Financial education, some data

Despite this it is a well established fact, after all, that a substantial proportion of the general public in the world is ignorant of finance.

-According to one 2007 survey:

• Four in ten American credit card holders do not pay the full amount due every month on the card they use most often, despite the punitively high interest rates charged by credit card companies. 
• Nearly a third (29 per cent) said they had no idea what the interest rate on their card was. 
• Another 30 per cent claimed that it was below 10 per cent, when in reality the overwhelming majority of card companies charge substantially in excess of 10 per cent. 
• More than half of the respondents said they had learned 'not too much' or 'nothing at all' about financial issues at school. 

-A 2008 survey revealed that two thirds of Americans did not understand how compound interest worked.

-In one survey conducted by researchers at the University of Buffalo's School of Management:

• A typical group of high school seniors scored just 52 per cent in response to a set of questions about personal finance and economics.
•  Only 14 per cent understood that stocks would tend to generate a higher return over eighteen years than a US government bond.
•  Less than 23 per cent knew that income tax is charged on the interest earned from a savings account if the account holder's income is high enough. 
• Fully 59 per cent did not know the difference between a company pension, Social Security and a 401 (k) plan. 

-In 2006, the British Financial Services Authority carried out a survey of public financial literacy which revealed that:

• One person in five had no idea what the effect would be on the purchasing power of their savings of an inflation rate of 5 per cent and an interest rate of 3 per cent.
• One in ten did not know which was the better discount for a television originally priced at £250: £30 or 10 per cent. 

Politicians, central bankers and businessmen regularly lament the extent of public ignorance about money, and with good reason. A society that expects most individuals to take responsibility for the management of their own expenditure and income after tax, that expects most adults to own their own homes and that leaves it to the individual to determine how much to save for retirement and whether or not to take out health insurance, is surely storing up trouble for the future by leaving its citizens so ill-equipped to make wise financial decisions.

Three insights in particular stand out. The first is that poverty is not the result of rapacious financiers exploiting the poor. It has much more to do with the lack of financial institutions, with the absence of banks, not their presence. Only when borrowers have access to efficient credit networks can they escape from the clutches of loan sharks, and only when savers can deposit their money in reliable banks can it be channelled from the idle rich to the industrious poor. This point applies not just to the poor countries of the world. It can also be said of the poorest neighbourhoods in supposedly developed countries.

Second great realization has to do with equality and its absence. If the financial system has a defect, it is that it reflects and magnifies what we human beings are like. As we are learning from a growing volume of research in the field of behavioural finance, money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility. But finance also exaggerates the differences between us, enriching the lucky and the smart, impoverishing the unlucky and not-so-smart. Financial globalization means that, after more than three hundred years of divergence, the world can no longer be divided neatly into rich developed countries and poor less-developed countries. The more integrated the world's financial markets become, the greater the opportunities for financially knowledgeable people wherever they live - and the bigger the risk of downward mobility for the financially illiterate. It emphatically is not a flat world in terms of overall income distribution, simply because the returns on capital have soared relative to the returns on unskilled and semi-skilled labour. The rewards for 'getting it' have never been so immense. And the penalties for financial ignorance have never been so stiff.