Wednesday, May 21, 2014

Income churn and financial basics

Pretty interesting. From Most People in the World Have No Idea How to Manage Their Money by Moises Naim.

Reports on the researcher's investigation of the financial literacy of the public around the world. The researchers administer three questions dealing with interest, inflation, and risk. Pretty straightforward. They provide the test in the article and ask the reader to score themselves.
How did you do? Did you respond correctly to all three questions? If you did, then you belong to a surprisingly small global minority.

In Russia, 96 percent of those surveyed could not answer the three questions correctly. While that might be expected of a post-communist nation, the mecca of capitalism didn’t exactly yield glowing results—only 30 percent of Americans aced the quiz. The best-performing respondents were the Germans (53 percent got a perfect score) and the Swiss (50 percent), but this still leaves almost half of each country’s population without a basic understanding of financial matters. In countries with relatively strong economies, the numbers are sobering: 79 percent of Swedes, 75 percent of Italians, 73 percent of Japanese, and 69 percent of French could not respond correctly to all three questions.
All the usual caveats regarding unreplicated research.

However, were this to be borne out, it would appear to tie in with the information I posted about a couple of weeks ago: 12% of Americans will experience at least one year in their life when their annual income puts them in the top 1% of income earners and an incredible 73% will have at least one year when they are in the top quintile of income earners.

If 70% don't have a basic comprehension of interest, inflation and risk, then it contributes to an understanding of why there is so much income churn.

No comments:

Post a Comment