,015 respondents reported household incomes between $30,000 and $100,000 and were considered to be middle class.
Two-thirds of middle-class Americans (67%) said that, in the past, they had made at least one "really bad financial decision," and nearly half of those questioned (47%) acknowledged that they had made more than one bad decision. The median cost of these bad decisions was $5,000, but the average cost was $23,000.
Few respondents said their main source of information or advice about specific financial decisions would be from the Internet, books, magazines or TV. Others said they would not seek information or advice in making financial decisions. For example, for "saving and investing," 15% said they would rely on the Internet, publications or TV for the information, yet another 17% said they "wouldn't seek any information or advice, and just make a decision."
However, 45% said they would use information and advice from a financial professional to make a financial decision.
Middle-class Americans are much more risk-averse than those with higher incomes, according to the study. If given $1 million to invest for retirement, 21% of middle-class Americans, compared with 48% of those with higher incomes ($100,000 or more), would invest mainly in "stocks, bonds, and/or mutual funds." About 19% of the middle-class group would "invest" most of their funds in a savings account, while 25% would invest mainly in real estate.
The second source of information was the Federal Reserve Board's 2010 Survey of Consumer Finances, which was released several months ago. Catherine Montalto of The Ohio State University used its database, and that of the Fed's 2007 survey, to compute financial statistics for the 40% of households in the third and fourth income quintiles--incomes between $35,600 and $94,600 in 2010.
For middle-class families, the typical debt payments to income ratio was 20% with only 9% having debt payments that were overdue by 60 days or more. But nearly half (49%) still carried credit card debt from month to month, and the typical (median) debt for these families was $2,700.
The decline in housing prices was the main reason that the net assets of the typical middle income family declined 35%, from $145,600 to $94,700.
"Families without a lot of resources are balancing difficult and expensive priorities such as saving enough for college and retirement or paying off a mortgage and consumer debt, said John Addison, Primerica Co-CEO. "When you consider these demands within the context of the last decade's falling incomes, we are nearing a crisis in this country."