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Career Talk

/ 4 years ago /

 Article by Brenda Wong

Less than half of adults understand compound interest

Uh, world, you kk? Apparently, less than half of adults understand this key financial principle: the principle of compound interest.

If you’re reading this, scratching your head and wondering what on earth compound interest is, you’re not alone.

A survey conducted by the Organisation for Economic Co-operation and Development (OECD) interviewed over 50,000 adults in 30 developed and developing countries.

Survey participants were tested on these things: their financial knowledge, attitudes and behaviour. According to the results, France came in with the highest level of financial know-how, and Poland came last.

The results breakdown

compound interest

The study measured whether participants were able to calculate this problem:

Can a $100 savings account compounding at an interest rate of 2% a year would total more or less than $110 over five years?

(Spoiler, the answer is more.)

Only 42% of participants got this answer correct. The results for the simpler math problems were only slightly better, with 58% of participants getting the answer correct.

The results measuring financial behaviour were both fascinating and worrying. Only 60% of adults said they maintained a household budget, and only half have set long-term financial goals.

Only 44% of participants shopped around when it came to choosing financial products in the past two years, and only 19% used independent information to evaluate their choices.

Money management is a seriously necessary adult skill, but it’s not something that’s taught in most schools. Perhaps there is something to be said about introducing a module at sixth form or university that could help educate young people in their transition to adulthood.

Seriously though, what is compound interest?

Sigh. Right, here we go. Here’s what MathsIsFun.com had to say about compound interest. For a really in depth look, click on the link, and it should tell you what’s up.

Don’t say we don’t take care of you now.

Feature Image © Pexels

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