Even people who should know, don't know

From the NYTimes.com:

Financial Literacy, Beyond the Classroom

Even if we grade on a very generous curve, many Americans flunk when it comes to financial literacy. Consider this three-item quiz:

   • Suppose you had $100 in a savings account and the interest rate was 2 percent a year. After five years, how much do you think you would have if you left the money to grow? More than $102, exactly $102 or less than $102?

   • Imagine that the interest rate on your savings account was 1 percent a year and that inflation was 2 percent. After one year, would you be able to buy more than, the same as or less than you could today with the money?

   • Do you think this statement is true or false: “Buying a single company stock usually provides a safer return than a stock mutual fund”?

Anyone with even a basic understanding of compound interest, inflation and diversification should know that the answers to these questions are “more than,” “less than” and “false.”

Yet in a survey of Americans over age 50 conducted by the economists Annamaria Lusardi of George Washington University and Olivia S. Mitchell of the Wharton School of the University of Pennsylvania, only a third could answer all three questions correctly...


(Writer Richard H. Thaler is a professor of economics and behavioral science at the Booth School of Business at the University of Chicago.)
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Link: http://www.nytimes.com/2013/10/06/business/financial-literacy-beyond-the-classroom.html?