Financial Literacy Around the World
Only 1/3rd of the world’s adult population is financially literate according to a report by S&P and the World Bank. The research looked at the response from 150,000 people from 140 different countries in 2014. Subjects were asked to answer a series of questions that measure fundamental personal finance concepts. There were 4 questions in total. The last question was split into two parts. Only one part needed to be answered correctly in order to get a passing mark for that question.
A person is considered financially literate when he or she correctly answered at least 3 out of the 4 financial questions. Based on this definition, the study determined that 33% of adults worldwide are financially literate.
68% of Canadians are Financially Literate
The Scandivania countries topped the rankings in a three-way tie. Canada and Israel tied for 4th place. The United States may be the world’s richest country, but it came in at 14th place, which is still in the top 10% of all the countries that participated. 🙂
The report notes that most people in major advanced economies are financially literate. But in contrast, the major emerging economies such as Brazil, India, and South Africa have a financial literacy rate of only 28% on average.
It’s sad how developing economies tend to have a lower rate of financial literacy because those are often the countries that face the worst financial problems. The financial literacy rate in Puerto Rico is only 32%. It defaulted on its $174 Million debt payment earlier this month because it literally ran out of money. It still owes over $70 Billion and more defaults are expected to come. One of its options is to file for Chapter 9 municipal bankruptcy so it can ask the U.S. Congress for debt relief. If nothing is done then the worsening financial problems could turn into a humanitarian crisis. Puerto Rico’s economy is slowly becoming a basket case. The small island territory appears to have more issues than MoneySense magazine.
In an even worse case, the inflation rate in Somalia averaged 23% from 1961 until 2013. Egad! Imagine losing 23% of your retirement savings every year. 😱 And only 15% of adults in Somalia passed the financial literacy quiz. When economies are run by incapable governments it’s always the citizens who end up suffering the most. Catch-22 conundrums aren’t easy to fix. When the majority of a population doesn’t understand the basic concepts of inflation or interest rates then it’s a lot harder to find capable leaders from within that group to address the important issues.
Financial ignorance leads to significant costs. People who fail to understand simple financial principles tend to borrow more, save less, incur higher borrowing costs, run up bigger debts, and spend more on transaction fees. As the report says, “without an understanding of basic financial concepts, people are not well equipped to make decisions related to financial management. People who are financially literate have the ability to make informed financial choices regarding saving, investing, borrowing, and more.”
Do you think you are financially literate? You can take the same financial literacy quiz on the Wall St. Journey site. Feel free to share your score in the comments below. 😉
Random Useless Fact
The most expensive type beef in the world is authentic Kobe beef from Japanese Wagyu cattle. One pound sells for $150 or more.