Zeus-cat
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My wife recently showed me this article from the Wharton School of Business. Back in 2004 several researchers at the school decided to do a study on what people knew about basic finance and investing. The researchers did the study because pension plans are going away and more of us will be responsible for putting money into 401Ks, IRAs, etc. They wanted to see how many people understood basic financial concepts that were related to investing in these retirement accounts.
The researchers themselves were shocked that so few people could answer these three simple questions (questions listed below with the answers at the bottom of the post). And its not just the U.S., similar results were found throughout Europe. About the only good news was that people in Russia were far worse than the U.S. and Europe.
Overall, 50% of Americans age 50 and older got the first two questions right. Only a third of those people could answer all three questions correctly. These are NOT difficult questions.
Here are the three questions:
Question 1: Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years, how much do you think you would have in the account if you left the money to grow? A) More than $102. B) Exactly $102. C) Less than $102. D) Do not know/Refuse to answer.
Question 2: Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, how much would you be able to buy with the money in this account? A) More than today. B) Exactly the same. C) Less than today. D) Do not know/Refuse to answer
Question 3: Please tell me whether this statement is true or false: Buying a single companys stock usually provides a safer return than a stock mutual fund.
I am shocked that only a third of the people polled could answer these three questions correctly. This is pretty simple stuff and if you dont understand this how can you make financial decisions regarding your retirement, or just about anything for that matter. Im probably being overly dramatic here, but what is the future for capitalism if people dont understand this stuff?
Heres a link to the article: https://knowledge.wharton.upenn.edu/article/three-questions-major-implications-financial-well/
The article also has a link to the research paper which is about 30 pages long or you can find it here: https://www.nber.org/papers/w17078 Its entitled Financial Literacy and Economic Outcomes: Evidence and Policy Implications it has a bunch of statistics.
Here are the answers, I help you did better than the average American:
Answer to question 1: A) more than $102
Answer to question 2: C) less than today
Answer to question 3: False
The researchers themselves were shocked that so few people could answer these three simple questions (questions listed below with the answers at the bottom of the post). And its not just the U.S., similar results were found throughout Europe. About the only good news was that people in Russia were far worse than the U.S. and Europe.
Overall, 50% of Americans age 50 and older got the first two questions right. Only a third of those people could answer all three questions correctly. These are NOT difficult questions.
Here are the three questions:
Question 1: Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years, how much do you think you would have in the account if you left the money to grow? A) More than $102. B) Exactly $102. C) Less than $102. D) Do not know/Refuse to answer.
Question 2: Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, how much would you be able to buy with the money in this account? A) More than today. B) Exactly the same. C) Less than today. D) Do not know/Refuse to answer
Question 3: Please tell me whether this statement is true or false: Buying a single companys stock usually provides a safer return than a stock mutual fund.
I am shocked that only a third of the people polled could answer these three questions correctly. This is pretty simple stuff and if you dont understand this how can you make financial decisions regarding your retirement, or just about anything for that matter. Im probably being overly dramatic here, but what is the future for capitalism if people dont understand this stuff?
Heres a link to the article: https://knowledge.wharton.upenn.edu/article/three-questions-major-implications-financial-well/
The article also has a link to the research paper which is about 30 pages long or you can find it here: https://www.nber.org/papers/w17078 Its entitled Financial Literacy and Economic Outcomes: Evidence and Policy Implications it has a bunch of statistics.
Here are the answers, I help you did better than the average American:
Answer to question 1: A) more than $102
Answer to question 2: C) less than today
Answer to question 3: False