Investors lack basic financial literacy, study finds

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VennData
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Joined: Mon Feb 26, 2007 4:52 pm

Investors lack basic financial literacy, study finds

Post by VennData »

This is sad

http://www.csmonitor.com/Business/Donal ... tudy-finds

The agnotology of financial media and their powerful supporters should be addressed legislatively.

http://en.wikipedia.org/wiki/Agnotology

Something jack Bogle certainly supports.

http://www.investmentnews.com/article/2 ... /120829965
chaz
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Re: Investors lack basic financial literacy, study finds

Post by chaz »

No big surprise.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
Grt2bOutdoors
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Re: Investors lack basic financial literacy, study finds

Post by Grt2bOutdoors »

I'm not surprised - I teach personal finance on a volunteer basis in the local public school system, when adult teachers holding masters + degrees come up to me and say I learned something I never knew, you know we have problems. Talking basic personal finance, not anything close to intermediate level.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Ketawa
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Re: Investors lack basic financial literacy, study finds

Post by Ketawa »

Freakonomics had an interesting podcast about education and financial literacy a while ago. To be honest, I can't remember the exact content, I listed to it a while ago. The first link mashes it up with some other finance-related content.
http://www.freakonomics.com/2012/04/26/ ... o-podcast/
http://www.freakonomics.com/2012/01/19/ ... o-podcast/
SurfCityBill
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Re: Investors lack basic financial literacy, study finds

Post by SurfCityBill »

chaz wrote:No big surprise.
+1. My circle of friends and acquaintances includes many blue collar and white collar individuals. I still have a difficult time finding anyone that I can have a rudimentary discussion about finances or investing.

-B
yeledbed
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Re: Investors lack basic financial literacy, study finds

Post by yeledbed »

Did you take the financial literacy quiz attached to the story? One question about Roth IRAs has an incorrect answer (higher points indicate "better" answer):

Which one of the following statements about Roth IRA accounts is NOT true?
You are required to make annual withdrawals after age 70½. (5 )
You cannot deduct your contributions from your federal income taxes . ( 4 )
You get tax-free growth – you pay no taxes when you withdraw your money during retirement. ( 2 )
Too much income can disqualify you from having a Roth IRA. (1 )

Too much income doesn't disqualify someone from having a Roth IRA, just from contributing. And, let's not forget the backdoor!
madbrain
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Re: Investors lack basic financial literacy, study finds

Post by madbrain »

yeledbed wrote:Did you take the financial literacy quiz attached to the story? One question about Roth IRAs has an incorrect answer (higher points indicate "better" answer):

Which one of the following statements about Roth IRA accounts is NOT true?
You are required to make annual withdrawals after age 70½. (5 )
You cannot deduct your contributions from your federal income taxes . ( 4 )
You get tax-free growth – you pay no taxes when you withdraw your money during retirement. ( 2 )
Too much income can disqualify you from having a Roth IRA. (1 )

Too much income doesn't disqualify someone from having a Roth IRA, just from contributing. And, let's not forget the backdoor!
Then it's more of an incorrect question, it should have been
"Which two of the following statements about Roth IRA accounts are NOT true? " :)
I think the other false one is the RMD requirement.
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damjam
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Re: Investors lack basic financial literacy, study finds

Post by damjam »

yeledbed wrote:Did you take the financial literacy quiz attached to the story? One question about Roth IRAs has an incorrect answer (higher points indicate "better" answer):

Which one of the following statements about Roth IRA accounts is NOT true?
You are required to make annual withdrawals after age 70½. (5 )
You cannot deduct your contributions from your federal income taxes . ( 4 )
You get tax-free growth – you pay no taxes when you withdraw your money during retirement. ( 2 )
Too much income can disqualify you from having a Roth IRA. (1 )

Too much income doesn't disqualify someone from having a Roth IRA, just from contributing. And, let's not forget the backdoor!
The scoring is also a little strange. Why give 4 points to the incorrect answer of: You cannot deduct your contributions from your federal income taxes.
The question: If you want a hedge against inflation or the collapse of a currency (or civilization), you might put some of your money into: was a little odd as well.
But of course I had to take the quiz. :wink:
DireWolf
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Re: Investors lack basic financial literacy, study finds

Post by DireWolf »

I consider myself to be highly educated, but not necessarily smart. And I don't want to make excuses, but frankly the entire financial system is ridiculously complex and difficult to understand. Once you get passed very basic concepts, seemingly simple ideas such as bonds are confusing. And if the intricacies of bonds confuses me, I'm sure it really confuses those less educated. The sheer number of products in the marketplace is overwhelming.

