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?