Published on January 19, 2023
Household, Income and Labour Dynamics in Australia (HILDA) conducts a survey where it asks members of 17,000 households five questions designed to test their financial literacy. They conducted this in 2016 and 2020.
The average result was around 3.2 questions right out of 5 in 2016, and around 2.8 questions right out of 5 in 2020. When you look at the questions further down, especially if you understand inflation, they are not that hard and shows we do have a problem here in Australia that we don’t understand basic money principles, and why I want to help Australians get better at this.
Survey participants were asked these five questions:
- 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?
(Answers at bottom of article)
The very surprised deputy director of HILDA never thought it would drop but puts it down to that economics is not as popular at high school anymore. 20 years ago it was around third most popular subject and now about 9th. I don’t agree with this as the answer by the way.
Now I agree money principles should be taught at school to everyone especially how to save and budget as most do this so badly, but I don’t believe it’s because of economics not being as popular.
See I believe that the next survey, the result will be higher as by then they will take into account the last few years of Covid, share market drop, and interest and inflation rates rising.
As funny enough, when things are good (shares up, interest rates down, low unemployment) which they were just prior 2020 survey, we don’t seem to care about savings and money, and we get into this false sense of security that it will go on forever. The big BUT though is these times don’t last forever and so when times get tough, and we have to start counting pennies, we absolutely realise the value of money and start to take more notice to what is happening to our savings, sharemarket and inflation going up.
The sooner we can provide more low-cost solutions (like The Money Sandwich type books, money podcasts, workshops etc), have it as a school subject, and have more groups like Kit helping our young children, the sooner we can become a more financially literate and a ‘money savvy’ country!
How did you go with the 5 questions?
Article by Marc Bineham – Money coach, speaker and award-winning author of The Money Sandwich
5. Exactly the same