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Financial Health Quiz - The Federal Reserve Bank of St. Louis

score.jpgby Keith Klein

A few simple questions can reveal a great deal about a person's overall health and risk of illness or death. These questions might ask, for example, about smoking habits, seat belt usage when riding in a car, resting heart rate, blood pressure and consumption of alcoholic drinks each week.

Similarly, a few simple questions can reveal a lot about your financial health. If you save regularly, make all of your payments on time, pay off your entire credit card balance when due, maintain a healthy stock of safe and liquid assets, and never take on debts that put a heavy strain on your monthly income, you are very likely to be financially healthy and able to accumulate significant wealth. If you do none of those things, you are very likely to be financially unhealthy.

Last month, the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis published an article titled “Five Simple Questions That Reveal Your Financial Health and Wealth.” The authors, William Emmons and Bryan Noeth, argue that your answers to these questions can effectively predict your financial future.1,2 

  1. Did you save any money last year?

  2. Did you miss any loan or mortgage payments in the past year?

  3. Did you have a balance on your credit card after the last payment was due?

  4. Do liquid assets make up at least 10% of the value of your total assets?

  5. Is your total debt service (i.e., the cash you devote each month to paying principal and interest) less than 40% of your income?1       

The Federal Reserve has actually asked these questions of consumers for decades as part of its Survey of Consumer Finances. There was a surprising conclusion. The authors found that education was no reliable indicator of personal wealth. When it came to being rich or poor, well-educated individuals had no leg up on lesser-educated individuals.2

What’s your score? If you are able to successively answer the above questions with “yes,” “no,” “no,” “yes” and “yes”, your household is probably in pretty good financial shape – or better. In simple terms, those answers would get you a 5.0.

Here’s the take-away: If you save money consistently and maintain a good cash position, if you make loan and mortgage payments on time and pay off 100% of your credit card debt each billing cycle, if you avoid debts that put a strain on your budget ... congratulations. You are doing the right things on behalf of your financial life and promoting your chances to build wealth.  

If you're not doing all of those things, take a hard look at what is getting in your way, and take consistent steps to make the changes necessary.  A Certified Financial Planner can assist you in keeping on track and staying true to your financial goals.

If you’d like to see the precise methodology the researchers used and their definition of a “positive” and “negative” answer for each question, you can go online and download Issue 10 of the St. Louis Fed publication In the Balance.


1 - [12/15/14]

2 - [12/14]

Photo Credit: Julie Rybarczyk

Investment Advisory Services Offered Through CUE Financial Group, Inc. a SEC Registered Investment Advisor.  Securities Offered Through Foothill Securities Inc., Member FINRA & SIPC.  Foothill Securities, CUE Financial and Turning Pointe Wealth Management are not affiliated.

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