How do you make a peanut butter and jelly sandwich? If you’ve ever been asked to write clear instructions for a seemingly simple task, you know the challenge is in the details. To illustrate how to make a PB&J, you start with bread, peanut butter, jelly (in a squeezable bottle), and a knife. Then you need to remember to tell the reader to open the bread bag, unscrew the top of the peanut butter jar, and turn the jelly bottle upside down before squeezing it. You have to provide a lot of very concise information.
Communicating financial and investment ideas effectively also can be challenging. It appears a significant number of Americans are not receiving all of the information they may need. For several years, the Financial Industry Regulatory Authority’s (FINRA) Investor Education Foundation has employed a five-question quiz to evaluate financial literacy. The questions include fundamental concepts related to financial knowledge and decision-making. If you want to test yourself, take the quiz at www.financialcapability.org.
In 2012, about 30 percent of Americans were able to answer three of the five quiz questions correctly. That was about the same number of questions that were answered correctly when the quiz was first offered in 2009. The percentage of respondents who were able to answer four or five quiz questions correctly varied significantly by generation:
24 percent of Millennials (born between early 1980s to early 2000s)
38 percent of Gen Xers (born between early 1960s to early 1980s)
48 percent of Baby Boomers (born between 1943 to early 1960s)
55 percent of the Silent Generation (born between 1925 to 1942)
When a similar quiz was offered to people in countries throughout the world, financial literacy was linked (in all countries) to retirement planning or participation in private pension plans. In most countries, people who were financially literate were more likely to plan for retirement which requires an understanding of interest rates, risk, and diversification.
If someone you care about would benefit by knowing more about financial matters, please give me a call. I would be happy to sit down and talk with them about a specific topic or recommend some good reading materials.
Think About It
“Courage is the most important of all the virtues, because without courage you can't practice any other virtue consistently. You can practice any virtue erratically, but nothing consistently without courage.
--Maya Angelou, American author and poet