As I have begun to get back to this website and try to make a success of it once again, I have been mindful of personal finances; in particular in the wider community. As I listen to people talk about money I notice often financial literacy appears to be an issue. One issue that might explain, at least in part, many personal financial predicaments.
As part of all that is going at the moment as I write this in June 2020 my in-laws have been having a weekly family quiz night; quite common from what I understand chatting with friends. These nights have been quite good fun, in particular for my wife, who misses seeing her family in person and so gets to see them all on video and enjoy the normal banter that goes onto.
One of the categories that came up last night was economics; you might be thinking, boy … these quiz nights must be pretty dry. Not to worry, the categories are normally movies, tv and celebrities. And to be honest little of which I have much of an interest in, but others enjoy it and really that is the purpose of the evenings. But this night did bring into sharp relief a clear misunderstanding of some serious flaws in financial literacy.
In any case, back to economics. From the ten questions the group had to answer a couple really stood out to me as coming from someone who had little to know understanding about economics or any fundamental financial matters. And this isn’t a particular slight upon them as I understand when they were allocated the category of economics to do for the Thursday quiz night they may have asked what economics was.
My comments really come from that no one in the group had a sufficient understanding of basic financial matters to know a couple of the questions had no answer as they made no sense. And what were these questions you may ask? The two that stuck out for me were:
“What is the highest economy in the world?”
and
“What is the wealthiest commodity?”
Ok, all of this could just be me and you are sitting there thinking … nope, they make perfect sense. The first one I can see what they are getting at, but the second one I had no idea what they were asking. And when I asked how a commodity was able to own wealth … all I received was a puzzled look.
Question one is obviously asking what is the largest economy in the world as measured by GDP; and as you are reading a personal finance article you will know it is the United States. A traditional and, with all its problems in measurement and recognition, a relatively reliable measure for both comparison across countries and over time. But when I asked what highest meant, they just repeated “well, obviously highest”. And how is this measured? “I don’t know” was the reply.
What question two was in fact asking was if one was to add up a commodity’s known reserves and multiplied this by the current market price for this commodity, which one would have the greatest value? The answer apparently is oil, but I’ve never seen research around this … if you have please get in touch or drop a comment below.
Of course all of this could just be me, I do look at the world in a different way to many. However I wondered why when we spend so many years of our life on this planet, selling our “life energy”, as Vicki Robins likes to put it in her excellent book Your Money of Your Life, yet we seem to understand so little about what we trying to earn. Money! Why waste so much life in its pursuit to then not understand how to manage it properly or just some basics of how the system works?
Don’t worry, for the majority of my working life to date I have done that very thing pretty much … wasted a lot of time earning money that I didn’t take care of properly. Not understanding, particularly when I was younger, about the huge benefits compounding and time are for the young. But that … is for another article at another time.
In the end I don’t know whether financial literacy has anything to do with a persons financial situation. One could only find this out by comparing one with the other for many people. Notwithstanding this, what I have tended to find in life is people with a good understanding in how to behave with money and follow a plan appear to do better than the opposite being true. So perhaps it is a matter of association rather of causation. What do you think?