Yet another article on why humans aren't wired...

[LARS]

... for saving for retirement.

The study asked a series of questions that most participants got wrong... no surprise there, but if anyone on this forum can't get all six questions correct you haven't been paying attention:

Here are the six literacy questions. Nearly no one got all six right--68 out of nearly 14,250 tested, or fewer than 1 in 200. The fourth question was the most challenging. See how you do (the correct answers follow):

1. Chance of Disease: If the chance of catching an illness is 10 percent, how many people out of 1000 would get the illness?

2. Lottery Division: If five people share winning lottery tickets and the total prize is two million Chilean pesos, how much would each receive?

3. Numeracy in Investment Context: Assume that you have $100 in a savings account and the interest rate you earn on this money is 2 percent a year. If you keep this money in the account for five years, how much would you have after five years? Choose one: more than $102, exactly $102 or less than $102.

4. Compound Interest: Assume that you have $200 in a savings account, and the interest rate that you earn on these savings is 10 percent a year. How much would you have in the account after two years?

5. Inflation: Assume that you have $100 in a savings account and the interest rate that you earn on these savings is 1 percent a year. Inflation is 2 percent a year. After one year, if you withdraw the money from the savings account, you could buy more/less/the same?

6. Risk Diversification: Buying shares in one company is less risky than buying shares from many different companies with the same money. True/False


Answers:
1. 100
2. 400,000 pesos
3. More than $102
4. $242
5. Less
6. False

Why We're Not Wired for Successful Retirements - Yahoo! Finance=

 

[braumeister]

I would be willing to bet money that even fewer would get a good score on this test in the USA. Sad.

 

[M Paquette]

I would be willing to bet money that even fewer would get a good score on this test in the USA. Sad.

"If you want to know how stupid people really are, just think how stupid the average person is and realize that half of them are stupider."
-- George Carlin

That does go a good ways toward explaining the financial circumstances we see many people in. Probably the same people who we see making such intriguing fiscal and economic proposals these days.

Oh, I got 6 for 6.

 

[RockMonkey]

Did anyone else try to figure out the exact end value on question # 3, before reading the rest of the question?

 

[SunsetSail]

Did anyone else try to figure out the exact end value on question # 3, before reading the rest of the question?

sort of - I pictured a formula in my head, but didn't do the math. 100*(1 -.02)^5.

Most kids these days rely on the Pacific Northwest Tree Octopus to handle their finance calculations.

 

[travelover]

I got stumped on the pesos because I didn't know the conversion rate.

 

[donheff]

Did anyone else try to figure out the exact end value on question # 3, before reading the rest of the question?

I started to but my eyes moved on to the simple question and I stopped. I am sceptical that less than half of 1 percent got the six correct. That would seem to put me in a pretty stellar group and I know I am not that smart.

 

[Texas Proud]

I started to but my eyes moved on to the simple question and I stopped. I am sceptical that less than half of 1 percent got the six correct. That would seem to put me in a pretty stellar group and I know I am not that smart.

I also think it strange that so many people did not get all 6... I think all 6 are pretty easy questions... I had even started to do the math in my head on #3 while reading the rest of the question (was wondering why the others were easy and this took some thinking)...

Sooo, 6 for me... and I bet on this forum it will be at least 1/3 get all correct...

 

[chinaco]

So...

Spendthrift [-]impatient/instant gratification[/-] dummkopf's [-]financially illiterate[/-] don't save and invest therefore they are not prepare for retirement.

Wow. Give those researchers the Nobel Prize!

 

[aaronc879]

I failed almost every test I took after age 10. I flunked out of college. I only got an 18 on ACT(best of 3 tests). I'm below average intelligence. Considering the above, I can't imagine how any adult could get any of those wrong. They were extremly easy elementary school level questions. #4 may have been a little difficult for some but that's it.

 

[MDJO]

I failed almost every test I took after age 10. I flunked out of college. I only got an 18 on ACT(best of 3 tests). I'm below average intelligence. Considering the above, I can't imagine how any adult could get any of those wrong. They were extremly easy elementary school level questions. #4 may have been a little difficult for some but that's it.

aaronc879:

That doesn't mean you aren't smart. Lots of smart people have been failed by our educational system and standardized testing. My guess is you have done well in spite of your "failings".

