Author Topic: "Most people have no idea what they're doing with money" -- Holy crap!!!  (Read 12845 times)

Kris

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I just stumbled upon this article, and... Wow.

I guess given all the stories I've read on here, I shouldn't be surprised, but I'm floored.  The article includes a three-question quiz, which is outrageously easy... And yet, only thirty percent of the Americans surveyed got all three questions right.

http://www.theatlantic.com/international/archive/2014/05/the-danger-of-financial-ignorance-do-you-understand-money/361851/?utm_source=SFFB

RetiredAt63

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That isn't even finance, it is basic (and I do mean basic) math.

And yes I got all three, anyone on this forum will get all 3.

Exflyboy

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Dear God!...:(

Hey It's Me

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Yeah, I'm with RetiredAt63. I have a VERY hard time believing a majority of adults got this question wrong, let alone nearly 70% - where are the sources to this study?

JAYSLOL

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Wow that is sad, but not very surprising when you look at how people deal with money decisions.  IMO schools (and parents too) should be teaching kids in their early teens at the latest to able to understand and answer at least the first 2 if not all 3. 

Syonyk

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I have a VERY hard time believing a majority of adults got this question wrong, let alone nearly 70%

Search for "Payday loan" on Google Maps in your area.

clarkevii

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I answered drop $100 on a pauper viewfight for all of them.... Did I win?


justajane

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It doesn't surprise me. All it takes to fail is not knowing what a mutual fund is, and many Americans couldn't tell you the difference between an individual stock and a fund. In many respects, though, the term is self-explanatory, although I don't imagine most of those quizzed took the time to work that out.

wordnerd

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The most dangerous part is the mismatch between knowledge and confidence. If you at least realize that you are lacking in area, you might take steps to address it. If not...you end up buying cars at 27% interest (a relative of mine did this) while thinking you're good with money.

Syonyk

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The most dangerous part is the mismatch between knowledge and confidence. If you at least realize that you are lacking in area, you might take steps to address it. If not...you end up buying cars at 27% interest (a relative of mine did this) while thinking you're good with money.

If you weren't good with your money, nobody would be stupid enough to loan you money for a car!  Duh!

... I cannot believe 27% auto loans are a thing. :(

mohawkbrah

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yay 3/3 i know maths i does i do

FatCat

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I passed.

Most of the people I know would fail this. Many would reply "do not know; refuse to answer" to everything.

I'm not surprised at all that lots of people fail this. I think the only thing people learned in high school was how to gossip.

Fodder

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OMG.  This is so basic.  I am not good at math...i.e., I would not have been able to calculate compound interest in my head to find exact amounts (probably would have had to google a formula)....but this was only asking for understanding of the basic concepts of compounding interest and inflation, not actual math.

Yikes.

Kris

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OMG.  This is so basic.  I am not good at math...i.e., I would not have been able to calculate compound interest in my head to find exact amounts (probably would have had to google a formula)....but this was only asking for understanding of the basic concepts of compounding interest and inflation, not actual math.

Yikes.

I know. I actually laughed out loud at the first question, which doesn't even ask you to calculate!  Only whether it's "more than," "less than" or "the same."  Sheesh.

FrugalShrew

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I don't think the first question even requires an understanding of compound interest -- which makes it even more basic. With simple interest alone, after 5 years of $100 of principal earning interest at a rate of 2% per year, you'd have gained $2/year for a total of $110.

The other scary part is that if you flip that around, that means people also aren't realizing how much they're paying in interest on their loans. Factor in that most loans often are based on compound interest, and people really have no idea about the true cost of their debt.

Admittedly, I was one of these people when I took out my law school loans. It wasn't until I got my first student loan bill and the amount was more than half of my monthly take-home pay at the time that I decided I needed to buckle down & educate myself about personal finances. Thankfully that journey led me to MMM, and I am rapidly climbing my way out of my student debt hole so I can begin growing a 'stache.

Then again, returning to the hypothetical, maybe people were just confused about the concept of a savings account earning interest. I can remember being a kid and having my savings account earning interest, but it has been a long time. (I never ironed my bills like MMM, but I did always deposit my birthday money from my grandparents into my savings account). I still maintain an emergency savings account for now, though it hasn't earned me interest in so long that the concept does seem a bit foreign!

wtrfre

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There is a lot of laughing about this, but I do see it as the sad reality.  I could have been one of those people only getting some correct.  (past tense)
This quiz tests vocabulary, comfort with math word problems, and financial concepts.
Aside from question 1 which was covered in school math courses, the concepts and vocabulary were not topics of education or discussion as I grew up.  No one in my life discussed these topics outside of school and I did not see them in school until college courses.  It is scary how much financial literacy and education is neglected, but from my perspective that is current fact.  Many people don't understand finances.
People should not have to go to college to be introduced to basic financial concepts.  There is such secrecy surrounding money discussions in the culture I live in.

