Womenomics

Global Financial Literacy

Suppose you put $100 in a savings account that earns 10% interest each year. After five years how much will you have? That was a question posed in a multiple-choice quiz (completed by 150,000 people in 144 countries) by Standard & Poor’s, a rating agency. The answers proferred were "less than $150", "exactly $150" and "more than $150". The intention was to test whether respondents understood compound interest, in addition to basic mathematics. Alas, not that many did: just one-third of them answered three out of five similar multiple-choice questions correctly. Scandinavians are the most financially literate: 70% were able to answer three questions correctly; the corresponding figure for Angolans and Albanians was 15%. While education plays a large role in determining financial literacy, the link with GDP per person is remarkably strong, too (see chart).

Previous research has shown that it can be difficult to drum in financial know-how at a young age. Instead, it is gained through experience. In developed countries, knowledge follows a U-shaped curve, with middle-aged adults performing better in financial-literacy surveys than both the young and the old (who, through a combination of cognitive impairment and less education, do worse). In developing countries, financial literacy is better among the young, who have typically received more schooling.
The survey, the largest of its kind, demonstrates a striking gender divide in financial literacy. In 93 countries, the gap in correct answers between men and women was more than five percentage points. In Canada, 77% of men answered three questions correctly; the corresponding figure for women was just 60%. Women's lack of knowledge might well be explained by the deferring of financial decision-making to their husbands. But worryingly, the gender gap persists among well-educated single women too. When it comes to financial decision-making, many countries appear to be stuck in a 1960s time warp.

Source: The Economist