Adults show striking weaknesses in financial literacy

Euro bills and coins
Public Domain MaxPixel

Large study finds that shockingly few adults are able to calculate change, work out unit prices, read basic line graphs and more.

Adults need some basic financial skills in order to thrive in the world, but a study conducted by Cambridge University and University College London found that many lack this knowledge. The situation is so bad, in fact, that the study authors are calling for policy intervention to improve financial literacy.

The study analyzed data from a test that was administered in 2011 to more than 100,000 participants across 31 countries, known as the Programme for International Assessment of Adult Competencies (PIAAC). Part of the test included questions on applying basic numerical skills to everyday financial tasks. The study found (link to Word doc on site):

- Around a quarter of adults cannot work out how much change they should receive from a shop when buying a handful of goods, with this increasing to around a third of individuals in countries like Spain, England and Italy.
- One-third of adults struggle to work out the price they have to pay for a product when they are given a ‘per unit’ (e.g. per litre, per kilo) cost.
- Around half of the population across the 31 countries cannot read a simple financial line graph, the type of which is often used to convey key information about the economy and financial products, increasing up to three-quarters of adults in some countries (e.g. Greece, Chile, Italy, Turkey).
- Finally, most adults struggle to calculate more difficult discounts, involving more complex computations.

The top performers were residents of Estonia, Finland, Japan, Singapore, and Austria. Least successful were adults in Turkey, Chile, Israel, Italy, Spain and England.

When it comes to gender differences, women tend to be better at basic financial tasks such as calculating change in stores; but the three other questions -- working out the per-unit cost, interpreting financial information from a graph, and calculating discounts -- show men at a significant advantage.

Interestingly, this divide is more pronounced in adults over 35 and less visible in the 16-25 group. This suggests that financial education is improving in some places:

"This highlights how some countries are better at equipping young people with the financial skills that they will need for the future, while in others the elderly are at particular risk of not being able to complete basic financial tasks. It is, however, also reflective of the fact that where countries have expanded their education systems relatively recently, the older population tends to be on average far less skilled than the younger population."

Some might argue that with smartphones and computerized tills these math skills are unnecessary. But not even knowing how to do them indicates a broader lack of understanding about financial concepts that is worrisome, such as understanding how pensions work, the implications of borrowing money (especially from pay-day loan sites), whether or not one can afford a house, how buying a range of stocks can reduce investment risk, and how interest compounds on savings.

Why does this matter on TreeHugger? It matters because knowing how to manage one's money is a huge part of living frugally, which we've argued is a form of environmentalism. We also believe that talking openly to our children about finances is a foundational part of their education and will have a significant effect on their success as adults -- and we're all about building resilience and confidence in a generation of overly coddled kids.

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