America Trailing Germany In Financial Literacy – The “Big Three” Quiz
Hardly a week passes without announcement of a new platform to help us invest and save better. Even Deepak Chopra, not a name normally associated with financial wellness, is getting in on the trend— yesterday announcing his collaboration with Personal Capital.
However all the activity does not change the sad fact that we are not becoming financially literate. And with the IMF predicting that global GDP will fall 4.5 percent this year, the economic fallout and high unemployment from Covid only makes the ability of individuals to make informed financial decisions more important. Further, women are especially vulnerable—McKinsey estimates that globally women are 1.8 times more likely than men to lose jobs during this time. Simply put—personal financial decisions taken now can affect people greatly over both the short and the long term.
In the simple “Big Three” quiz of financial literacy from the Swiss Journal of Economics and Statistics, only 30 percent of Americans, versus 53 percent of Germans, answered the following three questions correctly—
1. Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After five years, how much would you have in the account if you left the money to grow?
- More than $102, or Exactly $102, or Less than $102
2. Imagine that the interest rate on your savings account was 1 percent per year and the inflation was 2 percent per year. After one year how much would you be able to buy with the money in the account?
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- More than today, or Exactly the same, or Less than today
3. Is this statement true or false? “Buying a single company’s stock usually provides a safer return than a stock mutual fund.”
- True or False
Many people are now advocating for basic financial concepts to be included in every school education. Anne Richards, CEO of Fidelity International, recently commented “Perhaps teaching children and young students the building blocks of how mortgages, credit cards, insurance and pensions work through the basic tools of statistics, risk pooling, compound interest and the like might be more useful than trigonometry.”
Which brings us full circle to the stampede of robo advisor and financial platforms currently hitting the market—those destined to lead will make tackling financial literacy a priority.
(Quiz answers 1. More than $102 2. Less than today 3. False )