Posted on 11/19/2015 8:18:34 AM PST by SeekAndFind
A major survey on financial literacy has just been published, and the results are terrible.
McGraw Hill Financial (which owns S&P), the World Bank, and Gallup have produced the S&P Global Financial Literacy Survey, which attempted to get an idea of how financially literate the world is by polling 150,000 adults in more than 140 countries.
The group defined financial literacy as the ability to answer three of four really simple questions about inflation, risk, and interest. Take a look.
One of the easiest questions on the test is about interest. There is no compounding involved, and the numbers themselves aren't at all complicated. Here it is:
"Suppose you need to borrow 100 (country currency). Which is the lower amount to pay back: 105 (country currency) or 100 (country currency) plus 3%?"
It's a bit terrifying that only 49% of the people polled around the world could answer that
(Excerpt) Read more at businessinsider.com ...
where is the test
Why does the inflation rate matter? Both loans would be for the same thing. Deduction, too, would apply to both, wouldn’t it. If your interest is deductible it is deductible whether you are charged a flat amount or a percentage, so long as it is still interest and not categorized as something else. The 105 payback was just another way of saying 5%.
Clearly the point of the question was a third grade calculation test. I do think the term and terms of the loan matter, but when absent you always take it at face value without complications.
Yeah, it is a micro-aggression.
Unless you're a bushman who has spent his entire life in the wilderness exposed to nothing but stone age technology, if you can't answer this one you really are too stupid to live.
I'm also surprised by how poorly countries like Japan did, I would have thought they would have done at least as well as western Europe and the US/Canada.
“The country results ranged hugely. Just 16% of respondents in Yemen answered the question correctly...”
Maybe because it’s against their religion for Muslims to loan or borrow money at interest? They probably never bother to figure out how it works.
Doesn’t it depend on the length of the loan and how the interest rate is compounded? A ten year loan with a daily compounded interest rate of 3% will give you a different answer. The length of the loan being more a factor than the compound rate.
You’re overthinking the question by assuming that it wasn’t meant to be completely trivial. It wasn’t asking about compound interest, just whether 3% of a hundred is more or less than 5.
The question on inflation may have two correct answers depending upon tax structures - a country with a progressive income tax which remained constant would clearly lower purchasing power.
No trick. The point is people are so stupid as to not even know something so fundamental.
It was simply 105 or 100 +3%. No annual percentage just a simple +3%.
I had a high school friend of mine (when we well into our 50s) call me up onetime for help with his mortgage. I was a mortgage banker at the time and he figured I could help. His problem was that he and his wife had a big fight (over money or the lack of it because of their high spending habits), separated and now had decided to get a divorce. His wife paid the bills and stopped paying the house loan with they separated and now the mortgage lender was on his doorstep foreclosing. He could not understand that when his wife stopped paying the monthly payments on the mortgage, that put the loan into default. He had lost his job and she got a lower paying one but they didn't have any savings from which to bring the loan current. In situations like this, the lender requires the loan be brought current and won't allow partial or smaller payments to try and catch up. The longer I talked to him explaining the basics of the financial world he was in, the more I realized he didn't have a clue about financial affairs and had skated through life not knowing what he was doing with his money. He was basically, a financial illiterate. He eventually lost the house but never understood the process.
How adults can go their whole life without learning the basics about how things work, is beyond me.
If you add the inflation factor into the equation, it simply complicates the question. if they can’t correctly answer a question that does not take that into account, how can they answer a question that includes inflation?
RE: The lower amount is plus 3%, which is 103. Is there a trick to this that I am missing?
You belong to the 49%.
Even if you don't know the answer, how do you get to 16%? Random guessing would lead you to the global average of 49%. The only way to get 16% is if your population is financially illiterate AND really unlucky.
I believe the disparity is because they are muslim countries, and Islam despises loaning at interest. Therefore, they answered the question from bias instead of purely mathematical deduction.
RE: where is the test
Sigh, some people just don’t bother to read the article.
Here it is:
Suppose you need to borrow 100 (country currency). Which is the lower amount to pay back: 105 (country currency) or 100 (country currency) plus 3%?
Look at the map!
This is a trick WHITE PRIVILEGE racist question!
Copied from the surveys findings report, *’s around the correct answers.
THE SURVEY ASKED FIVE QUESTIONSON FOUR TOPICS (bold denotes correct answer)Standard & Poorâs Ratings Services and McGraw Hill Financialare committed to creating stronger financial markets aroundthe world. We believe there are correlations between financialliteracy, financial access and the strength of markets. Address-ing financial literacy is a key strategy in building stronger, moreaccessible and sustainable markets around the world.
RISK DIVERSIFICATION
Suppose you have some money. Is it safer to put your moneyinto one business or investment, or to put your moneyinto multiple businesses or investments? [one business orinvestment; *multiple businesses or investments*; donâtknow; refused to answer]
INFLATION
Suppose over the next 10 years the prices of the things youbuy double. If your income ALSO doubles, will you be ableto buy less than you can buy today, the same as you can buytoday, OR more than you can buy today? [less; *the same*;more; donât know; refused to answer]
INTEREST
Suppose you need to borrow $100. Which is the lower amount to pay back: $105 or $100 plus three percent? [105US dollars; *100 US dollars plus three percent*; donât know; refused to answer]
COMPOUND INTEREST
Suppose you put money in the bank for two years and the bankagrees to add 15 percent per year to your account. Will thebank add MORE money to your account the second year thanit did the first year, or will it add the same amount of money both years? [*more*; the same; donât know; refused to answer]
COMPOUND INTEREST
Suppose you had $100 in a savings account and the bankadds 10 percent per year to the account. How much moneywould you have in the account after five years if you didnot remove any money from the account? [*more than 150dollars*; exactly 150 dollars; less than 150 dollars; donâtknow; refused to answer]â
Scored 5 correct, 0 incorrect, 0 don’t know.
Take the quiz at link below:
https://www.mhfi.com/corporate-responsibility/global-financial-literacy-survey
Select the red tab — Take Our Short Quiz — in upper right corner.
Bonds are generally sold at nominal maturity values of $1000. If you pay $900 for it, it is a lower yield bond than one you pay $200 for, also lower risk. Risk and yield are directly related.
Quiz location — red tab in upper right corner:
https://www.mhfi.com/corporate-responsibility/global-financial-literacy-survey
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