Survey finds that people are not as financially literate as they thought

A Credit Karma Study

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A Credit Karma survey conducted by Qualtrics in November 2022 took a look at how well Americans understand credit scores, credit cards, inflation and recessions. The survey also asked participants to score how confident they are in their knowledge about each of the topics.

Read on to learn more.

Financial literacy confidence

At the beginning of the survey, respondents were asked to assess how confident they were about their knowledge of four financial topics: credit scores, credit cards, recession and inflation.

Those who took the survey were more likely to report feeling financially literate on credit scores and credit cards, and a lot less confident on inflation and recession.

Confidence ratingCredit scoresCredit cardsInflationRecession
Extremely confident22%24%14%12%
Very confident29%29%23%20%
Somewhat confident27%28%35%33%
Slightly confident14%13%17%21%
Not at all confident8%7%11%13%

Just over 50% of participants rated themselves as “very confident” or “extremely confident” for both credit scores and credit cards. That number fell to 37% and 32%, respectively, for inflation and recession.

There’s not an even distribution across categories. Significantly fewer people rated themselves as “not at all confident.” Instead, respondents tended to cluster in the “somewhat confident” and “very confident” categories.

Results from the financial literacy test show that respondents scored best on the credit cards section, followed by credit scores. Inflation and recession lagged behind. This roughly follows the confidence levels expressed above. People expected to do best on credit cards, and they did.

To make the data easier to parse, the two groups that were more confident were lumped together into a single group labeled “confident.” Take a look at the table below to see how each “confident” group performed on the financial literacy test broken up by topic.

TopicAverage of respondents rating themselves as “confident” by topic Average score
Credit scores51%61.1%
Credit cards53%66.9%
Inflation + Recession35%58%
Overall43%60.8%

Despite respondents ranking themselves as less confident on inflation and recession, their scores weren’t much different on those topics compared to credit scores — a topic where people felt much more confident.

Overall, an average of only 43% of survey-takers rated themselves as confident. Ideally, that number would be much higher, along with the average score.

Financial literacy confidence by generation

Age played a role in confidence levels. Gen Z respondents felt less confident compared to all other generations across all topics. Millennials often felt the most confident.

To make the data easier to parse, the two more-confident groups were lumped together into a single group labeled “confident.”

GenerationsAverage of respondents rating themselves as confident overall on financial literacyAverage overall score on test
Gen Z (born 1997-2012)27.5%54.9%
Millennials (born 1981-1996)47.5%55.1%
Gen X (born 1965-1980)45.3%61.8%
Baby boomers+ (born 1946-1964 plus those born earlier)43.5%67.5%
Total sample43.3%60.8%

But was millennial confidence warranted? Not necessarily. Across the entire financial literacy test, millennials scored an average of 55.1% correct. Meanwhile, the baby boomer+ category had the highest average test score at 67.5%.

Financial literacy confidence by household income

Much as with generations, confidence increases as household income increases. However, having higher income doesn’t necessarily correlate with better financial literacy. On this measure, those who performed the best on the financial literacy test were in the group with a household income between $50,000 and $99,999.

Household incomeAverage of respondents rating themselves as confident overall on financial literacyAverage overall score on test
$24,999 or less23.5%55.4%
$25,000 – $49,99937.8%61.6%
$50,000 – $99,99946%64.9%
$100,000 or more55.8%59.8%
Total sample43.3%60.8%

Financial literacy confidence by self-reported confidence level

As noted above, most respondents placed themselves in the “very confident” or “somewhat confident” categories, with very few feeling “not at all confident.”

Confidence levelPercentage of respondents in each confidence group overall on averageAverage overall score on test
Extremely confident18%58.3%
Very confident25.3%62.8%
Somewhat confident30.8%62.5%
Slightly confident16.3%60.6%
Not at all confident9.8%55.4%

Interestingly, confidence level seems to have little to no correlation with the average score achieved on the financial literacy test. This could mean that people have a hard time accurately assessing how much or how little they actually know.

Credit scores financial literacy

Respondents did comparatively well on the credit scores portion of the financial literacy test. Survey-takers averaged 61.1% correct on the test. The high score was 100%, while the low score was a fairly dismal 10.6%.

