The simple three-question quiz that stumped more than nine in 10 older Australians

This article is authored by Frank Chung and is originally published by news.com.au.

Are you smarter than a Baby Boomer?

Just seven per cent of older Australians were able to correctly answer three “simple questions” in a study researchers say has exposed “dangerous levels” of financial illiteracy.

Worryingly, one third of respondents got all three questions wrong in the Bond University study, which involved more than 3400 members of National Seniors Australia aged between 55 and 85.

“Financial literacy really dropped off as you got to the older elderly, once you go up into your 70s and above there is a noticeable drop,” said author Adrian Gepp, associate professor of statistics at Bond University.

Dr Gepp said while there were other financial literacy studies covering other age or demographic groups, it was “really hard to compare because no one’s used a common metric for measuring it”.

“But on the surface it does appear to be worse than a lot of other studies just of the general population,” he said, adding “to be honest I wasn’t necessarily thinking the findings were going to turn out this way”.

He said there was a common misconception that Baby Boomers were more financially savvy. “All the criticism is about younger generations not knowing what’s going on, well hang on, we actually have a problem at the other end, too,” he said.

Dr Gepp said people “tend to be overconfident of their financial knowledge and skills” and that financially illiterate people were “more likely to experience asset loss and outlive their savings after retirement”.

The study found female respondents generally fared worse, as did singles and people with poor health. Younger, married males with higher income fared the best.

Dr Gepp said the findings showed people shouldn’t assume their parents or grandparents were across their finances. “Don’t just take it for granted that they know what’s going on,” he said. “Maybe have a chat to them.”

PhD candidate Rui Xue, lead author of the paper, said superannuation, insurance and other fund providers should design tailored, easy-to-understand products for elderly customers.

“Personalised products would be much easier to understand and make users more likely to optimise their income streams,” he said.

He also suggested developing free online and mobile apps specifically designed to engage elderly Australians that “gamify learning” how to invest and choose retirement income products properly.

“Financial education is an efficient way for working Australians, particularly for pre-retirees, to improve their financial knowledge so that the next generation of elderly Australians have improved financial literacy,” he said.

The study was first published in the journal Accounting & Finance on April 14.

The survey used was conducted by a team of Australian National University researchers in collaboration with AMP, Rice Warner Actuaries and the National Seniors Australia. It was funded by an Australian Research Council grant.

Try your hand at the quiz — scroll below the image for answers.

THE QUESTIONS

• Q1: Which of the following investment options do you think is most likely to lead to a loss of money over a one-year period?

a) Conservative/Cash

b) Growth/High Growth

c) Balanced

d) Don’t know

• Q2: Which of the following investment options do you think is least likely to lead to a loss of money over a one-year period?

a) Conservative/Cash

b) Growth/High Growth

c) Balanced

d) Don’t know

• Q3: If you had a choice between receiving $10,000 now, or a greater amount of money one year from now, what is the minimum amount you would need to receive in one year in order for you to choose this option instead of $10,000 now?

ANSWERS

 Q1: b) Growth/High Growth

 Q2: a) Conservative/Cash

 Q3: Varies depending on financial circumstance, but at least $10,250 to cover the cost of annual inflation plus a buffer.

DEFINITIONS

 Growth/High Growth: a higher concentration of shares, and a lower concentration of fixed interest, property and cash than balanced.

 Balanced: a more even mix of shares, fixed interest, property and cash.

 Conservative/Cash: a greater concentration of cash and/or fixed interest, and a low to negligible concentration of shares.

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