How well do Americans understand the complexities of the nation’s debt crisis? If a comprehensive study of American financial literacy is any indication, the answer is not very well.

A comprehensive national study of the financial capability of American adults, conducted in 2009, revealed:

*Nearly half of survey respondents reported facing difficulties in covering monthly expenses and paying bills.

*The majority of Americans do not have “rainy day” funds set aside for unanticipated financial emergencies and similarly do not plan for predictable life events, such as their children’s college education or their own retirement.

*More than one in five Americans reported engaging in non-bank, alternative borrowing methods (such as payday loans, advances on tax refunds or pawn shops). And few appear to be knowledgeable about the financial products they own.

*While many American adults believed they were adept at dealing with day-to-day financial matters, they nevertheless engaged in financial behaviors that generated expenses and fees and exhibited a marked inability to do basic interest calculations and other math-oriented tasks. Few compared the terms of financial products or shopped around before making financial decisions.

*In general, measures of financial capability are much lower among adults with no post-secondary educational experience and those with household incomes below $25,000 per year, indicating that those populations are most vulnerable. Hispanics and African-Americans, who are disproportionately represented in these education and income segments, also face higher levels of exposure.

The survey was undertaken by the FINRA Investor Education Foundation in consultation with the Treasury Department and the President’s Advisory Council on Financial Literacy. FINRA, or the Financial Industry Regulatory Authority, is the leading non-governmental regulator for all securities firms doing business in the United States. (The President’s Advisory Council on Financial Literacy was created in 2010 to suggest ways to help Americans better understand financial matters and make informed financial decisions.)

The study consists of a state-by-state survey, a military survey and a national survey in which nearly 1,500 respondents were called between May and July 2009.

Financial literacy in public schools has been gaining some traction in recent years as it becomes increasingly obvious that Americans need a better understanding of money matters..

But Jump$tart, a national coalition of organizations dedicated to improving the financial literacy of pre-kindergarten through college-age youth, reports that more than half of U.S. states do not have a statewide financial education requirement. Though that does not necessarily mean that students in those states aren’t getting some financial literacy, there is still a need for much more.

Jump$tart maintains this map that shows financial literacy requirements in each state.

Meanwhile, the state-by-state survey that was part of the national study detailed above assessed five key measures of financial capability, and found the following:

Spend less than savings

National average of individuals who spend less than they save is 41.6 percent.
The states with the highest percentages (which is considered good) were:

1) New Jersey 48.7 percent

2) New York 46.2 percent

3) Washington 44.9 percent

4) Maryland 44.8 percent

5) California 44.6 percent

States with the lowest percentage of individuals who spend less than they save:

1) Montana 30.1 percent

2) Idaho 34.6 percent

3) Vermont 35.5 percent

4) South Dakota 35.8 percent

5) Oklahoma, 31.6 percent

Planning Ahead

The U.S. average of individuals with emergency funds (money set aside to cover expenses for three months in case of emergency) 35.3 percent.

States with the highest percentages of people with emergency funds:

1) New Jersey 47.8 percent

2) New York 45.1 percent

3) Washington 43.1 percent

4) New Hampshire 41.7 percent

5) Massachusetts 41.1 percent

The U.S. average of people without emerging funds is 60.4 percent. States with the highest percentages of people without emergency funds:

1) Oklahoma 71.5 percent

2) Kentucky 67.2 percent

3) Montana 67.2 percent

4) Arkansas 66.9 percent

5) Maine 66.6 percent

Non-bank borrowing

The U.S. average of people who have used one or more non-bank borrowing methods (including taking out an auto title loan or a payday loan, getting an advance on a tax refund or using a pawn shop) is 24.3 percent.

States with the lowest percentages of people who have used potentially high-interest borrowing methods:

1) New Jersey 13.8 percent

2) New Hampshire 15.4 percent

3) Massachusetts 15.6 percent

4) New York 17.7 percent

5) California 17.8 percent

States with the highest percentages of people who have used non-bank borrowing methods:

1) Montana 36.6 percent

2) Oklahoma 36 percent

3) Wyoming 34.6 percent

4) Mississippi 33.8 percent

5) South Carolina 32.9 percent

Financial literacy

Respondents were asked five questions covering concepts of economics and finance expressed in everyday life. The mean number of correct answers was 2.989.

States with respondents who got the most questions correct, with the mean after the name:

1) New Hampshire 3.304

2) Minnesota 3.276

3) South Dakota 3.267

4) Idaho 3.188

5) Vermont 3.172

States with the lowest number of respondents with correct answers:

1) Louisiana 2.750

2) West Virginia 2.835

3) Kentucky 2.843

4) Arkansas 2.852

5) Tennessee 2.858

Comparison shopping

The U.S. average of individuals who compared information about credit cards before getting one was 32.3 percent.

States with the highest percentages of people who made the comparisons:

1) Rhode Island 41.3 percent

2) District of Columbia 37.7 percent

[D.C. is not a state but was counted as one in this survey]

3) Idaho 37.0 percent

4) New Hampshire 36.7 percent

5) Wisconsin 36.5 percent

The U.S. average of people who did not compare credit cards was 62 percent. States with the highest percentages of people who failed to make the comparisons:

1) Missouri 67.4 percent

2) North Carolina 67.4 percent

3) Arizona 66.2 percent

4) Kentucky 66.2 percent

5) Texas 65.9 percent

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