A little over half of respondents (51%) felt confident in their knowledge of credit scores before starting the test. When asked to assess confidence about their knowledge on credit scores after answering questions about credit scores, confidence levels dropped.

How confident are you in your knowledge of credit scores?Before the testAfter the testDifference in percentage points
Extremely confident22%15%-7%
Very confident29%23%-6%
Somewhat confident27%36%9%
Slightly confident14%18%4%
Not at all confident8%8%0%

The neutral “somewhat confident” group showed the largest gain. Many of those respondents came from the “extremely” and “very confident” groups.

Interestingly, the percentage of respondents rating themselves as “not confident at all” didn’t budge.

Perhaps a little knowledge can be dangerous. It seems that people who rated themselves as confident overall before the test didn’t know what they didn’t know.

Credit score knowledge by generation, household income and confidence level

The baby boomer+ category did the best on the credit scores section, while Gen Z performed the worst. Their average scores were separated by about 10 percentage points.

GenerationPercentage rating themselves as confident on credit scoresAverage score
Gen Z32%55.7%
Millennials54%57.2%
Gen X52%62.2%
Baby boomers+54%66%

For household income, the best performance came from those in the $50,000 to $99,999 range. The group with household incomes of $24,000 or less had the lowest scores. The highest and lowest average scores differed by 7.8 percentage points.

Household incomePercentage rating themselves as confident on credit scores
Average score
$24,000 or less27%57.2%
$25,000 – $49,99942%61.8%
$50,000 – $99,99954%65%
$100,000+67%59.4%

In terms of confidence levels, respondents who rated themselves toward the center scores had the best outcomes on this portion of the test. People on either extreme — either extremely confident or not at all confident — performed the worst.

Confidence levelPercentage of respondents in each categoryAverage score
Extremely confident22%59.8%
Very confident29%61.7%
Somewhat confident27%62.9%
Slightly confident14%61.1%
Not at all confident8%56.6%

Areas where respondents scored well

Respondents did better on true/false statements on this test. The table below shows questions in which participants performed particularly well — along with the percentage of respondents who answered the question correctly and a link to an article with more information about each topic.

QuestionCorrect answerPercentage of respondents answering correctlyArticle with more information
Only one kind of credit score exists.False81%How many credit scores do I have?
Checking your own credit scores hurts your credit scores.False75%Hard credit inquiry vs. soft credit inquiry: What they are and why they matter
It’s impossible to improve your credit scoresFalse86%Credit Karma Guide to Building Credit
You must pay to access your credit scoresFalse82%
One late payment can hurt your credit scoresTrue78%Payment history: What it is, and why it matters to your credit

On other credit score topics, respondents were shakier.

What credit scores measure

Respondents were asked what credit scores are supposed to measure. Only about half (51%) of respondents knew that credit scores are a measure of an individual’s risk of not repaying a debt. A full 8% said they didn’t know what credit scores are for at all. The fact that so many respondents couldn’t identify the purpose of credit scores might explain why the average score on the credit scores portion of the test hovered around 61%. 

Worryingly, 61% of respondents also believed that everyone has credit scores. Generating a credit score is not an automatic process. Individuals need to access financial products to start building credit. This is an important concept for consumers to understand if they want to use credit.

Credit score factors

When asked to name the five major credit score factors, only 114 of 1,013 participants were able to correctly identify all five correct answers on a list of 17 options. A further 401 were able to name four out of five factors. That’s 11.3% and 39.6% of respondents, respectively. Here are the five major credit score factors and the percentage of respondents who chose each one.

  • Length of credit history – 70%
  • Amount of debt compared to available credit – 69%
  • On-time payment history – 69%
  • Having multiple types of debt – 65%
  • Number of hard inquiries – 52%

Below are some of the other options selected along with the percentage of respondents who indicated that each one was a major factor. None of what follows is a major factor in credit scoring.

  • Employment record – 20%
  • Bank account balance – 20%
  • Number of soft inquiries – 15%
  • Age – 11%
  • Marital status – 8%
  • Criminal record – 7%
  • Gender – 6%
  • Race/Ethnicity – 5%

It’s worth noting that people in marginalized groups may have lower credit scores on the whole because of reduced access to financial products, but the credit scoring models themselves do not take into account an individual’s gender, race or criminal history.

