Can you pass this basic financial literacy test?
The Dollars & Sense Podcast - Episode Two Newsletter
Two-thirds of people worldwide failed the test.
Given one of our primary goals of the podcast is to increase financial literacy in New Zealand, we wanted to take a look how the country did.
The five-question test that Tim discussed in episode two was created by Standard & Poor’s, Gallup, the World Bank, and George Washington University. It was administered to 150,000 people in over 140 countries.
The test covers four fundamental concepts: risk, inflation, interest, and compounding interest. You are considered financially literate if you can answer at least three questions correctly.
So, are you ready to find out if you’re financially literate? Here is the test.
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?
A) one business or investment
B) multiple businesses or investments
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
3. Suppose you need to borrow 100 US dollars. Which is the lower amount to pay back: 105 US dollars or 100 US dollars plus three percent?
A) 105 US dollars
B) 100 US dollars plus three percent
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?
5. Suppose you had 100 US 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?
A) More than 150 US dollars
B) Exactly 150 US dollars
C) Less than 150 US dollars
How did you do? Here are the answers.
1. B) Multiple businesses or investments
2. B) The Same
3. B) 100 US dollars plus three percent
4. A) More
5. A) More than 150 US Dollars.
An interesting find in the study was that that young people, ages 15 to 35, were the most financially literate in developing economies like Brazil, Russia, India, and China. However, in the developed world, the most financial literate group was adults between ages 36 and 50.
How did New Zealand do? 61% of New Zealanders passed the test. Our neighbours in Australia? 64%.
Room for improvement? We think so!