When you can’t define the problem or opportunity, the rest of the outcomes become random. For the purpose of discussion let’s say financial literacy answers questions:
TIAA Institute and GFLEC at George Washington University have published the outcome of their financial literacy tests for 2018. You can find their press release here.
As you could easily believe, the results are not encouraging.
From the Press release:
The P-Fin Index is unique in its capacity to robustly measure an individual’s overall personal finance knowledge. The survey-based assessment tool asks 28 questions, covering eight areas of functional knowledge:
Earning – determinants of wages and take-home pay
Consuming – budgets and managing spending
Saving – factors that maximize accumulations
Investing – investment types; risk and return
Borrowing/managing debt – relationship between loan features and repayments
Insuring – types of coverage and how insurance works
Comprehending risk – understanding uncertain financial outcomes
Go-to information sources – recognizing appropriate sources and advice
Averages don’t tell everything, but the results are clear enough that one can draw conclusions:
Given Google, I would have thought going to information sources would have scored much higher.
There may be huge problems with the survey methodology, but even if there is, I doubt the outcome is very wrong.
I could not find the test itself, but if found three of the questions here. The questions don’t seem especially difficult.
One of them:
“Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 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) Don’t know
E) Refuse to answer
Start early. Small errors early compound to big problems later.
How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually and then suddenly.”
Ernest Hemingway, The Sun Also Rises
All learning begins with humility. There are things people don’t know about managing their finances. If they don’t learn they will continue to receive the same old outcomes. It is not music theory. It is mostly just common sense. But you must start.
The trick will be finding the material.
A great deal of it has to do with the way we think. The way we assess the future. Our time competence. Our curiousity and ability to question what we do.
Learn some basic skills, like the rule of 72. Learn how to read a loan amortization table. Learn about investing and investments. All good.
Learn some material from Daniel Kahneman. We all have thinking errors that recur. Try to avoid the common ones.
Then manage your lifestyle spending so you have some money to do something with. Nothing happens until you save some money. Or pay of debt.
Tip: Pay off the debt with the highest interest rate first. Like I said, it is not music theory.
I help business owners and others to use tax efficiencies and design advantages to achieve more efficient income and larger, more liquid estates.
In previous careers, I have been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 705-927-4770
Hi Ron, I thought of you when I read this. I had to Google 2018 Financial Literacy Test to get the press release as the link didn’t work. Also I was talking to Don Smith who took PhysEd with you and taught at Bowman while our kids were there. He said to say hi. Winter still has its clutches in us with snow two days ago, but the sun still melts snow even if the temperature is below 0. Jim’s getting over the head cold that I had for 2 weeks. He”s got his last curling this weekend. We have’t seen the grand kids for quite awhile due to our successive colds. Badminton tomorrow morning, Living Green Expo with Leigh in the afternoon and tennis at 4:00. I should sleep well tomorrow night. (not usually a problem.) Rob’s in the throes of tax season, so 16/7 or something like that. If we can take the kids for a couple of hours on Sunday, He and Amanda can get a bit of time together. So, all in all, we’re dong well and can’t wait until some spring shows up. Love, Holly Ann.
Thanks for the note on the link failing. It is repaired now. As to the rest of the comment, I think you have me confused with someone else. Best Don