How Do You Rate Your Financial Know-How?
Dear Readers: If I asked you to rate your financial know-how on a scale of 1-7 (with 7 being the highest), where would you place yourself? If you're like the Americans who participated in the 2018 FINRA National Financial Capability Study (NFCS), you'd probably give yourself a pretty high score. In that study, 76% of respondents placed themselves in the 5-7 range. But self-perception is one thing; reality is another. Because the same study found that only 34% could correctly answer at least four of five basic financial literacy questions on topics such as mortgages, interest rates, inflation and risk.
Curious about your own answers? Why not take the Financial Literacy Quiz now? It not only gives you an immediate score but also shows you how you compare to others in your state. But whether the quiz confirms your knowledge or serves as a personal wake-up call, the generally low results of the NFCS definitely demonstrate the need to improve financial literacy in our country.
Financial Literacy: It's More Than Just Math
I think the Financial Literacy Quiz is a good starting point because it deals with everyday money situations. Whether you're putting money in a savings account, carrying a balance on a credit card or considering taking out a student loan, you need to understand how compound interest works -- either for you or against you.
When you're budgeting for the future, you need to be aware of how inflation can lower your buying power. If you're choosing between a 15- or 30-year mortgage, it's important to consider not only your monthly payment but also the interest you'll pay over the life of the loan. Investing for the future? You have to understand the relationship between risk and return, and how to choose investments accordingly.
It isn't just learning how the numbers work. Real financial literacy means understanding the concepts that are fundamental to good decision-making. It can help people stay out of debt, plan and save for the future, and make wiser investing choices. And it doesn't stop with doing well on a quiz. Financial literacy is a skill that involves taking positive actions, and that continues to evolve along with our lives.
It's Not Just for Kids
We often focus on kids when talking about financial literacy, and recent financial literacy scores from the Programme for International Student Assessment (PISA) demonstrate why: American students' scores remain just average compared with those of their peers worldwide, and we performed worse than Estonia, Finland, Canada, Poland and Australia. Average isn't good enough in a globalized economy and increasingly complex financial landscape. We need to do better.
As you may know, I'm a strong advocate for teaching young people financial concepts at an early age. And I'm encouraged that the number of states that require high school students to take a course in personal finance is growing (currently 21). But while kids definitely need to be taught personal finance early on, the need for basic financial literacy extends to everyone regardless of their age or life stage.
Every day, as technology changes and the types of financial products expand, people of all ages and walks of life are met with new and different financial situations. From shopping for a car or home to saving for retirement to planning for health care, individuals now face more complex financial decisions, and need to be sufficiently financially literate to take the necessary steps to protect themselves and their loved ones.