Would You Pass the Global Financial Literacy Test?
A bit of financial advice: When you go out to dinner with a Norwegian, a Swede or a Dane, let them calculate the tip. While you're at it, get them to look over the rest of your bills.
More than 70 percent of those cold-weather creatures understand basic financial concepts, according to Standard & Poor's Rating Services' Global Financial Literacy Survey, released today. The survey used four questions to test basic numeracy and understanding of interest compounding, inflation, and risk diversification. 1 The survey added questions on to the Gallup World Poll survey. "More than 150,000 nationally representative and randomly selected adults in more than 140 economies were interviewed during the 2014 calendar year," according to the report.
Take the quiz as you go through the story. The answers are in the footnotes. Three out of four right (Questions 4 and 5 count as one) means you're financially literate. No pressure.
Other highlights of the survey:
- The U.S. lags behind other major English-speaking economies in its percentage of financially literate citizens. Citizens of Canada and the United Kingdom beat the U.S. by a wide margin.
Question 1: Suppose you need to borrow 100 U.S. dollars. Which is the lower amount to pay back: 105 U.S. dollars or 100 U.S. dollars plus three percent? 2 Answer: 100 U.S. dollars plus three percent.
- In major emerging economies, it’s the 15- to 35-year-old demographic that shows the highest percentage of financial literacy. In major advanced economies, that distinction goes to the 36- to 50-year-old crowd.
Question 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? 3 Answer: the same.
- People just don't get risk diversification. Only 35 percent of respondents around the world got the right answer to Question 3 below.
Question 3: 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? 4 Answer: multiple businesses or investments.
- Many homeowners can't calculate the basic interest owed on their loan payments. About a third of adults in the U.S. have an outstanding housing loan; three in 10 don't understand how their debt accumulates. 5 If U.S. homeowners want to feel better about that, they can look to Japan, where the survey shows that "nearly a fifth of adults have an outstanding housing loan, but only half of them are financially literate, and just 37 percent of them correctly answered the compound interest question."
Question 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? 6 Answer: more.
Question 5: Suppose you had 100 U.S. 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? 7 Answer: more than 150 dollars [the other choices being exactly 150 dollars, less than 150 dollars, and don’t know].