 

[Bestwifeever]

I bet people missed #4 (solved it without the compounding) and got the rest right.

 

[Amethyst]

Good grief. Who told you this? Was it the result of some written test, which you clearly are not wired for?

Humans were given intelligence to help us survive, not help us take written tests. Your posts are intelligent. You seem to be surviving and thriving.

Amethyst

I I'm below average intelligence.

 

[freebird5825]

Don't make me think...I'm a recovering high achieving braniac.

And Aaron...the only person who is below average intelligence is the rotten person who convinced you to even think that about yourself.
Chin up, man!

 

[Bestwifeever]

I failed almost every test I took after age 10. I flunked out of college. I only got an 18 on ACT(best of 3 tests). I'm below average intelligence. Considering the above, I can't imagine how any adult could get any of those wrong. They were extremly easy elementary school level questions. #4 may have been a little difficult for some but that's it.

Aaron!!! This is so not true. You are one of the smartest people who post to this board--you own your own place, you're so common sense about your finances and your job, you offer excellent responses to all of us, and you're what, onkly 30? And I bet you're at the top of the list for most of us of people we'd want to meet in real life.

 

[obgyn65]

It is sad to know many people do not get 6 answers out of 6 right on this test.

 

[Nords]

Whenever I read one of these "the world is going to hell" surveys or quizzes, I wonder what was motivating the respondents. I bet if their incentives were more closely aligned with 100% accuracy, financial or pain avoidance or some other reward, then the results would've been much more "reassuring".

As it is, I'm wondering if any of these people would like to invest in one of Dogbert's actively-managed mutual funds...

 

[MooreBonds]

I started to but my eyes moved on to the simple question and I stopped. I am sceptical that less than half of 1 percent got the six correct. That would seem to put me in a pretty stellar group and I know I am not that smart.

The analysis of this could depend on several factors.

Like, for instance, was it some random street corner asking a bunch of people the question? Or phone surveys during the day? Both of those would probably tend to be skewed with higher percentages of the unemployed and/or low-skilled workers...who probably are disproportionately filled with people who would have difficulty with these questions.

I am willing to bet that if you were to take a huge sample size of appropriate diversity in abilities, you probably wouldn't be too far away with the 'real world' fiscal analysis abilities of the average person, given how debt-laden this country is. However, remember that mathematical ability doesn't always correlate to fiscal success.

I'm 100% certain my grandmother (educated through 6th grade) would never know anyof these answers. And my father (some college) wouldn't do any better on the number crunching. Yet, they are both somewhat successful because they empirically know the answer without necessarily knowing how to solve or compute it.

Except for the inflation question: birthday/wedding/Christmas gifts they gave in 2010 are the exact same they gave in 1960. Which rocked if you lived in the 60s....not so much in the inflation-adjusted 21st century.

 

[foxfirev5]

I wonder who the participants were. If I can get it ,I bet far more than 1 in 200 of my peers would score 100%

 

[bruce1]

I thought #3 was going to make me do five years compound interest in my head. then found it was multiple choice. There is something wrong with the 1 in 200 figure.

 

[deserat]

Did anyone else try to figure out the exact end value on question # 3, before reading the rest of the question?

Yes - even tried to remember notation in math - I think it was 100+(1.02)^5

 

[Walt34]

I am skeptical that less than half of 1 percent got the six correct. That would seem to put me in a pretty stellar group and I know I am not that smart.

That was my thought too. It's not that hard even without bothering to do any math, which I didn't.

 

[braumeister]

I wonder who the participants were.

Apparently a good sample:

a nationally representative panel of respondents, followed every two years, which is fielded by the University of Chile’s Microdata Center in cooperation with the University of Pennsylvania

www.mrrc.isr.umich.edu/publications/briefs/pdf/UM10-11B.pdf

 

[TromboneAl]

I am skeptical that less than half of 1 percent got the six correct.

Then you haven't been watching "Jaywalking."

For example,

Leno: "How long does it take the earth to go around the sun?"
Answer: "24,000 times."

YouTube - Jaywalking - Placement Test (Embarrassing!)

 

[harley]

Damn Al, you've ruined my day! Now I'm surprised 1 in 200 got even 1 right. Obviously a lot more than half the people are stupider than average.