The dismal state of financial education in our country

[Exterous]

I have found it incredibly depressing how little people know about financial management. I have always found it astonishing that we do nothing to help our children gain the skills and understanding needed to manage their finances.

The SEC just released their study on just how bad things are:
http://www.sec.gov/news/studies/2012/917-financial-literacy-study-part1.pdf

This goes along with another SEC article at the end of 2011
http://www.sec.gov/news/studies/2012/917-financial-literacy-study-part2.pdf

For example, studies have found that investors do not understand the most elementary financial concepts, such as compound interest and inflation. Studies have also found that many investors do not understand other key financial concepts, such as diversification or the differences between stocks and bonds, and are not fully aware of investment costs and their impact on investment returns. Moreover, based on studies cited in the Library of Congress Report, investors lack critical knowledge about investment fraud.

51% of participants in a recent online study understood how and when a financial intermediary receives compensation for sales of investment products in a hypothetical example.

75% of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts

(That would only offer about $1200 a year for 30 years. Raising that to $1800 would give you a 50% chance of running out of money before you die. If you took $3,000 a year starting at 65 you'd be 85% likely to run out of money before you die.) These are insanely low retirement incomes! yet its what some 75% of Americans will get!

(Out of curiosity - how many people know what the safe withdrawal rate is?)

low levels of financial literacy have serious implications for the ability of broad segments of the population to retire comfortably, particularly in an age dominated by defined-contribution retirement plans.

Across the board Bonds are a complete mystery to the vast majority of Americans

-Only 40% of Americans that identified themselves as 'investors' (Not professional investors) could correctly answer 'Would you rather have one million dollars now or one penny that would double in value every day for a month'

-64% of Americans understand how inflation affects prices but only 35% actually know about what the rate is and 28% know how to protect against it

-Jump$art found that financial literacy scores for High School and College students are at an all time low from when the Jumpstart tests started being offered in 1997
(Less than half correctly answered that sales tax will make things more expensive to buy!)

Yet with all of this people are just barely paying attention to the problem. Only 13 states require a personal finance course even though studies have shown a direct correlation between the states that require those courses and the students being more likely save money, less likely to have excessive credit card debt and are more likely to pay bills on time

Few people seem to be talking about educating our kids despite all of the evidence that financial education has a very real effect on their lives. Instead we rely on the illiterate (parents) to teach their kids about money. We hope that the few financially literate will and have the ability to teach their kids about money. We are knowingly continuing to turn out generations of children who will struggle their entire lives with money and end up financially destitute and utterly dependent on SS to survive

I would encourage you to bring up these concerns if you are ever in conversation with a teacher, school official or legislative representative.

 

[rudder]

Imagine telling an 18 year old that if they were to put $100 a month into an average yield mutual fund... they would retire easily without having to rely on social security.

But $100 a month is a lot to ask of an 18 year old. There are parties, iphones, camaros, 250 channel tv packages, etc. And there will always be social security to take care of you... no need to save.

 

[Infohawk]

It's hard to jump down the throat of individual working people for not being able to protect against inflation (for example) when some major corporations have proven themselves fairly incompetent as well.

Imagine telling an 18 year old that if they were to put $100 a month into an average yield mutual fund... they would retire easily without having to rely on social security.

There's no guaranty of that. Past performance is not an indicator of future success.

 

[lotus503]

It's hard to jump down the throat of individual working people for not being able to protect against inflation (for example) when some major corporations have proven themselves fairly incompetent as well.



There's no guaranty of that. Past performance is not an indicator of future success.

Good point on the disclosure. The markets are manipulated and rigged.
I prefer my investments to be directly in small-mid sized private companies.

Sure I have my 401k maxed for company match. But other than that I don't do publicly traded companies, bonds, funds etc.

Private equity all the way!

 

[Cerb]

Imagine telling an 18 year old that if they were to put $100 a month into an average yield mutual fund... they would retire easily without having to rely on social security.

But $100 a month is a lot to ask of an 18 year old. There are parties, iphones, camaros, 250 channel tv packages, etc. And there will always be social security to take care of you... no need to save.

There's also food, shelter, utilities, transportation, and health care, some of which has to be reduced or put off just to pay bills, and the health care part alone can eat up years worth of savings in a day.

 

[nextJin]

I believe this is one of the more serious issues facing this country. States should be doing 2 things one of which is changing the 11th and 12th grades completely. Bring real world classes to those kids namely trade skills (electrician, plumber, maintenance for engines, builders, etc.) plus a mandatory course on finances in the 12th grade that spans 2 semesters and covers everything you could think of.

Whatever were to happen just make the the actual Department of Education is as far out of the process as possible.

 

[MrColin]

Financial literacy? Most Americans can't even do basic arithmetic. There's a graphic floating around Facebook right now posing the problem 6-1*0+2/2=? and two thirds of people offering answers in the comments are wrong, with 5 and 1 being the most popular answers.

 

[PokerGuy]

This is one of the main reasons why the class wealth disparity in the country continues (and will continue to) increase. If the masses don't even have a basic understanding of simple financial concepts, it stands to reason that those who do will gain much more wealth (and more quickly) than those who don't.

