In 2008, professors at George Washington University and the University of Pennsylvania designed three questions in a study called The Economic Importance of Financial Literacy: Theory and Evidence with which to examine the financial literacy of consumers around the globe.
Let’s just say the results weren’t all that encouraging.
The study concluded that the cost of improving financial illiteracy is far less than the cost of the effects and consequences of financial illiteracy.
The authors made several suggestions aimed at improving one’s financial literacy, including:
- Create a financial plan
- Measure your financial education frequently.
- Confront and analyze the potential downside of every financial decision you make.
Grow your mind, grow your money – it’s that simple.
Ready to test your skills? See if you can answer the questions below and prove your financial literacy. If you can answer all three questions correctly, consider yourself more financially-versed than most.
- Suppose you had $100 in a savings account and the interest rate was 2 percent 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) Do not know
- Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent a year. After one year, would you be able to buy:
a) More than today with the money in this account
b) Exactly the same as today with the money in this account
c) Less than today with the money in this account
d) Do not know
- Do you think that the following statement is true or false?
“Buying a single company stock usually provides a safer return than a stock mutual fund.”
c) Do not know
The results are in
The correct answer to the first question: a) More than $102.
The correct answer to the second question: c) Less than today with the money in this account.
And finally, the correct answer to the last question: b) False.