Check out these personal finance questions, courtesy of the National Institute on Aging's Health and Retirement Study:
- Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After five years, how much do you think you would have in the account if you left the money to grow? More than $102, exactly $102 or less than $102?
- Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After one year, how much could you buy with the money in this account? More than today, the same, or less than today?
- True or false: Buying a single company stock usually provides a safer return than a stock mutual fund.
That's not the toughest test in the world, but only 34 percent — 34 percent! — of Americans surveyed correctly answered all three questions.
Here's the problem:
“If two-thirds of Americans were to fail a basic reading test, most people would call it a national crisis,” writes David Nicklaus in the St. Louis Post-Dispatch. “We should hear a similar hue and cry about financial illiteracy, but we don't.”
Why not?
If we expect people to accept responsibility for their own fiscal health, aren't we obligated to give them the tools they need to succeed? Don't we owe it to ourselves — and our economy — to teach them how to answer the questions above?
When people are illiterate, we teach them and make them literate — and we all benefit from that literacy.
Personal finance is no exception.
“At a time when budgets are tight, some administrators may complain that they can't afford to invest in financial literacy programs,” Nicklaus writes. “As a society, however, we can't afford not to.”
Amen.
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