The results of a Motley Fool/ICM survey, released this morning, demonstrate that far too many people are still in the dark about the best way to manage their long-term savings. Here, we provide the full text of the results announcement, followed by the questions themselves.
Key Results of the Motley Fool Financial Literacy Test
"An ISA is a specialist financial advisor," "Gold is the best long-term investment" and "An annuity is an anonymous insurance policy."
These are just a few of the glaringly incorrect answers chosen in a UK financial literacy survey. The results(1) released today by The Motley Fool, the website which demystifies personal finance, reveal a widespread ignorance of even the most basic financial concepts.
While 86% of the 1001 people interviewed believe investing for old age has become imperative to secure any kind of decent future and 78% know it is essential to start this investing early on, the results show the majority have no practical idea of how to sensibly invest their money.
What is the stock market?
More than two thirds (68%) don't know what the Footsie 100 is, despite the fact it is quoted daily in the press and has been around for nearly 20 years.
ISA-unbelievable!
Nearly two thirds (62%) of Britons don't know what an ISA (Individual Savings Account) is and were unaware it provides them with a tax break. More than one in ten (11%) believe an ISA is a specialist financial advisor.
Invest or pay off debt?
The use of plastic is widely encouraged by the financial services industry leading many to the folly of credit card debt costing at least 18% per annum to service. More than two thirds (68%) fail to pinpoint paying off this debt as the most crucial thing to do before investing, apparently unaware that investing in shares can be expected to return only around 12%, considerably short of the 18% interest charged for credit card debt.
Safe as houses or good as gold?
Despite overwhelming evidence that the stock market is the best long-term investment one can make(2), 80% of people think gold, property or high interest accounts are better, or simply had no answer at all.
Men show more knowledge about the market's ability to make money, with more than double (29%) correctly choosing the stock market compared to women (12%). Over half (52%) of women choose to put their money into property and more than one in five (21%) "stick with what they know" and say high-interest bank accounts are the best long-term investment bet.
Annuity confusion
Over 610,000 people in the UK have annuities(3), yet 83% of those interviewed did not realise that when they die this type of investment reverts back to their insurance company instead of their estate.
"Get Rich Quick" attitude
Widespread coverage of the infamous trading gang, the 'Flaming Ferraris', and movies like Wall Street and Rogue Trader, have led to the mistaken belief that the stock market offers "get rich quick" solutions. The reality is that short-term fluctuations are simply impossible to predict and 70% of day traders lose money(4). More than one in three surveyed (38%) believe shares should be bought and sold in a year or less, and one in five (23%) said they didn't know.
If it costs more it must be better, right?
One in five (21%) mistakenly link the value of a company to the price of one of its shares. This lack of understanding may be one reason why people chose to entrust their money with pensions and managed funds. Nearly half (44%) believe fund managers perform at or above the stock market average, but historically it has been proven that 90% actually underperform this average(5).
Foolish Comment
"People rightly want to invest for their future and most people are easily capable of doing so, but lack some very simple knowledge," commented David Berger, Chief Fool. "The basics of money are easy to learn and should be taught in school. Instead, the message we get is that money is difficult, boring and frankly beyond us unless we pay massive commissions to a financial advisor. That's wrong and we'll continue in our campaign to raise levels of public knowledge on investing and ensure the subject is taught effectively in our schools."
References
1. ICM Research interviewed a random selection of 1001 adults aged 18+ by telephone between 4-6 February 2000. Interviews were carried out across the country and have been weighted to the profile of all adults.
2. Barclays Capital Equity Gilt Survey
3. Association of British Insurers
4. Howard Davies, Chairman of FSA (www.fsa.gov.uk/press/1999/october/fsa0106.htm)
5. Comparison of Passive and Active management of Unit Trusts, WM Company, www.index-tracking.co.uk
Financial literacy questions
1. Starting to invest at a young age:
1) makes no difference
2) is important
3) is wrong because you earn more later in your working life
2. What company is better value, one with shares:
1) priced at £10
2) priced at £1
3) it doesn't make any difference
3. When you invest in shares what should your time horizon be:
1) three weeks
2) 6 months
3) around a year
4) 5 years or more
4. Investing for old age is
1) not essential because I will get a government pension
2) not essential because I will get a government and a company pension
3) necessary to secure my future
5. Which has the better long-term investment returns
1) stock market
2) buying property
3) gold
4) high interest bank accounts
6. What is the most important thing to do before you start investing
1) pay off credit card debt
2) pay off a mortgage
3) open an online stock broking account
4) open a savings account
7. The Footsie 100
1) is a list of the UK's largest companies
2) is a list of the UK's 100 best investment funds
3) is a list of Europe's best investments
8. More than 90% of investment fund managers
1) out-perform the stock market average
2) under-perform the stock market average
3) perform on the stock market average
9. An annuity
1) is an anonymous insurance policy
2) is an investment which pays your insurance company when you die
3) is an investment which provides growth
10. An ISA
1) is a specialist financial advisor
2) is a tax break for investors
3) is a government bond
