Pop quiz: You have $100 stashed away in a savings account and a yearly interest rate of 2 percent. (Not that rates have been even close to that any time recently…) But hypothetically speaking, if you let the money sit for five years, how much money is in the account: more than $102, exactly $102, or less than $102?
This shouldn’t challenge anyone’s brain cells. But when the question was posed to a wide cross-section of Americans 50 and older, only 67 percent of respondents answered correctly (more than $102) — barely a hair more than the 65 percent of Americans from all age groups who did so.
“These are particularly worrisome findings because this segment of the population should have already dealt with many of the financial decisions that required this sort of calculation,” according to a new working paper from the National Bureau of Economic Research that pools years’ worth of data on how well Americans understand the basics of personal finance.
The bizarre findings don’t end there. The paper found that 23-to-28 year olds — most of whom have not had the occasion to pay a mortgage, build a retirement nest egg, or save for a child’s college education — were the age group most likely to answer that question correctly, with 79 percent choosing right.
That doesn’t exactly mean you should run to your neighborhood twenty-something for financial planning advice, said Annamaria Lusardi, a financial literacy expert and the report’s author. These statistics are more a reflection of the younger age cohort’s ability to do simple math calculations rather than their ability to manage their money or grasp basic financial concepts. “Many of these individuals are just out of college, so the capacity to do these kinds of calculations is still kind of fresh,” Lusardi explains. “But because you know math, that doesn’t mean you know the difference between a stock and a bond, or how a mutual fund works,” or what is more commonly thought of as financial literacy — a topic that Lusardi says people under age 30 and over age 50 are equally inept at dealing with.
The data suggest that Americans over 50 are decidedly less financially numerate than other age groups – although the data don’t decipher whether that’s due to the impact of aging on cognition, or as a result of never having been taught the proper math skills, Lusardi said.
But by some measures, younger Americans are coming out on top beyond the pure math. Between 2006 and 2010, the number of 18-to-34 year old consumers filing for bankruptcy fell 31 percent, while bankruptcy filing among consumers 55 and older grew by 25 percent, according to a study from the Institute for Financial Literacy from September.