Syonyk

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People who understand money and interest and such are not very profitable to the loan industries.

People who don't think beyond, "Can I afford the monthly payment?" are.

boarder42

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this is the number one thing that should be added to the school's curriculums at all levels.  basic personal finance. 

CheapskateWife

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I have a VERY hard time believing a majority of adults got this question wrong, let alone nearly 70%

Search for "Payday loan" on Google Maps in your area.

I know this was tongue in cheeck but I did it anyway.  Ours is a military community with a population of 35K....we have 11 payday loan stores and an equivalent number of car dealerships.

Avidconsumer

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To be fair. They might just be getting the mutual fund question wrong. I might have got that wrong when I was 5 as well.

MrsPete

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To be argumentative, note that question one is written in second person.  That is, it specifies YOU have money in a savings account, are YOU likely to have more or less ... since most people absolutely STINK at letting their money sit and grow, the people who believe they would have less money in the future might just be right. 


TheGrimSqueaker

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Are they sure they were testing adults, with this? It seems like the kind of test that could be easily trolled.

Sid Hoffman

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this is the number one thing that should be added to the school's curriculums at all levels.  basic personal finance.

Probably every two weeks I see posts like this one:



Often times they are talking about other issues of ultra-basic personal finance and highlighting the fact that your college adviser will help you take out loans for tens or even a hundred thousand dollars to pay for college, but never explain ROI, how much it will cost you to pay back, how likely you are to get hired in a field where you're able to pay it back, etc.

Personal finance is probably one of the only skills that every single citizen of every country really has to use.  You can't escape it; even poor countries have economies and rich countries like the G-20 nations have large, complex economies with lots of ways for citizens to go wrong.  IMHO, they could drop the foreign language requirement (which I literally have never met anyone who ever used their foreign language classes before forgetting everything they learned) and instead require 4 semesters of personal finance.  I think we'd have a far more responsible nation with a lot fewer bankruptcies and people that take until their 30's to get the knowledge they should have had at 16 when they started working.

SU

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I have a VERY hard time believing a majority of adults got this question wrong, let alone nearly 70%

Search for "Payday loan" on Google Maps in your area.

I know this was tongue in cheeck but I did it anyway.  Ours is a military community with a population of 35K....we have 11 payday loan stores and an equivalent number of car dealerships.

I wonder if they deliberately co-locate.

TheLazyMan

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"Another study, from 2009, tested the financial literacy of recent high school graduates who had taken a highly regarded personal finance class. They did no better than graduates who had not taken the class. One of the study’s authors, the economist Lewis Mandell, was a founder of the modern financial literacy movement, but the evidence has prompted him to turn his back on the mainstream financial literacy paradigm. “Financial education doesn’t work when it’s given in advance of when the consumer needs it,” he says flatly."

http://www.psmag.com/business-economics/quest-improve-americas-financial-literacy-failure-sham-72309

Setters-r-Better

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"Another study, from 2009, tested the financial literacy of recent high school graduates who had taken a highly regarded personal finance class. They did no better than graduates who had not taken the class. One of the study’s authors, the economist Lewis Mandell, was a founder of the modern financial literacy movement, but the evidence has prompted him to turn his back on the mainstream financial literacy paradigm. “Financial education doesn’t work when it’s given in advance of when the consumer needs it,” he says flatly."

http://www.psmag.com/business-economics/quest-improve-americas-financial-literacy-failure-sham-72309

I have a hard time believing that SOME financial literacy education isn't better than none at all. I wonder what is included in these "literacy courses". Are they reading "Your Money or Your Life" or "The Millionaire Next Door"...or simply telling people what the stock market is and how it works.
Ironically, I was a finance major in college and finance majors were not allowed to take Personal Finance for credit. I found that humorous.

AH013

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Knowing my fellow Americans...

#1 is a trick question.  The banksters will steal your money over 5 years, so you should have used the $100 to buy gold.

#2 is also a trick question.  Inflation is more than 2%, because the federal reserve criminals just print trillions of dollars so your money will be worthless after a year.

And #3 is also a trick question.  The stock market is rigged by Wall Street criminals, so whether you buy a single stock or a mutual fund, you're going to lose it all anyway.

.....At least that's why I'm thinking 70% of America got 66% or worse.  Probably answered D to one or more of those questions based on the above principles.

Cheryl

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I find it easy to believe that financial classes in high school are extremely ineffective - it's just not immediately relevant to the students.

