Being financially literate means understanding the basic concepts of Personal Finance in order to have the knowledge and confidence to make responsible financial decisions. It encompasses both more mathematical financial knowledge (such as how to perform calculations) and the ability to apply it in the real world. It seems easy, but how are we doing in this regard?
Unfortunately, there are not many studies on this subject. But the American company “McGraw Hill Financial Inc.”, which operates in the financial services sector, supported a worldwide study on Financial Literacy.
The survey basically asked 4 questions that assessed the level of knowledge in 4 areas of Financial Education. Here are the questions:
1. Risk Diversification:
Suppose you have some extra money. Is it safer to put your money in one business or investment, or to put your money in several businesses or investments?
2. Inflation:
Suppose that over the next 10 years, the prices of the things you buy will double. If your income also doubles: will you be able to buy less than you can buy today, the same as you can buy today, or more than you can buy today?
3. Simple Interest:
Suppose you need to borrow $ 100. What is the smallest amount to be paid back: $ 105 or $100 plus three percent?
4. Compound Interest:
Suppose you had $100 in a savings account and the bank added 10% per year to the account. How much money would you have in the account after five years if you did not withdraw any money from the account? More than $150 or exactly $150?
Well, it is not an extremely detailed and in-depth survey, but at least it is possible to assess some of people’s basic knowledge. On the other hand, approximately 146 countries were evaluated, which is a very broad scope. The result assessed the number of correct answers in each country.
Brazil had a result very close to Mexico’s: we had a percentage of 35% correct answers, compared to Mexico’s 32%. Well, there is still much to improve in our country.
And you, how is your Financial Literacy? Here are the answers to the questions:
1. Several businesses or investments.
2. The same.
3. $100 plus three percent.
4. More than $150.
