Global Financial Literacy Survey

[MachineGhost]

Golly Gee Willickers!  You only had to correctly answer just three of the five simple questions to pass...

[img width=800]http://i.imgur.com/A8mOY9R.png[/img]

How can anyone with a straight face say that monopolistic public education is a resounding success?  I've heard schools don't even teach handwriting or cursive anymore, so kids have no idea how to write off of a keyboard.  That's like so, BASIC, man!  That's just a disaster waiting to happen with just one EMP attack.

[rickb]

From http://gflec.org/sp-global-finlit-survey-methodology/

Survey Questions

The financial literacy questions address five basic dimensions of financial comprehension on the individual level (correct answers in bold):

 

• Risk Diversification

Suppose you have some money. Is it safer to put your money into one business or investment, or to put your money into multiple businesses or investments? [one business or investment; multiple businesses or investments; don’t know; refused to answer]

   

• Inflation

Suppose over the next 10 years the prices of the things you buy double. If your income also doubles, will you be able to buy less than you can buy today, the same as you can buy today, or more than you can buy today? [less; the same; more; don’t know; refused to answer]

   

• Numeracy (Interest)

Suppose you need to borrow 100 US dollars. Which is the lower amount to pay back: 105 US dollars or 100 US dollars plus three percent? [105 US dollars; 100 US dollars plus three percent; don’t know; refused to answer]

   

• Compound Interest

Suppose you put money in the bank for two years and the bank agrees to add 15 percent per year to your account. Will the bank add more money to your account the second year than it did the first year, or will it add the same amount of money both years? [more; the same; don’t know; refused to answer]

Suppose you had 100 US dollars in a savings account and the bank adds 10 percent per year to the account. How much money would you have in the account after five years if you did not remove any money from the account? [more than 150 dollars; exactly 150 dollars; less than 150 dollars; don’t know; refused to answer]

[sophie]

I'm not sure that's financial literacy so much as a combination of IQ and a decent grade school education.

It very much depends on where this survey was taken.  The answers in a typical affluent suburb in the U.S. would be far different from, say, East Harlem, a neighborhood dominated by illegal immigrants from the Caribbean, or rural Kenya.

Financial literacy, to me, would be a question like:  your weekly net income is $500, your rent and fixed expenses are $1000 monthly.  You have a credit card with a $20,000 limit, and currently have $2,000 charged on it.  Your friends invite you out to dinner at a restaurant that would cost $100.  Do you say yes or no?

[jafs]

Those are just simple math questions, except for the diversification one.

It's sad that more people can't do basic math.

I agree with sophie that it would vary greatly depending on what neighborhood one is in, and her question is interesting.  But I'm not sure there's a definitive answer, is there?

You have about $2,000 monthly income, which leaves $1,000 each month after expenses.  So you can easily afford to eat at a fancy restaurant, and still have money to pay down your credit card as well.  But if you value paying down the debt faster, you'd want to do that first, before going out to eat there.  Of course, you'd save money if you pay off the debt completely as fast as you can, but then would have to wait a couple of months before being able to join your friends.

I'd say that's more of a question to determine your own values regarding debt/spending/immediate gratification.  Also, it would be good to know what the interest rate is on the card - that might be a factor.

How would people answer the question?  I think my answer would vary depending on a lot of factors, like who the friends are, what the restaurant is, how stable I feel my job is, etc.

[Libertarian666]

Also one of the "correct" answers is actually incorrect. Extra points for those who figure it out... 

[sophie]

jafs - instead of "yes" or "no", perhaps the question should be "How much is that $100 dinner eventually going to cost you?"  Assume 20% interest on the card and the person in question is making minimum payments every month, let's say $100.  The correct answer would be "more than double" to make things simpler.

I just figured that knowing this, a sane person would say no to the restaurant meal unless it were an event of high social significance, like a wedding.

[Pointedstick]

Unsurprisingly, highest rates of correct answers were seen in developed, industrialized countries noted for high levels of education. In other news, violent parts of the world suffer from the most violence.

[jafs]

jafs - instead of "yes" or "no", perhaps the question should be "How much is that $100 dinner eventually going to cost you?"  Assume 20% interest on the card and the person in question is making minimum payments every month, let's say $100.  The correct answer would be "more than double" to make things simpler.

I just figured that knowing this, a sane person would say no to the restaurant meal unless it were an event of high social significance, like a wedding.

With that additional info, I completely agree.