Some of the incorrect options also may have some superficial correlation to the correct answers. For example, older people have had more time to build up a longer credit history. However, all things being equal, being older doesn’t directly affect your scores.

A true/false question later in the survey adds further nuance to part of this data. Up to 52% of respondents believed that getting married affects credit scores. It seems that, although not too many people think that marriage is a major credit score factor, the majority of respondents believe that getting married can be a factor in credit scores.

Things that can be affected by credit scores

Despite thinking that all sorts of factors affect credit scores, many participants seemed unaware of how many things can be affected by credit scores.

Below are the options presented to survey-takers and the percentage who selected that option. People were allowed to select as many options as they wanted.

  • Credit card application approval – 46%
  • Mortgage application approval – 40%
  • Interest rates and terms on new financial products – 35%
  • Home or apartment lease application – 34%
  • Auto insurance rates – 22%
  • Access to utilities – 12%
  • Job offers – 9%

In reality, all of the options can be affected by credit scores. Yet only 43% of respondents selected “all of the above.”

One of the true/false questions complicated the findings here. Around 57% of respondents said they believed that people could be denied a job because of bad or low credit — significantly more than on the question above. It’s unclear why there was such a discrepancy between the two questions. Perhaps “job offers” got lost in the shuffle of options.  

Group responsible for collecting information used in credit scores

When asked what group is in charge of collecting information for credit scores, just over half of respondents (52%) knew that credit bureaus is the correct answer. On this question, respondents were offered a total of seven options and were allowed to select as many as they thought were correct. Although 52% marked the correct answer, within that group only 49% knew that “credit bureaus” was the only correct option. The others selected multiple answers. That means only 25.6% of respondents got this question completely correct.

Roughly a quarter (22%) of respondents thought that FICO and VantageScore were organizations responsible for finding credit data on individuals rather than types of credit scoring models. A smaller percentage (19%) thought that banks were responsible. Other options included lenders (14%), the federal government (8%), all of the above (36%) and none of the above (2%).  

Credit cards financial literacy

Respondents performed best on the credit cards portion of the financial literacy test. Survey-takers averaged 66.9% correct on the credit cards test. The high score was 100%, while the low score was 0%.

Credit card knowledge by generation, household income and confidence level

Once again, the baby boomer+ category did the best. This time, however, millennials performed the worst. The difference between the highest and lowest average scores among generations was especially dramatic in this category. Baby boomers+ on average scored 25.8 percentage points higher than millennials. The next best-scoring-group were Gen Xers, who were still 10.9 percentage points behind baby boomers+ on average. Gen X was the most confident group with 56% of Gen X respondents describing themselves as “extremely” or “very” confident.

GenerationPercentage rating themselves as confident on credit cardsAverage score
Gen Z34%55.7%
Millennials55%54.6%
Gen X56%69.5%
Baby boomers+54%80.4%

For the household income category, the $50,000 to $99,999 range outperformed other groups again. Individuals in this group scored an average of 73.9% on the credit cards portion of the test. Despite having the best scores, respondents in the $50,000 to $99,999 were not the most confident group. Instead, the $100,000+ group was the most confident.

Household incomePercentage rating themselves as confident on credit cardsAverage score
$24,000 or less29%59%
$25,000 to $49,99945%68.8%
$50,000 to $99,99957%73.9%
$100,000+67%64.1%

For credit cards, survey-takers who rated themselves as “very confident” performed best at 71.4%, which is 11.3 percentage points better than people who were “extremely confident.”

Confidence levelPercentage of respondents in each categoryAverage score
Extremely confident24%60.1%
Very confident29%71.4%
Somewhat confident28%69.9%
Slightly confident13%65.7%
Not at all confident7%61.6%

Credit card financial literacy

There were three main topics assessed in the credit card portion of the test: APR, pay off timeline and grace period.

