How Bad Is Financial Illiteracy In The U.S.A?
How bad is financial illiteracy in the US? How about the world?
Bloomberg ran this piece discussing a three question financial literacy test which was given as part of the Aegon Retirement Readiness Survey to 16,000 people in 15 countries. Here it is.
The test definitely goes back a number of years and was developed by two business school professors. But this is 2018 and there’s more knowledge than ever out there so people should be doing better, right? So how did people do?
The article goes into it and doesn’t give all of the results, but what they do give isn’t good. On question #2 over 20% of respondents got it wrong and didn’t grasp the basic concept of inflation.
To be honest, I’m surprised it wasn’t higher. Not the inflation, but the number of people who got it wrong. I’m actually kind of pleasantly surprised 🙂
On the third question, 16% got it wrong and another 38% responded “don’t know”, for an astounding 54% who basically got it wrong.
Maybe that’s why so many people feel perfectly okay tying up all of their money in their company stock. “Meh, no big deal…”
Let’s Get Weird
Now for the fun stuff. According to the survey 20% of Chinese respondents think they’ll spend their retirement in the company of a robot.
Ok, I do think robotic technology is moving fast enough to make that theoretically possible. But what they’re saying at the same time is they feel that they’ll want to spend their retirement with a robot, since they could of course always choose not to be with the robot.
That’s where things go off the rails here for me…. sheeesh. I prefer humanoids.
Retirement
And then there are the concerns about retirement. I do like that respondents listed “declining physical health” as #1, even ahead of running out of money.
What good is money if you’re too unhealthy to enjoy it?
Of course declining health is inevitable for all of us, but it can be slowed through good habits and discipline. However, in America at least, if that many people are really concerned about their health, they sure have a weird way of showing it.
Number two on the list is running out of money. Here’s where we in the personal finance community can help.
Do most people know about the 4% rule? Would they trust it if they learned about it?
Do they understand sequence of returns risk? Most importantly do they understand that not running out of money in retirement really comes down to what you spend, not so much how much money you have?
I think education is still lagging here and since finance isn’t taught in schools the personal finance community and blogosphere is a huge resource that can help.
Megatrends
Another interesting chart in the article is the “megatrends impacting people’s plans for retirement” chart. What kind of saddened me year is that the number one answer is “reductions in government retirement benefits”.
While it may be true on the surface – for sure in the United States Social Security and Medicare benefits are virtually guaranteed to go down in the future – I’m saddened because I feel people should be striving to position themselves to not rely on government benefits so much.
Yes, I realize for poor people and lower income people that’s just not a viable reality. And the survey in the article didn’t say anything about the economic status of the participants who took it.
But am I wrong for wanting a world where people can succeed on their own, and be financially situated for retirement without the need for government benefits, which ultimately just come from other people?
I realize I may be in the minority in that thinking, and that any position on that topic opens up doors to political argument that I have zero interest in debating, especially on a blog. But I can have a wish.
Your turn financial warriors – did you get a 100% on the quiz? Are you surprised by the results? Do you want to spend your retirement with a robot?
Interesting, but unfortunately not surprising conclusions (except the robot thing). You should check out the Forbes article “”It’s Simply Not True that Most Americans Don’t Have $1000 in Emergency Savings” where the author argues that credit and savings are “…the same thing” and that people “…don’t need savings because they have access to credit”. It reads like a TurnipFire! article! So are we illiterate or mislead?
I went and read that article. That guy is clueless( I wanted to use something more cra$$, but respect AF’s site). So now what am I going to do once that “credit” comes due, finance it with more credit infinitely, with NO interest. That he says “credit and savings are economically the same” show his illiteracy of what savings really is. Me, I’ll just wait for the day that a retirement credit card becomes available so I can use that instead of my savings.
I’ve been traveling and haven’t had chance to read that article but sounds like a doozy. Getting the popcorn!
You need to focus on your financial health so that you can retire early to enjoy your physical health, it’s just that simple. As for my government pension and social security we all get in Canada at 65, I will be getting a substantial amount but haven’t factored any of that into my Fire calculations. It will all be a bonus and a great safety buffer instead.
Smart move to do your calculations without the gov. money. I do too!
Safety buffer and margin for error is a nice thing to have
Life expectancy increased didn’t trump retirement benefit cuts? Oh boy are so many people screwed. I think everyone’s banking on robots in secret… Oh and yes I prefer humanoids too. Robot sounds so…grandpa-y.
I do want a robot that can cook though 🙂
Spot on that if you don’t take care of your health now you won’t be able to enjoy the money you saved later. Sadly like finance, only a few people get the long term impacts of a good financial and healthy lifestyle.
We really need as a country to start requiring finance be taught in high school. There are some schools that offer it but right now it is not prevalent. We need to set up future generations for success so the need to rely on (reducing) government benefits is lessened.
I agree 100% about teaching finance in school’s. Guess it just makes too much sense
the boomers ate my lunch. benefits are supposed to decline in the future but the payouts still go up every year instead of staying flat or decreasing for a glide path. i’m still paying the damned 6.2% out of every check. that’s all i want back. sore subject i guess.
that sucks freddy. at least you know more about burritos than they do 🙂
I guess the quiz doesn’ t surprise. Sad though. I guess my future is set with robotic companions anyway.
Please teach them to be good doctors….
Is the robot something like Rosie from the jetsons where she’ll clean my house?
Honestly I’m not surprised even if I do find it a tad sad.
I admit I’ll take a Rosie for sure!
It’s going to be quite a change in 40 years. I probably don’t mind robots. I’m not that sociable. 🙂
If I had to choose, I’d go with a nice retirement home in Mexico or somewhere the dollar stretch further. That’s probably better than robots, but who knows. Not a fun topic to think about.
Ha, start designing your robot now – you know how to make memory chips!
Yeah that’s what they call inflation the invisible tax. You can devalue the dollar tax people through inflation and no one knows the difference, and no uproar. I just did a post on compound interest that people don’t understand either.
It is the invisible tax indeed
In all honesty, if I didn’t pick up an investing/money book years back, I probably wouldn’t have understood inflation either…Like you said, none of this is taught in the American school system (at least not required), so unless people go out on their own to learn it, it will forever be an unknown/confusing topic. It’s always sad to see some of these results because the basic financial knowledge is easy to learn, yet people never really learn about it until some negative financial event forces them to do so.
For me it was Money magazine. Yep, our schools need to step up!
Great article on many points but two stuck out to me:
1. Physical health is MORE important than your financial health. What good is money if you aren’t healthy enough to enjoy a retirement or using your money bless others. Lets get to the gym folks or develop your own workout routine!
2. I absolutely agree that a world where citizens can be independent of the government would be such a better place. Not that there is anything wrong with the government, but it is so tough to depend so much on an organization that changes with the whims of society so frequently. If something is there, then it will be the cherry on top for me but I’m not baking into a long term plan of mine.
“the cherry on top”… that’s how I feel too! Great comment Coop!
Look – no surprises here. The fact that large portions of the country aren’t familiar with basic economic concepts is due to the fact that education is taught at the local and state level. Some states are much better than others at teaching these basic concepts.
Well said!