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The Big Three, a trio of simple financial literacy questions, have become the gold standard for measuring whether people understand the basic concepts needed to manage money, build wealth, and create a financially secure future. The Big Three have been used to gauge financial literacy since 2004.
The Big Three evaluate understanding of compound interest, inflation, and risk diversification — three fundamental financial concepts that are stepping stones to sound financial decision-making. Wondering whether you have the financial know-how you need?
Credit: Stanford University - Initiative for Financial Decision-Making
Financial literacy is low among American adults. Only 29% answered all three questions correctly. If we focus on individual questions, we see that respondents performed best on the interest question (69%) and worst on the risk question (42%).
Only 14% of those under age 35 answered all three questions correctly. Young people's financial literacy knowledge lags that of older adults. Nevertheless, less than half of those 66 and older were able to correctly answer the Big Three.
Thirty-eight percent of men responded correctly to all three questions, while only 20% of women did so. This is an 18 percentage point gender gap. There is a gender gap for each of the three questions.
Only 12% of those with, at most, a high-school diploma answered all three questions correctly, while 51% of those with a graduate degree did so. Respondents had the most difficulty with the risk question, irrespective of education level.
Married respondents have higher levels of financial literacy than unmarried respondents; 36% of married respondents answered the Big Three correctly. Respondents had the most difficulty with the risk question, irrespective of marital status.
The fraction of Americans that answered all three questions correctly ranges from 12% for those with incomes lower than $25K to 49% for those with incomes higher than $100K. Respondents had the most difficulty with the risk question, irrespective of income level.
A smaller fraction of Black and Hispanic Americans answered all three questions correctly compared to White and Asian Americans. This pattern holds for each question.
Source: Stanford IFDM calculation | Data: FINRA Foundation's 2021 National Financial Capability Study
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Gain the knowledge, skills, and habits to be financially well during your time at Stanford and beyond. See our self-paced content and Stanford personal finance courses for your financial literacy and capability.
Credit: Stanford - Mind over Money Access CourseHarvard College has focused their resources on providing support and education on financial understanding for all students. The more you know, and the more tools you have at your disposal, the better prepared you will be.
In this guide, you'll find information on budgeting, credit, saving and investing, and taxes for Harvard College students, and you!
Credit: Harvard College Access GuideReach your financial goals one step at a time. Join iGrad, a personal finance platform provided by Harvard Graduate School of Education. This structured course helps you understand your finances and improve your financial literacy better.
Credit: Harvard Graduate School of Education Access PlatformFinancial literacy is the understanding of financial terminology, statements, and concepts, and knowing how to use this information to make a financial impact. The first step is to read up on the language and documents your company uses to talk about and track finances.
Credit: Catherine Cote - HBS Online Learn MorePractical, easy-to-use financial tools to help you plan your budget, calculate investments, estimate loans, and make informed financial decisions with confidence.
Create a personalized budget that works for you. This interactive tool from the Government of Canada helps you track income, expenses, and savings goals to take control of your finances and build a sustainable spending plan.
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