Only 54% of test-takers were able to correctly identify the definition for credit APR as the annualized interest rate on credit cards. But not all participants had credit cards. Among the 802 respondents with credit cards, 452 knew what APR was. While that’s slightly better than the group as whole, it’s concerning that only 56% of credit card holders in the study knew the answer. APR is a crucial expense to understand, especially because APRs on credit cards can add up quickly. Of the respondents without a credit card, only 44% knew what APR means.

Survey-takers did better on a question about the credit card grace period, which is a span of time during which you can pay off your credit card balance without being charged interest. While not all issuers offer grace periods, it can be a powerful tool for managing debt. Overall, 65% of respondents chose the right answer. For those with credit cards, that bumps up to 66.6%. It goes down to 57.2% for survey-takers without credit cards.

One worrying note on grace periods — 8% of respondents thought that a grace period was a stretch of time where you can charge whatever you want to your card and not pay it back.

A bright note did emerge in the credit card literacy data: 82% of participants were aware that making only the minimum credit card payment does not mean you’ll pay off your credit card debt quickly.

Inflation and recession financial literacy

Respondents performed worst on the inflation and recession portion of the financial literacy test. Survey-takers averaged 58% correct on the inflation and recession test. The high score was 100%, while the low score was 0%.

Inflation and recession knowledge by generation, household income and confidence level

Mirroring the results in the credit cards section, the baby boomer+ category performed the best and millennials performed the worst. Gen Z was the least confident on inflation/recession, but still outscored millennials. Millennials were the most confident group about their knowledge of inflation and recession prior to taking the test.

GenerationPercentage rating themselves as confident on inflation and recessionAverage score
Gen Z22%53.1%
Millennials41%51.1%
Gen X37%58.3%
Baby boomers+33%65.8%

The $50,000 to $99,999 group completes a hat-trick and is once again the best-scoring group in the household income category.

Household incomePercentage rating themselves as confident on inflation and recessionAverage score
$24,000 or less19%50.4%
$25,000 to $49,99932%58.5%
$50,000 to $99,99937%61.4%
$100,000+45%59.1%

In terms of confidence level, those self-describing as “very confident” in their knowledge of inflation and recession performed best on this portion of the test, followed by the “somewhat confident” respondents. The “slightly” confident participants outperformed the “extremely confident” survey-takers.

Confidence levelPercentage of respondents in each categoryAverage score
Extremely confident13%54.5%
Very confident22%61.7%
Somewhat confident34%59.1%
Slightly confident19%57.7%
Not at all confident12%50.9%

Inflation and recession financial literacy

Survey-takers seemed more familiar with inflation than recession. For example, 75% of survey-takers correctly identified the definition of inflation as a sustained increase in the price of most or all products. But only 35% chose the right definition for recession, which is a sustained drop in the value of goods and services produced by the country. Around 17% of respondents seemed to have conflated recession with inflation when they selected the definition of recession as the “prices for goods and services have increased.”

On other aspects of inflation, respondents didn’t score as well. People were split on whether low inflation is always good. A slight majority (52%) believed this was true. However, the Federal Reserve aims to maintain a balance between keeping inflation low to grow the economy and having some wiggle room to cut interest rates to help boost the economy during a downturn. Read the Federal Reserve’s explainer on why it aims to keep inflation around 2% for more information.

Survey participants also seemed a little confused on the role the Federal Reserve plays when it comes to interest rates. Over half (51%) believe that the Fed can directly set interest rates for credit cards and mortgages, which isn’t true. The Federal Reserve may indirectly affect interest rates through changes to monetary policy, but interest rates are set by lenders. Credit Karma has a handy explainer on the Fed’s effect on mortgage rates.

Next steps

If you’re just beginning your personal finance journey, then the following articles might help give you a good foundation on the topics covered in this survey.

Methodology

On behalf of Credit Karma, Qualtrics conducted a nationally representative online survey from Nov. 4 to 8, 2022, among 1,013 Americans 18 and older to understand levels of financial literacy in regards to credit scores, credit cards, inflation and recession.


About the author: Gaby Lapera is a researcher and writer at Credit Karma and a personal finance expert. She also spends time working on investing and science communication. Gaby graduated with a master's degree in biological anthropolo… Read more.