The world doesn’t know basic financial concepts

16,000 people in 15 countries were asked about basic financial concepts.

The Aegon Retirement Readiness Survey 2018, measured how well people understood compound interest; inflation and diversification.

Many failed.

SMU Cox School of Business economics and finance professor Mike Davis said compound interest is hard for people to understand.

“They don’t realize that if you earn an interest rate of four percent, then your money is going to double in about 18 years,” said Davis.

He said young people (25-35) could benefit the most if they start saving early, it will triple by the time they can retire.

He said start saving early, make it a habit and put it someplace where you never even see it.

“Save early. Try not to beat the market. Just own broad, low-fee diversified investments. Don’t be intimidated by these financial matters. It’s mostly common sense,” said Davis.

The questions that stumped the most people had to do with inflation.

The question designers said the report is “intended as a call to action”. They suggest “include working financial literacy into educational curricula, promoting a more positive view of aging and allowing universal access to retirement savings arrangements.”

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