Financial Literacy

GazzaBloom

Interesting video here from Ben Felix, suggesting that data shows that Financial Literacy leads to greater long term wealth than Academic Literacy. there is a 5 questions test within, to be honest it's simple stuff and people that are readers and contributors here probably get it but I would say the majority of the general public don't. I certainly work with many intelligent people that I see making cringey financial decisions in their lives as they roll up in another PCP deal new car:

https://youtu.be/6RzO26Sxsug

LHW99

I suspect the problem is that Academic Literacy doesn't imply financial literacy, and vice versa. It's a bit like assuming that someone with excellent sports skills will also be a good artist.

An academic ("abstract concenpts") skill doesn't necessary co-exist with a financial ("practical maths of money") skill.

Albermarle

An academic ("abstract concenpts") skill doesn't necessary co-exist with a financial ("practical maths of money") skill.

Obviously being numerate helps in financial issues, but I think just as important are the ability to resist short term gratification (to some extent anyway) and to have some objective/realistic view of risk vs reward.

Plus not to put your head in the sand, when someone mentions pensions  

GazzaBloom

In my opinion, basic household financial planning and management should be taught in schools, how to evaluate the interest implications of borrowing money, ie, translating an APR into a real cost over time, budgeting methods, how basic bank accounts work, how mortgages work, methods of savings, investments etc.

A conspiracy theorist might suggest that "they" don't want the general public to wake up to who pays for all of the majority of the worlds cities largest city centre buildings that banks and insurance companies erect. 

Malthusian

GazzaBloom said:

Interesting video here from Ben Felix, suggesting that data shows that Financial Literacy leads to greater long term wealth than Academic Literacy. 

That is only a bit more surprising than data showing that Financial Literacy is more correlated with greater long term wealth than the size of your bicep. As you say, having a high-paying job requiring valuable expertise isn't going to lead to long term wealth if you spend all your income.
As Albermarle alludes to, the main qualification for "financial literacy" is the ability to trade short-term gratification for greater long-term gratification (the marshmallow test), and that is largely hardwired in by the time kids reach reception class.

In my opinion, basic household financial planning and management should be taught in schools

"Miss, how do pensions work?" "Well, um, they send you this leaflet when you start your job, and they take part of your pay each year, although I've no idea how much because I don't look, and then when you reach State Pension Age, if you last that long, they pay you about two-thirds of your salary." "What's State Pension Age miss?" "In your case Billy, I haven't got a scooby-doo." "Is that defined contribution or defined benefit miss?" "Definedwhatnow?"

msallen

GazzaBloom said:

In my opinion, basic household financial planning and management should be taught in schools, how to evaluate the interest implications of borrowing money, ie, translating an APR into a real cost over time, budgeting methods, how basic bank accounts work, how mortgages work, methods of savings, investments etc.

Bizarre as it sounds, when I was at secondary school (late 70s early 80s) there were some classes similar to that, BUT 95+% of us weren't involved as they were part of "general studies" which the so called "remedial class" took instead of the normal academic subjects. I doubt very much that there was as broad a coverage as you suggest, but I do know that it covered such things as what a bank account was and how to write a cheque. It was presumably thought that everyone else was intelligent enough to just pick up such knowledge as we went along.

alleycat`

I do find that regardless of how intelligent the person there are certain financial systems people come into contact with that are, in my opinion, deliberately designed to be as impenetrable as possible.

Pensions are a classic example of something that's important but are an utter minefield to negotiate. This is why i found Malthusian post particularly amusing and sad at the same time.

Albermarle

As Albermarle alludes to, the main qualification for "financial literacy" is the ability to trade short-term gratification for greater long-term gratification (the marshmallow test),

Although someone could assiduously save their money for the future (therefore passing the Marshmallow Test), but keep it all for 30 years in a low interest cash savings account and therefore failing a financial literacy test.

You need to save it first, and then you need to know what to do with it for the best.

DiamondLil

GazzaBloom said:

In my opinion, basic household financial planning and management should be taught in schools, how to evaluate the interest implications of borrowing money, ie, translating an APR into a real cost over time, budgeting methods, how basic bank accounts work, how mortgages work, methods of savings, investments etc.

A very, very long time ago, we were taught the effects of simple and compound interest in arithmetic class at school. 'Arithmetic Class' - that'll tell you how long ago it was.

GazzaBloom

alleycat` said:

I do find that regardless of how intelligent the person there are certain financial systems people come into contact with that are, in my opinion, deliberately designed to be as impenetrable as possible.

Pensions are a classic example of something that's important but are an utter minefield to negotiate. This is why i found Malthusian post particularly amusing and sad at the same time.

Utility bills as well. I spent a couple of hours with a spreadsheet a few years ago (when the world was normal) trying to figure out if switching my energy provider was actually beneficial or not and by how much. It took some doing when trying to figure out usage, standing charges and price per Mwh but I got there in the end.

How is a pensioner with no knowledge of spreadsheets supposed to make head or tail of it? 

Millyonare

UK has just about the worst literacy and numeracy rates in the whole industrialised world. Adding a third wing to the airplane (of finance) would send it into a tailspin. The UK education system is just not good enough to cope.