And the sad thing is that it doesn't have to be that way... it's all manufactured by the financial giants... people inventing ways to make money without really contributing anything useful to society. Mortgage derivatives come to mind.

Doctors have to go through 12 years of post-high school education because the human body and related pathologies are very complex... there is no getting around it... no one invented these complexities... it's just the way it is. But the financial sector has created this insanely complex system, so the average person doesn't have much of a chance in truly understanding the details. Therefore, people are essentially forced to rely on "financial experts" for advice... and unfortunately these experts don't always have the clients' best interests at heart.

I hate it when things are complicated just to be complicated... and just to create a need, a job for someone who really doesn't contribute anything to society. Lawyers are another perfect example.
livesoft
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Re: Investors lack basic financial literacy, study finds

Post by livesoft »

"In the land of the blind, the one-eyed man is king."

Go get some financial literacy.
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Fallible
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Re: Investors lack basic financial literacy, study finds

Post by Fallible »

I agree with Chaz that it's not a surprise. And yet every time I read that investors don't understand compounding and inflation or the difference between a stock and a bond, and every time I talk with someone who's been in the stock market for many years and doesn't understand what fees do to returns, I'm surprised.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
scone
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Re: Investors lack basic financial literacy, study finds

Post by scone »

I have to think financial illiteracy, and downright ignorance, contributes to volatility and market panics. I do have faith in education, not that it can "fix" everything, but at least it can help a bit. I'm hoping the Center for Financial Literacy can do some good here, going forward.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore
Topic Author
VennData
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Re: Investors lack basic financial literacy, study finds

Post by VennData »

Financial Advisors should be held to a fiduciary level of responsibility to their clients. Full stop.
Grt2bOutdoors
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Re: Investors lack basic financial literacy, study finds

Post by Grt2bOutdoors »

VennData wrote:Financial Advisors should be held to a fiduciary level of responsibility to their clients. Full stop.
We know advisor is another word for "salesman".

Holding to your standards, they should be made to take extensive courses on planning, investments, ethics, etc., then made to take a comprehensive two day exam followed by state licensure. Holding a series 6,7 or 65 is not enough to be a "financial advisor". Fail to act in a fiduciary manner would be grounds for license revocation, expulsion from industry and open to civil litigation including SEC investigation for fraud. Let me know when the elephants are flying through the sky. :wink:
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Rodc
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Re: Investors lack basic financial literacy, study finds

Post by Rodc »

The average American can't easily add fractions or give a coherent explanation of the difference between an atom and a molecule.

How can we expect the average American to be financially literate?
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
MathWizard
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Re: Investors lack basic financial literacy, study finds

Post by MathWizard »

damjam wrote:
yeledbed wrote:Did you take the financial literacy quiz attached to the story? One question about Roth IRAs has an incorrect answer (higher points indicate "better" answer):

Which one of the following statements about Roth IRA accounts is NOT true?
You are required to make annual withdrawals after age 70½. (5 )
You cannot deduct your contributions from your federal income taxes . ( 4 )
You get tax-free growth – you pay no taxes when you withdraw your money during retirement. ( 2 )
Too much income can disqualify you from having a Roth IRA. (1 )

Too much income doesn't disqualify someone from having a Roth IRA, just from contributing. And, let's not forget the backdoor!
The scoring is also a little strange. Why give 4 points to the incorrect answer of: You cannot deduct your contributions from your federal income taxes.
The question: If you want a hedge against inflation or the collapse of a currency (or civilization), you might put some of your money into: was a little odd as well.
But of course I had to take the quiz. :wink:


Yes, those two just about tripped me up. I had to go back into the mode of
"which is the answer the most likely want" like being back in high school.

The RMD was clearly right, the not have a ROTH was clearly the test writer's error.

On the gold one (In the end of civilization) It was clear they wanetd gold, but really gold doesn't cut it:
You need the basics: shelter/food and water and the means to defend against those who would take those from you.

But just think how much of an advantage your kids will have due to you being able to explain these concepts to them.
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