Bailout

Adventures in financial literacy

By Felix Salmon

This is one of the silliest things I’ve read in ages:

As economists, elected officials and the American public ponder how to strengthen the U.S. economy by rebalancing the nation?s spending and consumption with savings and investment, an alarming majority of U.S. teens say they lack the knowledge to understand and effectively reconcile the two, according to the eleventh annual ?Teens and Personal Finance Survey? conducted by Junior Achievement (JA) and The Allstate Foundation.

The poll itself shows that, contra the alarmism of the press release (and of certain coverage thereof), teens are in fact perfectly sensible when it comes to their personal finances. When asked why they don’t use a budget, for instance, the top two answers are very good answers indeed: “My parents take care of all my expenses”, and “It’s not necessary given the amount of money I have.”

The poll affects surprise that only 58% of teens are interested in money management and that 54% of them say they are unsure about how to effectively use credit — but the simple fact is that teens tend to have one of the best money-management systems in the world. They know exactly how much money they have at any given time, and they have no access to credit at all, so if they want something they have to save up for it. (Or get someone else, like their parents, to buy it for them.) And of course they’re unsure how to effectively use credit, for much the same reason that I’m unsure how to effectively fire a grenade launcher.

But the most delicious part of the whole survey is this pair of charts. Remember that they’re being published by an organization which is trying to teach financial literacy:

“Percentages may not total 100 due to rounding”, it says, which might can’t explain why the right-hand chart adds up to 102% 112%, and which also doesn’t explain why the colors on the right-hand legend are mixed up, with the lime-green and brown colors switched.

More seriously, the left-hand chart, which adds up to only 88%, shouldn’t be a pie chart at all, since it’s not meant to add up to 100%. It’s just the percentages of teenagers who answered in a certain way to three entirely different questions. There’s no pie here to chart: no whole which is split up into differently-sized pieces. Is it too much to hope that a financial-literacy organization might display a bit of financial literacy itself, before it starts getting all alarmist about the fact that teenagers don’t tend to worry overmuch about where to invest their nonexistent savings?

Update: JA, which put the survey together, responds in the comments, and still doesn’t get how stupid these pie charts are! If this person really doesn’t understand why a pie chart has to add up to 100%, I’m more convinced than ever that they have no business preaching financial literacy. Also in the comments, maynardGkeynes makes a point I’ve made many times in the past: that it’s a good thing to know that you don’t know about money. If you run these teens through a financial-literacy program, they’ll say they’re more financially literate than they do right now. But, in truth, they won’t be — they’ll just be more overconfident than they are right now when it comes to matters financial.

Full post as published by Macroprudential on April 12, 2010 (boomark / email).