I just attempted to teach a year long financial class to high schoolers.  I used a mix of textbooks and my own lessons, so the students were getting a mix of detailed information about the stock market and interest, and slightly formalized rants about the dangers of getting a credit card before they were both gainfully employed and 25.

I tried to tell them how to save for retirement - but they can't start until they're out of college and employed, so they forgot.  I tried to tell them how to build a budget - but their current income is allowance and their current expenses are video games, so the practical example was useless.  I tried to tell them how to buy used cars and that it's important to get a low interest rate and pay it off as soon as possible - but their parents bought their cars and they're sure by the time they'll need a new one they'll be able to afford something I can't even pronounce.  I tried to tell them that they're going to be adults and at least some of that is going to include low pay checks and tight budgets and when it does they should not order pizza - they nodded and agreed because abstract future them wasn't even hungry.

I'm sure they won't remember the detailed bits at all.  I doubt any of them remember the difference between compound and simple interest now, and the school year's not even over.  I just hope they will remember about the credit cards and will remember that going on payment plans for big screen TVs will summon me from the void to kick them in the shins.

Hunny156

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I don't recall a whole lot from school, but certain things stick out in my head.  Like the teacher who said that the world will not get rid of it's dependence on oil until there isn't a drop left.  Or the (elderly) teacher who always worked with cash, decided to buy a used car with financing, and discovered that she had no credit at that point in her life.  I also do recall a teacher explaining how mortgage payments work, amortization schedules and such, and showing us how much interest would be paid over the life of the loan, and how it would be 2-3x times the original loan value.  She didn't seem phased by it, but the entire classroom was blown away, and many commented on how stupid it was, lol!  I'm sure many of those kids went on to forget these lessons, but I didn't, and they helped shape my financial literacy.  You are making an impact, to at least a few of those kids!

Guses

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I kinda felt that the third question was too vague. There are several instances where a given fund will be riskier than single stock. Also they did not define what they meant by "safer return". A fund of 4-5 penny stocks is likely not safe than a single blue chip company stock.

Also, if we are being technical, answering D to all questions does not make you wrong ;)


MoneyCat

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They should learn all this stuff from their parents who also don't know it or they should learn it from their teachers who are busy trying to get them to pass government-mandated standardized tests based on useless factoids instead of teaching them actual useful information.

Papa bear

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I kinda felt that the third question was too vague. There are several instances where a given fund will be riskier than single stock. Also they did not define what they meant by "safer return". A fund of 4-5 penny stocks is likely not safe than a single blue chip company stock.

Also, if we are being technical, answering D to all questions does not make you wrong ;)

+1




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TheGrimSqueaker

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I have a VERY hard time believing a majority of adults got this question wrong, let alone nearly 70%

Search for "Payday loan" on Google Maps in your area.

I know this was tongue in cheeck but I did it anyway.  Ours is a military community with a population of 35K....we have 11 payday loan stores and an equivalent number of car dealerships.

I wonder if they deliberately co-locate.

Actually, they do. It's a big problem in New Mexico, because payday loan companies deliberately prey on low-earning military families.

Syonyk

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Yeah... The area around base in Albuquerque had a lot of pawn shops, payday lenders, and used car dealerships.

MrsPete

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I find it easy to believe that financial classes in high school are extremely ineffective - it's just not immediately relevant to the students.

I just attempted to teach a year long financial class to high schoolers.  I used a mix of textbooks and my own lessons, so the students were getting a mix of detailed information about the stock market and interest, and slightly formalized rants about the dangers of getting a credit card before they were both gainfully employed and 25.

I tried to tell them how to save for retirement - but they can't start until they're out of college and employed, so they forgot.  I tried to tell them how to build a budget - but their current income is allowance and their current expenses are video games, so the practical example was useless.  I tried to tell them how to buy used cars and that it's important to get a low interest rate and pay it off as soon as possible - but their parents bought their cars and they're sure by the time they'll need a new one they'll be able to afford something I can't even pronounce.  I tried to tell them that they're going to be adults and at least some of that is going to include low pay checks and tight budgets and when it does they should not order pizza - they nodded and agreed because abstract future them wasn't even hungry.

I'm sure they won't remember the detailed bits at all.  I doubt any of them remember the difference between compound and simple interest now, and the school year's not even over.  I just hope they will remember about the credit cards and will remember that going on payment plans for big screen TVs will summon me from the void to kick them in the shins.
Yup, this exactly.  People are always whining, "Why don't schools teach this stuff?"  Schools DO teach this stuff.  I have specific memories from my own high school years.  I've seen my own children completing homework about credit cards and loans.  I was assigned to supervise a Civics and Economics class' final exam (a state exam), and the discussion questions at the end had to do with wise consumer behavior.  I have picked up worksheets from my classroom floor that have to do with interest rates, etc. 

