Three money questions prove difficult

At the recent Financial Literacy 09 summit in Wellington, Dr Annamaria Lusardi (Professor of Economics at Dartmouth College) shared the three money questions she and Olivia S. Mitchell (of the Wharton School at the University of Pennsylvania) use to test an individual’s financial literacy.

Financial literacy survey reveals knowledge gap

Test your money knowledge:

#1. Say you had $100 in a savings account and the interest rate was 2 percent per year. After 5 years, how much would you have in the account if you left the money to grow? More than $102, exactly $102 or less than $102?

#2. The interest rate on your savings account is 1 percent per year and inflation is 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 this account?

#3. True or false? Buying a single company stock usually provides a safer return than a stock mutual fund.

Answers: #1: More than $102.   #2: Less than today.   #3: False.

How did you fare?

When Lusardi asked Amercians aged 50 and older these questions, the results revealed “an alarmingly low level of financial literacy among individuals.” Only 50% of those surveyed were able to correctly answer the first two questions and only one-third were able to answer all three.

Perhaps high school mathematics would feel more relevant to students if they learnt how to solve common money scenarios like these. What do you think?

Stuart Fleming

Creator of the Money Mindset Mob.

Enthusiastic believer in independent teens.

Tags: education, financial literacy, Stuart Fleming