Sunday, October 6, 2013

Financial Illiteracy in America!

From Today's New York Times:
Even if we grade on a very generous curve, many Americans flunk when it comes to financial literacy.   Consider this three-item quiz:
  • Suppose you had $100 in a savings account and the interest rate was 2 percent a year.   After five years, how much do you think you would have if you left the money to grow?   More than $102, exactly $102 or less than $102?
  • Imagine that the interest rate on your savings account was 1 percent a year and that inflation was 2 percent.   After one year, would you be able to buy more than, the same as or less than you could today with the money?
  • Do you think this statement is true or false: “Buying a single company stock usually provides a safer return than a stock mutual fund”?
Anyone with even a basic understanding of compound interest, inflation and diversification should know that the answers to these questions are “more than,” “less than” and “false.”   Yet in a survey of Americans over age 50 conducted by the economists Annamaria Lusardi of George Washington University and Olivia S. Mitchell of the Wharton School of the University of Pennsylvania, only a third could answer all three questions correctly.

More of this must read article is here at the N.Y Times!

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