 

[soulcougher73]

There are a lot of reasons the people with power dont want you educated financially. It makes them more money.

Everyone knows this

 

[soulcougher73]

Financial literacy? Most Americans can't even do basic arithmetic. There's a graphic floating around Facebook right now posing the problem 6-1*0+2/2=? and two thirds of people offering answers in the comments are wrong, with 5 and 1 being the most popular answers.

Ouch that is sad. Answer is obviously 4.
.
.
.
.
.
.
err i mean 7

 

[her209]

Financial literacy? Most Americans can't even do basic arithmetic. There's a graphic floating around Facebook right now posing the problem 6-1*0+2/2=? and two thirds of people offering answers in the comments are wrong, with 5 and 1 being the most popular answers.

Why is 5 considered the wrong answer?

6-(1*0)+(2/2) = 6-0+1 = 7

EDIT: Ooops...

 

[diesbudt]

I have found it incredibly depressing how little people know about financial management. I have always found it astonishing that we do nothing to help our children gain the skills and understanding needed to manage their finances.

The SEC just released their study on just how bad things are:
http://www.sec.gov/news/studies/2012/917-financial-literacy-study-part1.pdf

This goes along with another SEC article at the end of 2011
http://www.sec.gov/news/studies/2012/917-financial-literacy-study-part2.pdf






(That would only offer about $1200 a year for 30 years. Raising that to $1800 would give you a 50% chance of running out of money before you die. If you took $3,000 a year starting at 65 you'd be 85% likely to run out of money before you die.) These are insanely low retirement incomes! yet its what some 75% of Americans will get!

(Out of curiosity - how many people know what the safe withdrawal rate is?)



Across the board Bonds are a complete mystery to the vast majority of Americans

-Only 40% of Americans that identified themselves as 'investors' (Not professional investors) could correctly answer 'Would you rather have one million dollars now or one penny that would double in value every day for a month'

-64% of Americans understand how inflation affects prices but only 35% actually know about what the rate is and 28% know how to protect against it

-Jump$art found that financial literacy scores for High School and College students are at an all time low from when the Jumpstart tests started being offered in 1997
(Less than half correctly answered that sales tax will make things more expensive to buy!)

Yet with all of this people are just barely paying attention to the problem. Only 13 states require a personal finance course even though studies have shown a direct correlation between the states that require those courses and the students being more likely save money, less likely to have excessive credit card debt and are more likely to pay bills on time

Few people seem to be talking about educating our kids despite all of the evidence that financial education has a very real effect on their lives. Instead we rely on the illiterate (parents) to teach their kids about money. We hope that the few financially literate will and have the ability to teach their kids about money. We are knowingly continuing to turn out generations of children who will struggle their entire lives with money and end up financially destitute and utterly dependent on SS to survive

I would encourage you to bring up these concerns if you are ever in conversation with a teacher, school official or legislative representative.

Actually my classes I took at University of Cincinnati (Engineering) actually brought some speakers in from banks and investment/wealth management areas and gave us tools and tricks on how to stay on top of the financial game called life.

I think all colleges should do this in a mandatory level for juniors and/or graduating seniors.

And for all those that would like these tips (though I bet most on here know of them or are not in a bad situation)

A) Roll your "loans/credits". As you pay off 1 loan or credit card bill, take the money you were paying monthly and apply it to another loan/credit card bill. This way you don't change your lifestyle, and pay them off faster which means less interest over time.

B) Set up 2 Bank accounts. 1 with checking and savings(1), and 1 with just savings(2). Place 10% of your paycheck into savings(1) for emergency reasons and 15% into savings(2) to save up. When savings(2) is high enough, withdraw it and place it into a long term investment, such as a CD or get a stock market smart person and attempt to play the market (Long term, day trading is not recommended unless you are willing to watch the prices 24/7) [Unless your bills are too high and won't allow that much removed, adjust the %s as you feel works]

C) Set-up some 401k plan. If your company has a match upto X option, only place X into it each period of time they match. If they do not, place some small % into it. Never touch this if possible.

 

[diesbudt]

Why is 5 considered the wrong answer?

6-(1*0)+(2/2) = 6-0+1 = 7

EDIT: Ooops...

I have a feeling you just proved the quoted statement before the edit? lol

 

[diesbudt]

Financial literacy? Most Americans can't even do basic arithmetic. There's a graphic floating around Facebook right now posing the problem 6-1*0+2/2=? and two thirds of people offering answers in the comments are wrong, with 5 and 1 being the most popular answers.

Now a days idk if it is people trolling when they give the wrong anwser or are seriously wrong anymore.

I mean I learned back in 6th grade. 6th grade! how the order of operations work with PEMDAS. or Actually better to setup as PE(MD)(AS), as M is on the same "strength" level as D and same for A - S.

(8+4)/2-5*1+2*0+4/2 = X

I bet this would confuse so many people today if they couldnt figure out yours...

 

[Exterous]

It's hard to jump down the throat of individual working people for not being able to protect against inflation (for example) when some major corporations have proven themselves fairly incompetent as well.

