Only 1 In 3 Adults Worldwide Is Financially Literate. How Do You Compare?Submitted by Washington Wealth Advisors | Falls Church and Ashburn, VA on April 24th, 2017
By Maura C. Schauss, CFP
April is Financial Literacy Month, so we are going to take a look at the state of financial literacy in our nation and around the globe. In 2014, McGraw Hill Financial teamed up with Gallup, Inc., the World Bank Development Research Group, and GFLEC to interview over 150,000 adults in over 140 countries. The findings of their S&P Global FinLit Survey were sobering.
The survey covered four basic financial concepts: risk diversification, numeracy, inflation, and interest compounding. Those surveyed had to respond correctly to three out of the four topics to be considered financially literate. How did we do?
Financial Literacy Statistics
Here are some of the survey’s findings: (1)
In the US, 57% of adults are financially literate
Worldwide, only 33% of adults are financially literate
The US ranks about the same as Belgium, Switzerland, New Zealand and Singapore.
Americans with less education and lower incomes have lower financial literacy levels than their counterparts in other wealthy nations.
College educated adults in the US rank 28 percentage points higher in financial literacy than those with only a high school education.
Interest is the least understood concept in the US, and of adults who own a credit card, 43% answered it incorrectly.
Only 58% of adults who save at a financial institution answered the interest topic correctly.
There is a 10 percentage point financial literacy gap between men and women in the US, which is twice as large as the global gender gap.
Of the 62% of US women who have a credit card, only half of them answered the interest topic correctly.
The financial literacy gap based on income is 17 percentage points in the US, compared to 9 percentage points globally.
Almost 10% of US adults have borrowed money to pay for school fees in the last year, but only half of them correctly answered the interest topic.
In the US, about a third of adults finance their houses, but only 62% of them answered the interest topic correctly.
Why Does Financial Literacy Matter?
It’s clear that we have a financial illiteracy problem here in the US and worldwide. But what’s the big deal? Does financial literacy really matter that much?
Consider these statistics:
Though we are the wealthiest nation, the US ranks 14th in financial literacy worldwide. (2)
Finances are the #1 cause of stress in America, with 72% of adults saying that they feel stressed about money some of the time. (3)
Money is the #1 cause of arguments between spouses. (4)
Too much conflict or arguing is the second most commonly named “major” reason for divorce. (5)
When you consider how stress affects health- causing headaches, upset stomach, elevated blood pressure, chest pain, problems sleeping (6) and increasing the likelihood of engaging in unhealthy behaviors like alcohol, tobacco or overeating- it is even more alarming.
Why is financial literacy important? Because it affects our relationships, our health, every area of our lives.
How Financially Literate Are You?
By now you’re probably curious about how you would do on the survey. How do you compare? Do you know as much as you think you do? Answer the following questions to find out:
1. Suppose you have some money. Is it safer to put your money into one business or investment, or to put your money into multiple businesses or investments?
C- Don’t Know
2. Suppose over the next 10 years the prices of the things you buy double. If your income ALSO doubles, will you be able to buy less than you can buy today, the same as you can buy today, OR more than you can buy today?
B- The Same
D- Don’t Know
3. Suppose you need to borrow 100 dollars. Which is the lower amount to pay back: 105 dollars or 100 dollars plus three percent?
B- 100 + 3%
C- Don’t Know
4. Suppose you put money in the bank for two years and the bank agrees to add 15 percent per year to your account. Will the bank add MORE money to your account the second year than it did the first year, or will it add the SAME amount of money both years?
B- The Same
C- Don’t Know
5. Suppose you had 100 dollars in a savings account and the bank adds 10 percent per year to the account. How much money would you have in the account after five years if you did not remove any money from the account: more than 150 dollars, exactly 150 dollars, or less than 150 dollars?
A- More Than 150
B- Exactly 150
C- Less Than 150
D- Don’t Know
1. B- Multiple
This question is about risk diversification, and 69% of US adults answered correctly.
2. B- The Same
This question is about inflation, and 63% of US adults answered correctly.
3. B- 100 + 3%
This question is about interest, and 52% of US adults answered this question correctly.
4. A- More
5. A- More Than 150
The last two questions are about compound interest, and 61% of US adults answered this section correctly.
How We Can Help
So, how did you do? Are you already jumping on Google to brush up on some areas? With the internet, it is easy to find financial information to fill in the gaps in your knowledge. That only works, though, if you have a good foundation of financial literacy to work from.
If you need more help, you can reach out to a professional. Here at Washington Wealth Advisors, we like to make sure that our clients have a solid understanding of their finances, investments and financial products before they invest or purchase them.
You may be confident in your financial knowledge, but how about your kids? I’m sure you don’t want their health and relationships suffering because of financial illiteracy. But what are you doing to prevent that?
If you want to raise financially savvy kids, we can help with that, too. From our ‘Moon Jar’ program to our ‘Allowance Seminars’ for parents to ‘Stock Market Workshops’ and our ’10 Financial Tips For College Bound Students’ lunch, we have something for every age of financial development. This summer we are excited to host Spark Business Academy and their ‘Future Millionaire Bootcamp.’ It is a summer camp designed for elementary students that will take place July 17 – 21 from 9am-3:30 pm each day at Washington Wealth Advisor’s Falls Church Office and July 24 – 28 from 9 AM to 3:30 PM at our One Loudoun office. For more information, please go to our event page. You can also call our office at 703.584.2700 or email firstname.lastname@example.org. Give your kids the tools necessary to have a happy, healthy, and successful future.
About Washington Wealth Advisors
Washington Wealth Advisors is an independent registered investment advisory firm serving high net worth families and small businesses. We focus on holistic financial planning and comprehensive investment management. Leveraging our core strengths of unbiased, active investment management together with a detailed annual financial planning capability, we serve your comprehensive investment and financial planning needs.