Can You Answer These 5 Money Questions?

I am convinced that this is a national crisis. I think governments are solely to blame. And I’m deeply concerned about what this declining financial literacy will mean for both future inequality and financial stability. More on that later.

First you might want to test yourself? Here are the five questions researchers asked, along with the percentage of men and women who got them right in the 2016 survey (a 2020 breakdown isn’t available yet).

We don't teach our children the necessary financial knowledge.

We don’t teach our children the necessary financial knowledge.Credit:Erin Jonasson

Answers at the bottom of this column. No cheating…

Question 1. Arithmetic [Male: 90.7%; Female: 79.5%]

Suppose you put $100 into a fee-free savings account with a guaranteed interest rate of 2% per year. You do not make any further deposits into this account and you do not withdraw any money. How much would be in the account at the end of the first year after paying the interest?

Question 2. Inflation [Male: 77%; Female: 63.8%]

Now imagine the interest rate on your savings account is 1% per year and inflation is 2% per year. After a year, with the money in this account, would you be able to buy more than today, the same amount as today, or less than today?

Question 3. Diversification [Male: 77.4%; Female:72.6%]

Do you think the following statement is true or false? “Buying stock in a single company typically offers a safer return than buying stock in multiple different companies.” (Right or wrong?)

Question 4. Risk-reward [Male: 87.8%; Female 79.4%]

Please tell me again whether you think the following statement is true or false: “An investment with a high return is likely to have a high risk”. (Right or wrong?)

Question 5. Money illusion [Male: 77.5%; Female 73.3%]

Suppose by the year 2020 your income has doubled, but the prices of everything you buy have also doubled. In 2020, will your income be able to buy more than today, the same amount as today, or less than today? [updated to the year 2024 in the 2020 survey]

According to Professor Alison Preston of the UWA Business School, to be considered financially literate, a person must be able to answer at least all three of the first three questions correctly.

In 2016, just 55 per cent of Australians could do this, leaving 45 per cent of Australians over the age of 15 meeting the definition of “financially illiterate”. That’s around 8.5 million financially illiterate Australians, and rising in the latest results.

“The inevitable conclusion,” according to the latest HILDA report, “is that since 2016 there has been no progress in improving the financial literacy of the Australian population, in fact we have gone backwards.”

The HILDA report concludes that

The HILDA report concludes that “since 2016 there has been no progress in improving the financial literacy of the Australian population, in fact we have gone backwards”.Credit:one

So what is done?

Well, if you answered “not much” to that question, you’re right.

At the federal level, there’s been a lot of navel-gazing and reporting on the best definition of financial literacy, whether it’s “financial capability” or “financial well-being.”


Under the previous federal government, responsibility for “financial performance” was shifted from the corporate regulator to the Treasury Department.

The Treasury wrote an outlandish report, completed just before the last election, which concluded, among other things, that new “consumer data rights” laws will give consumers better visibility into their finances and lead to better decision-making.

ASIC still runs the MoneySmart website which has some great financial calculators and tools but is clunky and outdated.

State governments, of course, remain largely responsible for setting the school curriculum. There is a non-profit national grant-making body called Ecstra, which has developed a new “talk money” program for schools, but it is on an opt-in basis and is limited in scope.

If I had my way, I would design a taxpayer-funded, nationwide school-based financial education program similar to the Life Education Australia program (remember the giraffe?!). Rather than burdening already-stressed teachers with the responsibility of teaching money concepts, children of all ages would be taken away from school for a day each year to engage in age-appropriate activities during their school years to build their financial literacy.

Private banks were squeezed out of the school sector.

Private banks were squeezed out of the school sector.Credit:Virginia Star

At the urging of consumer groups, private banks have been kicked out of the schools sector, including the Commonwealth Bank’s Dollarmite scheme. But in the rush to throw out the private sector, little has been done to fill the void.

As things stand, governments are failing in their duty to ensure Australians are equipped with the financial means they need to navigate an increasingly complex world.

This will not only contribute to a more unequal society, but also a riskier one as ill-informed consumers make poor financial decisions, either by investing too much money or falling for financial fraud.


Of course, there would be costs involved in designing and delivering a top-notch nationwide money education program.

However, if we fail to do so, the cost of financial illiteracy will be borne by those who can least afford it.

[Correct answers: Q1 $102; Q2 Less; Q3 False; Q4 True; Q5 Exactly the same]

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Brian Lowry

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