Thursday, February 16, 2012

Are you financially literate?

According to recent research, financial literacy declines with age, on average.  The research was published through a working paper by Annamaria Lusardi, an economist at Dartmouth College. 
When asked to perform a simple compound interest calculation, a group of 51-56 year-olds were puzzled.  Less than one in five could arrive at the correct answer.  (question and answer can be found at the bottom)
Other interesting and perhaps surprising findings of the study include:
·         Those 23 to 28 years old are generally more financially literate than other age groups. 
·         Women are more likely to give wrong answers or say they don’t know the answer to financial literacy questions.
·         Germany, the Netherlands, Sweden and Switzerland were generally the highest performing in the financial literacy tests conducted by Annamaria. 
Question used in the study:  “If you have $200 in a savings account and it earns 10 percent interest per year, how much will you have in the account at the end of two years?”
Answer: $242