The real issue is that none of it seems real to kids, so they don't retain it.  Managing money seems so far in the distant future, and they figure it'll all just work out. 

Parents can make it real at home:  Manage the family's grocery budget.  Talk about investments.  Help kids appreciate what they have by requiring them to work for it.  But schools don't have the option to really "make it stick".

Hey It's Me

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There really are no money management/personal finance classes in high school though. The basic economics and finance classes I got (I went to a "specialized" school - one of the top in the country - so I actually got a few of these) talked about the differences between stocks and bonds, and interest rates, etc. They're not geared towards a high school audience.

TheGrimSqueaker

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With schools, it's all a paper exercise. You can calculate compound interest rates until you're blue in the face, but for some kids it's all just markings on a paper or mouth noises from a teacher. Wang Yangming once said: "To know, and to not do, is to not really know." For many, money management principles don't actually hit home until a person wants something but doesn't have the money to buy it. That's a situation most parents, and likewise most schools, don't allow a kid to get into.

theoverlook

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To be honest those questions sort of remind me of Monty Python's Quest for the Holy Grail.

Quote
1.  Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After five years, how much do you think you would have in the account if you left the money to grow? A) more than $102; B) exactly $102; C) less than $102; D) do not know; refuse to answer.

2.  Imagine that the interest rate on your savings account is 1 percent per year and inflation is 2 percent per year. After one year, would you be able to buy A) more than, B) exactly the same as, or C) less than today with the money in this account?; D) do not know; refuse to answer.

3.  Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.” A) true; B) false; C) do not know; refuse to answer.

1. what is your name
2. what is your quest
3. what is the average airspeed velocity of an unladen swallow?

I know the answer to #3 in the original survey and I would hope that most people do but it's a significantly more complex question than 1 and 2.

libertarian4321

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Yeah, I'm with RetiredAt63. I have a VERY hard time believing a majority of adults got this question wrong, let alone nearly 70% - where are the sources to this study?

You grossly underestimate the colossal ignorance of the average American.

Most Americans are barely able to sit up and take nourishment without dribbling on themselves, let alone understand what's going on around them (beyond maybe their kid's soccer games).

They can't identify the Vice President of the USA, they can't name their Senators, they don't understand the concept of Gerrymandering, they think "Libya" is in South America (or possibly a city in Idaho- though they probably can't find Idaho on a map), they still think we got Saddam because he "bombed" the World Trade Center.

And I'm talking about the college educated folks here.  They know nothing.  And the HS graduate and HS drop out types are even more ignorant.

Do you really think they have a clue about what a mutual fund is?

Never underestimate the stupidity and ignorance of the average American, folks...


Travis

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I have a VERY hard time believing a majority of adults got this question wrong, let alone nearly 70%

Search for "Payday loan" on Google Maps in your area.

I know this was tongue in cheeck but I did it anyway.  Ours is a military community with a population of 35K....we have 11 payday loan stores and an equivalent number of car dealerships.

I wonder if they deliberately co-locate.

They hang signs outside that say "we finance any rank (emphasis mine)."  You tell them your rank and they know better than you how much your paycheck is.  You bet your ass they're aware of each other's existence.

NoraLenderbee

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The main factor determining how young people see money is, no surprise, the behavior modeled by their parents. The schools can teach money management from now till Tuesday, but it will not help a lot if the kids see their families living paycheck to paycheck, blowing windfalls, not saving, etc.

Snow White

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It is shocking to me that some professionals that I know are living paycheck to paycheck.  A 58 year old friend shared with a group of us that she was going to sign up for a six month personal exercise "coaching" program and it was only $2,000, paid up front.  The three of us chatting with her were all a bit shocked and told her it was ridiculous, she could participate in group exercise programs at her gym, etc.  she was adamant that is was a good value and she is going to do if her LOAN came through!  LOAN!!!  I said, "you are borrowing money for this program?" and she said, "well of course, no one could just come up $2,000 without a loan". 

She dismissed me saying "you don't count, you are rich" but then she questioned our other two friends who told her they wouldn't have to borrow either.  One told her to just take it out of savings rather than take out a loan and she said she didn't have any savings!  She then told us she didn't need savings...she will have a pension from her job and social security and "who needs more than that?" OMG.  She has a masters degree and really truly isn't a stupid person...except apparently as it relates to personal finances. The kicker?  She is slender and fit.  No coaching necessary.

Syonyk

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As of a 2011 study, 50% of Americans couldn't come up with $2000 on short notice.

http://money.cnn.com/2011/05/24/news/economy/americans_lack_emergency_funds/index.htm?iid=EL

zephyr911

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Posted on FB and offered to help educate anyone who missed any....