It appears that our financial literacy is on the downturn with women struggling the most to understand simple financial questions.
According to new research, our financial literacy fell significantly between 2016 and 2020, which has reportedly left researchers “dumbfounded”.
The latest Household, Income and Labour Dynamics in Australia (HILDA) found that declines in financial literacy were larger among people aged under 35 than those in older aged groups. Women scored lower than men across all age groups in both years, according to the study.
Respondents aged 15 to 24 scored just 2.9 out of 5 in 2020, after scoring 3.4 in 2016. Respondents aged between 25 and 34 scored 3.6 in 2020, against 3.9 in 2016.
Across all age groups, the average score for men was 4.0 in 2020, against 4.1 out of 5 in 2016. The average score for Australian women also fell from 3.7 to 3.5.
Some of the reasons why financial literacy is falling is because of fewer students studying economics at high school it appears.
However, with such a plethora of information and education available online and in books like The Female Investor, it is truly worrying that the financial literacy of our young people, and women more generally, is declining.
But how do you think you’d go answering the five questions in the study? Let’s find out because here they are for you. The answers are at the end of this blog, but no peeking!
- Suppose you put $100 into a no-fee savings account with a guaranteed interest rate of 2% per year. You don’t make any further payments into this account and you don’t withdraw any money. How much would be in the account at the end of the first year, once the interest payment is made?
- Imagine now that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, would you be able to buy more than today, exactly the same as today, or less than today with the money in this account?
- Do you think that the following statement is true or false? ‘Buying shares in a single company usually provides a safer return than buying shares in a number of different companies’.
- Again, please tell me whether you think the following statement is true or false: ‘An investment with a high return is likely to be high risk’.
- Suppose that by the year 2024 your income has doubled, but the prices of all of the things you buy have also doubled. In 2024, will you be able to buy more than today, exactly the same as today, or less than today with your income?
It is vital to have a reasonable level of financial literacy to stand any chance of improving your financial situation throughout your life.
HILDA study answers: 1. $102 2. Less 3. False 4. True 5. Exactly the same