Dr Ahmad Mlouk, Senior Lecturer, Staffordshire Business School
In a ‘Global Financial Literacy Survey’ carried out for S&P in 2014, four questions were asked to measure financial literacy among world population whereby 150,000 people were surveyed in more than 140 countries. The following 4 questions were asked (answer options in brackets) and those who correctly answered 3 out of 4 questions were regarded as ‘financially literate’.
1. Suppose you have some money. Is it safer to put your money into one business or investment, or to put your money into multiple businesses or investments? [one business or investment; multiple businesses or investments; don’t know; refused to answer]
2. Suppose over the next 10 years the prices of the things you buy double. If your income also doubles, will you be able to buy less than you can buy today, the same as you can buy today, or more than you can buy today? [less; the same; more; don’t know; refused to answer]
3. Suppose you need to borrow 100 US dollars. Which is the lower amount to pay back: 105 US dollars or 100 US dollars plus three percent? [105 US dollars; 100 US dollars plus three percent; don’t know; refused to answer]
4. (i) Suppose you put money in the bank for two years and the bank agrees to add 15 percent per year to your account. Will the bank add more money to your account the second year than it did the first year, or will it add the same amount of money both years? [more; the same; don’t know; refused to answer]
(ii) Suppose you had 100 US dollars in a savings account and the bank adds 10 percent per year to the account. How much money would you have in the account after five years if you did not remove any money from the account? [more than 150 dollars; exactly 150 dollars; less than 150 dollars; don’t know; refused to answer]
You might wish to have a go at this survey. The first 10 correct answers to all questions can each claim a free bar of chocolate. In order to participate, you must be based at Staffordshire University Stoke Campus. E-mail your answer to: email@example.com
Sadly, the outcome of the survey was that only one third of world adult population are financially literate. This picture is a lot better for most developed countries, in the UK for example, according to the same survey, two third of adults are considered financially literacy. However, a recent Financial Conduct Authority survey found that 4.1 million people to be ‘in serious financial difficulty’, which means they are unable to cope with the payments of credit card and other debts. According to the Money Charity in the UK, total debt per adult was £31,284 at the end of August 2019, total interest payment over 12 months to the end of August 2019 was a staggering amount of £50,722 million, that is the equivalent of £139 million per DAY! Students have a big share of this … they need to be savvy with their economics, political and financial affairs! They need to become super financially literate in order to overcome this big hurdle in their early life and career! The above is not sustainable and there has to be a way out of this ‘open prison’ for so many people.
Here is a good tip for you: plan your finances AND avoid the use of credit card if at all possible and, if used, ensure to pay off the balance on time otherwise you will pay ridiculously high interest. Credit card interest on average at the end of August 2019 is 20% per annum at the time when Bank of England base rate of interest is 0.75% (November 2019). For more information and to further develop your financial literacy, visit www.themoneycharity.org.uk.
We offer undergraduate and postgraduate courses in Accounting and Finance at Staffordshire Business School