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Only 24% Indians Financially Literate: Survey

On average, 55 per cent of adults in the major advanced economies–Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States–are financially literate

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What is the lower amount? 105 US dollars or 100 US dollars plus three percent.
As per a recent worldwide survey, where such questions were asked, 24 per cent Indians, 33 per cent of world population were found to be financial literate. Majority were not.

A recent Standard & Poor’s Ratings Services Global Financial Literacy Survey (S&P Global FinLit Survey) has come out with the status of financial literacy across countries based on age, gender and per capita income. More than 150,000 adults (aged 15 and above) were randomly selected in more than 140 countries and were interviewed in 2014.

The most important finding is that 1 in 3 are financial literate worldwide, leaving 2 out of every 3 of them financially illiterate. It was just not the widespread nature of financial literacy, it was noticed that there are big variations among countries and groups.

On average, 55 per cent of adults in the major advanced economies–Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States–are financially literate.

Percentage of Indians who are financial literate stood at 24. Interestingly, for Pakistan the figure was 26 per cent, Sri Lanka at 35 per cent, while for Nepal, it stood at 18 per cent. Worldwide, 35 per cent of men are financially literate, compared with 30 per cent of women.

In the major emerging economies where India belonged in the survey report, adults age 65 plus have the lowest financial literacy rates, but the young have the highest knowledge. At 32 percent, financial literacy in these economies is much higher for young adults than for the oldest adults of whom only 17 percent are financially literate.

Parameters: Financial literacy was measured using questions assessing basic knowledge of four fundamental concepts in financial decision-making: knowledge of interest rates, interest compounding, inflation, and risk diversification.

The link-up: The findings attempts to establish relationship between financial knowledge and financial services. The study finds that adults who use formal financial services like bank accounts and credit cards generally have higher financial knowledge, regardless of their income. Even poor people who have a bank account are more likely to be financially literate than poor people who do not have a bank account, and rich adults who use credit also generally have better financial skills than rich adults who do not. The study therefore suggests that while higher financial literacy might lead to broader financial inclusion, operating an account or using credit may also deepen consumers’ financial skills.

Here are those 5 testing queries, attempt them.

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?
a. One business or investment
b. Multiple businesses or investments
c. Don’t know
d. Refuse to answer

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?

a. less
b. the same
c. more
d. Don’t know
e. Refuse to answer

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?
a. 105 US dollars
b. 100 US dollars plus three percent
c. Don’t know
d. Refuse to answer

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?
a. More
b. The same
c. Don’t know
d. Refuse to answer

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?
a. More than 150 dollars
b. Exactly 150 dollars
c. Less than 150 dollars
d. Don’t know
e. Refuse to answer

Result: A person is defined as financially literate when he or she correctly answers at least three out of the four financial concepts described above. Based on this, 33 percent of adults worldwide are financially literate. This means that around 3.5 billion adults globally, most of them in developing economies, lack an understanding of basic financial concepts.