MILWAUKEE (BUSINESS WIRE), November 09, 2010 - At a time when Americans are seeking financial security, their financial knowledge is no better than it was in 2006, according to the “Financial Matters” study, commissioned by Northwestern Mutual. The research revealed that two out of three respondents (69%) would receive a failing grade on a quiz about financial products and concepts.

The good news is that people seem eager to learn more. When asked to rank the importance of understanding their own personal finances, nearly 8 in 10 respondents (79%) gave it a 7 or above on a scale of one (“what I don’t know won’t hurt me”) to 10 (“I feel the need to know all I can about my financial situation”).

“Financial knowledge is key to achieving financial security and understanding what impacts one’s personal finances,” said Dave Simbro, Northwestern Mutual vice president – life products. “We know from this study that most Americans want to be financially self-sufficient, and are focused on preserving their lifestyles and protecting against uncertainty. This desire makes improving our nation’s financial literacy especially relevant, and we believe the first step is an honest assessment of one’s personal finance proficiency.”

For additional perspective about the research from Dave Simbro, view a short video.

Take Northwestern Mutual’s Financial Matters Quiz

In recognition of the need to improve their financial acumen, Northwestern Mutual has introduced a new online quiz, “Financial Matters: Are You Making the Grade?” Individuals can visit northwesternmutual.com or the company’s Facebook page to take the quiz and determine if their financial know-how earns a passing grade, and compare their score with the national average.

The quiz has been developed in conjunction with the findings of the “Financial Matters” study, conducted by Mathew Greenwald & Associates, which also revealed:

  • Some basic financial concepts, such as diversification, are well-understood. Most respondents do understand the definitions of diversification (88% answer correctly), asset allocation (79%) and dollar-cost averaging (57%).
  • Many Americans cannot correctly identify key financial concepts, such as inflation. For example:
    • Only 35% of respondents know that the average rate of inflation is closer to 3% than 6% or 9%.
    • Half of respondents believe (incorrectly) that bonds offer the best protection against inflation compared to stocks.
    • Only one-third (32%) of respondents know that Index funds seek to match the returns of stock or bond benchmarks, and an additional third (34%) acknowledge they have no knowledge of how Index funds work.
    • Only one-third (35%) of respondents know that money market funds are comprised of short-term investment vehicles.
  • Permanent life insurance is among the most misunderstood financial products. For example:
    • Only one in four (27%) respondents realize that permanent life insurance can pay dividends.
    • Nearly half (49%) of respondents believe (incorrectly) that term life insurance is more likely to have cash value than permanent life insurance.
    • Only one third (32%) of respondents know that permanent life insurance policyowners have access to their cash value for any reason.

“Permanent life insurance offers everything people say they’re looking for – growth, flexibility, and guarantees – yet many people do not fully realize how versatile this product is,” continued Simbro. “ It’s ironic that most people only see the guaranteed protection, and miss the array of benefits permanent life insurance offers throughout someone’s life. Our goal is bring the full scope into focus.”

In addition to the national study, a representative snapshot, to see how the results play out at a local level, was undertaken for four areas: Denver, Houston, Louisville and Minneapolis.

“We realize financial knowledge is journey,” noted Simbro. “Talking to a financial professional is an easy first step on this course. These professionals are here to help individuals better understand and make informed decisions about their money. It’s about taking steps now to help people reach their long-term personal and financial goals.”

About the research

Northwestern Mutual Life sponsored the “Financial Matters” study to help gauge the American public’s overall financial knowledge and understanding of insurance products. Independent research firm Mathew Greenwald & Associates, Inc. conducted an online survey of 1,664 Americans ages 25 to 65 between June 1 – 9, 2010. The 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. Additional methodology details are available upon request.

About Northwestern Mutual

The Northwestern Mutual Life Insurance Company – Milwaukee, WI (Northwestern Mutual) has helped clients achieve financial security for more than 150 years. As a mutual company with $1.2 trillion of life insurance protection in force, Northwestern Mutual seeks to share its gains with policyowners and deliver consistent and dependable value to clients over time. Northwestern Mutual and its subsidiaries offer a holistic approach to financial security solutions including: life insurance, long-term care insurance, disability insurance, annuities, investment products, and advisory products and services. Subsidiaries include Northwestern Mutual Investment Services, LLC, broker-dealer, registered investment adviser, member FINRA and SIPC; the Northwestern Mutual Wealth Management Company, limited purpose federal savings bank; and Northwestern Long Term Care Insurance Company; and Russell Investments.

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