Public Service Announcement - Financial Literacy Survey

[Nifty]

I really like this section, so I'm sorry if I monopolize it!

I posted this at BYC a while ago but I wanted to copy it here because I think it is amazing!


I listen to a morning radio show (Name is Ray Lucia. You can download shows here ) and I was boggled to hear that 66% of adults over the age of 50 couldn't answer all three of these questions correctly: This is a financial literacy survey developed by economists at Dartmouth and Wharton... give it a try:

1. Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After five years, how much do you think you would have in the account if you left the money to grow: More than $102, exactly $102, or less than $102?

2. Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After one year, would you be able to buy more than, exactly the same as, or less than today with the money in the account?

3. Do you think that the following statement is true or false?: "Buying a single-company stock usually provides a safer return than a stock mutual fund."


Per the study:

"Results from this survey module reveal an alarmingly low level of financial
literacy among older individuals in the United States. The sample covers respondents
who are 50 or older, with the average age being 65. Only 50 percent of respondents in the
sample were able to correctly answer the first two questions, and only one-third of
respondents were able to answer all three questions correctly. The question that was most difficult for respondents to answer was the one about risk diversification; more than one third of respondents reported they did not know the answer.7 This is not only an
important finding but it also allows researchers to differentiate among different levels of
financial sophistication even when using a limited number of questions to measure
financial literacy."

Okay, so the answers:
1) More than
2) Less than
3) False

If you're 18 years old, or older and didn't get them all right I STRONGLY suggest you take, at the least, a rudimentary finance class!



Here is a link to the PDF: http://www.dartmouth.edu/~alusardi/Papers/Literacy_Tool.pdf



BTW, what are some of the resources you like for learning / teaching financial literacy?

 

[lengel]

I think that Suze Orman is fantastic. She's been there, educated herself and become an expert. I don't watch every episode by any means but there's only been one issue on a show that I disagreed with her about.

 

[Nuggetsowner:)]

Thank goodness I got them all right. I am too old to go back to school!!

 

[miss_thenorth]

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[chcknrs]

I passed the test without problems, but I listen to Clark Howard. I love his financial advice. We are getting ready to buy a couple of blocks of stock after lots of homework. I have been watching this stock for months, and we know it will do well.
I don't think you can have enough put aside for retirement, and we are trying to get enough to live with the same amount we live on now. It's looking pretty good for that right now, but you never know.

 

[hoosier]

The stats on the failure rate of people taking that test is scary.

chcknrs - I have never heard of Clark Howard. Is he radio or TV? We can't get very many channels.

miss_thenorth - It is because of me that my husband and I have money in the bank, and because of him that we have enjoyed some of it!

 

[miss_thenorth]

miss_thenorth - It is because of me that my husband and I have money in the bank, and because of him that we have enjoyed some of it!

I agree with that statement, as it applies to us also. My theory is we are with our mates for a reason. The old cliche applies here. "he completes me" We are a very good partnership.

 

[Nifty]

miss_thenorth - It is because of me that my husband and I have money in the bank, and because of him that we have enjoyed some of it!

I agree with that statement, as it applies to us also. My theory is we are with our mates for a reason. The old cliche applies here. "he completes me" We are a very good partnership.

I'm in that boat too! I'm frugal to a fault (how my parents raised us) and my wife, while frugal too will be more apt to help me spend the money. Were it up to me I'd always be in the same clothes and not have much in the way of aesthetics around the house.

 

[patandchickens]

I suspect that part of the depressingness of the results relates to the specific age group they're talking about (50-65). This is the generation which has probably had to worry LEAST about investing and savings, ever, of all of the age groups alive today in the US. Because of having ridden a favorable economy since birth, in which pretty much any sort of savings/investment strategy is at least minimally ok.

This age group is also probably still in the 'tail' of earlier generations in which women are less likely (on average) to have had anything to do with money management. To the extent that's true, it would also skew the results.

Personally I do not think that the vast majority of peoples' financial difficulties today relate to difficulty in comprehending the concept of inflation or whatever -- I think the biggest factor is having been brainwashed into believing that you are both entitled and obligated to have all the technological and luxury doodads that commerce can crank out, and have them NOW not just whenever you can eventually afford them. Investing is irrelevant when you're totally enveloped in *debt*.

Best financial advice I've ever heard is to keep your credit card (just having the one) frozen in a giant block of ice in the freezer


Pat

 

[Nifty]

Pat, I totally agree! I think there are two main reasons for many of the problems today:

1) A sense of entitlement: I want what my parents currently have and I want it right now. People don't realize their parents went many years with less to have future years of more.

2) Lack of examples: As you stated, the age group (50ish - 65ish) maybe didn't need to be as financially astute. You work for the same company for 40 years and then you have a pension. Things are different now. They say the average worker changes jobs 5-7 times in their life and they expect it to increase to 10 pretty soon. I have a friend who's dad is on a pension and doesn't know or do anything about investing... no real-estate, stocks, side-businesses... nothing. He has his pension and that takes care of him. Unfortunately his son (who has switched jobs a lot and has no pension) doesn't know much about investing. He was raised within an environment of "Work all your life and you will be taken care of." But that's just not going to fly... he's got to learn that times are different... he need to be self sufficient!