In a nation where more than half of the people don’t have a rainy-day fund and 20 percent of people spend more money than they make, Missouri residents ranked comparatively poor in a new study of financial education programs, financial savvy and consumer habits.
“Missouri came in dead last,” said Dan Danford, CEO and principal of Family Investment Center. “In 50 states, we were number 51, including Washington, D.C.”
Missouri ranked last in the nation for overall financial savvy based on markers including debt, financial literacy, credit rank and savings rank in the “2016’s Most & Least Financially Savvy States” study published by WalletHub.
“For this survey, we collected thousands of responses nationally,” said Jill Gonzalez, analyst with the personal finance resource company. “ ... The average person in Missouri is struggling to understand how to make a budget, how to start saving and which products will help them with their financial goals.”
Missouri had a total overall score of 35.48 compared to score of 69.39 in Minnesota, the top ranked state. In a similar study of financial literacy by WalletHub, Missouri ranked number 45 in the nation.
“It’s a serious problem,” Gonzalez said. “These habits can lead to mini-recessions within Missouri communities.”
The financial savvy study looked at markers including foreclosure rates, credit usage, average credit scores, rainy-day funds and percentage of the population spending more than they earn. Each metric was given a value between 0 and 100. Spending and debt accounted for 40 percent of the total measurement, followed by financial literacy at 20 percent and credit and savings at 20 points each.
“I think, probably, the truth is, Missouri has a fairly high proportion of people who live basically with cash,” Danford said. “They get their paycheck and they cash it every week and that’s the money they use. I think that worked against us in this particular survey.”
Missouri was ranked number 32 in the nation for spending and debt, number 30 in the credit rank and number 37 in the savings rank.
“Missouri’s residents have problems when it comes to budgeting,” Gonzalez said. “They tend to spend more than they make and many of them don’t have a rainy day fund.”
Missouri ranked last in the nation for financial literacy, based on the WalletLiteracy survey. Financial literacy is the ability to understand how money works including how to manage, invest and earn money. Opposite Missouri, Kansas ranked first in the nation for financial literacy and 15th overall.
“It’s the ability to look at information and understand what it means to them,” Danford said. “That’s a real key point. You can read tons of information on the internet or in books or in magazines, but so much of it doesn’t apply to our situation. ... They need to look at it and say ‘How does this apply to me and my family?’”
Making wise spending decisions can have a major impact on finances, Danford said. He often sees people make financially unwise purchases including expensive electronics that typically lose value quickly, he said.
“Lots of people who have financial trouble, it’s because they use their money to buy things that weren’t really a good choice,” he said. “... It’s especially bad if you financed it. If you borrowed the money, you are making these monthly payments of $100 or $200 for something you couldn’t get $100 out of if you want to sell it. These are really critical issues for people.”
He also encouraged people to avoid making minimum payments on credit cards and warns of the financial danger of taking out loans.
“The truth is that credit cards or payday lenders or any of those places like that are really expensive places to get money,” Danford said. “I understand people have money needs and sometimes they can’t go to the available resources, but especially to let those stretch out over time, it’s just a horrendous place to get money.”
He also encouraged people to put money toward experiences instead of physical objects whenever possible, as studies have shown that experiences tend to have a longer lasting impact than items, Danford said.
“If you have a choice between spending $500 on new toys for your kids or taking them on a vacation or a day trip, do that,” Danford said. “That will create more happiness in your life and in their lives than buying stuff they’ll be tired of six months from now.”
Education is key to making smart financial decisions, Danford said. He encouraged people to visit a financial adviser, read publications or take a class to learn more about basic financial practices. He often sees people just following what their parents did or attempting to “keep up with the Joneses,” Danford said, which can cause financial trouble.
“Don’t just do what other people around you are doing,” he said. “Figure out what it is that you’d like to do with your life and work toward that goal. ... Make smart decisions and don’t get lured in by what people around you are doing because they probably aren’t working toward their goals.”