There's no guaranty of that. Past performance is not an indicator of future success.

Well - the question didn't test the practical applications of defending against inflation just the theory behind it. Basically they didn't know that your rate of growth needed to exceed the rate of inflation to protect against it. It was also multiple choice.

There's also food, shelter, utilities, transportation, and health care, some of which has to be reduced or put off just to pay bills, and the health care part alone can eat up years worth of savings in a day.

Well the BLS shows that the average American spends more on eating at restaurants than savings, spends a 1/6 as much as the save on tobacco products, spends about the same on 'entertainment' and spends more on car purchases per year.

While this is not meant as a 'You can cut everything here' or 'You don't need that new car' statement it does show that Americans are far more willing to spend their money now on non-essentials than keeping themselves out of the poor house later

There are a lot of reasons the people with power dont want you educated financially. It makes them more money.

Everyone knows this

Its too bad is way more than just those people

 

[rudder]

It's hard to jump down the throat of individual working people for not being able to protect against inflation (for example) when some major corporations have proven themselves fairly incompetent as well.



There's no guaranty of that. Past performance is not an indicator of future success.

The S&P has averaged 11% growth since it's inception. Even earning an 8% return you could retire with $500,000 in the bank. Match the S&P and it would close to a million and a half. It just takes time.... 45 years. Retire at 63 comfortably.

My point is people think social security will be there for them.. and for many that is their retirement plan. Do I go out into the workforce and get a $500/month car payment... or do I save money for investing and buy a car that is hard to pick up chicks in? Do I really need 250 channels of brain rotting TV or do I save money with an antenna and spend more time and energy reading books and bettering myself?

I am going to teach my kids to save and spend wisely. Hopefully they will and hopefully no one will expect them to bail out their peers who planned on living off of social security.

 

[piasabird]

This is a lesson in stupidity: (8+4)/2-5*1+2*0+4/2 = X

What real life situation would cause a person to write this equation and what real life situation would cause anyone to need such a malformed equation?

This is stupidity.

The real answer is such an equation has not purpose at all.

 

[Genx87]

The avg American is told to spend spend spend. Think of today, not tomorrow. It shouldnt come as a surprise such a large amount of people have such a pathetic retirement account.

 

[diesbudt]

This is a lesson in stupidity: (8+4)/2-5*1+2*0+4/2 = X

What real life situation would cause a person to write this equation and what real life situation would cause anyone to need such a malformed equation?

This is stupidity.

The real answer is such an equation has not purpose at all.

Thats the point though.

Following the PEMDAS method it is such a simple equation. Yet if people cannot solve it, why can we assume these same people can solve the financial issues when you have compound interest on debt and other X factors that are actually not too hard to predict?

Saying it is stupid is harsh, when it is just a simple equation.

 

[Ryan]

This is a lesson in stupidity: (8+4)/2-5*1+2*0+4/2 = X

What real life situation would cause a person to write this equation and what real life situation would cause anyone to need such a malformed equation?

This is stupidity.

The real answer is such an equation has not purpose at all.

This is a simple math problem that middle schoolers should be able to answer. I think you have proven the point that the vast majority of Americans are complete dolts who see no rational need for math education. I would be willing to bet that you go through life adding and subtracting numbers no larger that the number of digits on your hands.

 

[diesbudt]

This is a simple math problem that middle schoolers should be able to answer. I think you have proven the point that the vast majority of Americans are complete dolts who see no rational need for math education. I would be willing to bet that you go through life adding and subtracting numbers no larger that the number of digits on your hands.

I could even type a real world CD or loan interest equation and it would look worse than that, adding in square roots and exponentials. I kept that example easy, simple.

 

[Jaskalas]

-Only 40% of Americans that identified themselves as 'investors' (Not professional investors) could correctly answer 'Would you rather have one million dollars now or one penny that would double in value every day for a month'

Not an investor, not by a long shot. I could not answer that with any idea of certainty. Then I calculated the entire process with excel and on the 31st day you'd have $10,737,418.24. Nice...

You'd pass the national debt by day 52.

 

[waggy]

I agree. i think financial education should be taught in high school. I was amazed when in college how many didn't know how to keep a checkbook (back then there were not as many debit cards etc.). kids would write checks and not put it in the ledger. then get bounced check fees and be shocked.

a budget? wtf is that?

we are trying to teach our kids how to do it. we give them allowance and subtract things they want (teakwondo for my son and gymnastics for daughter) out of it. so they get the idea of a budget. it seems to be working.

 

[Svnla]

This is not new. I did make a few threads about how little Americans know about basic finance/economy.

It is truly sad.

Ladies and gentlemen of the jury, here is a list of exhibits:

http://forums.anandtech.com/showthread.php?t=2167223&highlight=

http://forums.anandtech.com/showthread.php?t=2260815&highlight=

http://forums.anandtech.com/showthread.php?t=2202922&highlight=

 

[diesbudt]

Not an investor, not by a long shot. I could not answer that with any idea of certainty. Then I calculated the entire process with excel and on the 31st day you'd have $10,737,418.24. Nice...

Sadly no real investments are ever double, only small fractions.