Just three questions can tell you if your members are financially literate
Photo by Alexander Suhorucov
It’s April, which means it’s Financial Literacy Month in the U.S. And to mark the occasion, we have three questions to ask your members about financial literacy. The answers may surprise you.
Financial Literacy Month dates to a U.S. Senate resolution from 2004. The month-long celebration aims to highlight the importance of being financially literate and enhance financial education and awareness about personal finance and money management.
Why is financial literacy so important? Quite simply because the lack of it can be financially and personally devastating. The National Financial Educators Council (NFEC) found that in 2023, financial illiteracy, the lack of financial literacy or not knowing how to manage one’s personal finances, cost Americans $1,506. When extrapolated to represent the approximately 258 million adults who live in the U.S., financial illiteracy cost Americans more than $388 billion in 2023.
A lack of financial literacy hurts more than just pocketbooks. It impacts us physically and mentally as well. A recent FINRA study found 60 percent of Americans are anxious about their personal finances, with 50 percent feeling stressed just talking about it.
Source: FINRA
Three questions you should ask members
Assessing your membership’s financial literacy level is easier than you think. It takes just three questions. The questions, developed by Professors Annamaria Lusardi and Olivia Mitchell of the Wharton School, and titled as, The Big Three, are formatted to reveal an individual’s level of financial literacy, and have been used globally, including in the U.S. National Financial Capability Study, for over two decades.
The Big Three
1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?
A) More than $102
B) Exactly $102
C) Less than $102
D) Don’t know2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, with the money in this account, would you be able to buy…
A) More than today
B) Exactly the same as today
C) Less than today
D) Don’t know
3. Do you think the following statement is true or false? Buying a single company stock usually provides a safer return than a stock mutual fund.
A) True
B) False
C) Don't know
The simplicity of the test is its key advantage; particularly for those thinking that financial topics are overly complex. The test helps get that message across. It essentially implies that mastering your money doesn’t have to be complicated at all.
Taking the test online gives an instant result (you can also see the answers at the end of this newsletter). Follow the link to also see some broader context as to the level of financial literacy in general, in an infographic that asks, “How much do Americans know?” and goes on to explain that “Only 30% correctly answered all three questions; and less than half (48%) got the first two questions right.” That’s a sobering statistic that may resonate with many. And may stimulate some to ask how to improve their own financial knowledge. More importantly, to enquire where to go to get that kind of education.
For us, every month is financial literacy month. Financial literacy is our business, and along with our credit union partners, we’re on a mission to educate credit union members, staff and their communities about money. Our It’s a Money Thing financial education program is an excellent example of a financial education developed to be engaging, entertaining and easily understood. We think it is an ideal next destination for those completing GFLEC’s Big Three Test. You can check it out here.
Answers to The Big Three
1. A) More than $102
2. C) Less than today
3. B) False
Canadian readers, look out for our coverage of Canada’s financial literacy month this November.
Tim McAlpine is the Founder & CEO of Currency Marketing. He is best known for developing the It's a Money Thing Financial Education Program that credit unions from around North America are using to connect with new young adult members. He is also a driving force behind CUES Emerge, an emerging leader program that combines online learning, peer collaboration and an exciting competition component.
