Lending Education

What Surveys Really Say About Financial Literacy

In a newly released Financial Capability study, American investigative body FINRA came to some rather disheartening conclusions about our neighbours to the south. The study, designed to establish a more accurate demographic picture of trends in financial recovery since the 2008 recession, to analyze patterns in personal financial decision-making and management across the United States, and to test basic concepts of financial literacy, included sample questions such as:

Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?

Middle-school stuff, right? Unfortunately, the most recent results (the study is conducted on a rotating five-year basis) indicate that only 37% of respondents received a passing grade.

download (3)

Now let me be clear: highlighting this fact is not meant to be a finger-wag or a shot across the proverbial bow of the American public. Canadians don’t have all that lofty of a perch to critique from: almost one-third of participants(31.4%) in a similarly oriented 14-question survey conducted in Canada in 2014 correctly answered 7 questions or less. However, such survey data can be misleading when presented in such a reductive fashion. While it is clear that financial literacy initiatives need to improve, other metrics show trends that help evaluate the character of those initiatives more clearly. For instance, the number of respondents to the FINRA survey who reported no difficulty in covering monthly expenses and bills increased 12 percentage points, to 48%. Despite this, 45% of all respondents with no college education said that if they had an emergency requiring them to pull together $2,000 within a month, they wouldn’t be able to do so.

The overall pass/fail rate of respondents in such surveys is but one statistic – the one that will garner the most press, surely, but one that ties into a network of other information that informs policymakers and educators about the best course to take in order to help a large population become more financially aware. By identifying the demographic, geographic, ethnic, gendered, and economic barriers to access that limit financial literacy, governments will be able to design more effective and more targeted programs for improving long-term financial health. Reporting on financial literacy surveys tends to skew towards “shock and awe” – an increasing norm in the world of click-bait obsessed journalism. As we look to improve financial literacy across North America and build the foundations for a new generation of economic stability, it is important to take a look at the broader picture.