Financial education is like cooking. You don’t need a Michelin star to eat well.
This week, the Times called for a financial education revolution. It is desperately needed in the UK and sadly, this is not the first time this has been called for. We are still stuck at the start line.
It got me thinking: just how educated must we be? On one side of the spectrum, I meet people who are blissfully unaware of how inflation erodes their savings and on the other, there are experts (like me) who have spent a lifetime understanding finance. Looking at everything I’ve studied over the years, it’s clear that over time, there are diminishing returns and an understanding of a few core principles that truly move the needle.
Forget the Michelin Star, there are only a few skills you need to be healthy
Financial health is a lot like physical health. We all know you don’t need to have a Michelin star chef to eat well. Having been to culinary school (economist by day, chef by night), the most important lesson isn’t a souffle or pastry, it’s learning how to use a sharp knife, so you can chop safely and avoid harm.
Once you know how to use a knife, understanding the basics of protein, carbs and veggies can get you most of the way to making a nutritious meal. Getting a Michelin star is an incredible achievement, but takes years of dedication and for most people, is unnecessary.
Finance is the same: being financially literate stops you from “cutting yourself” on high-interest debt, scams, overspending and taking too much risk.
And then understanding broader concepts like the basics of saving and investing, can make a real difference in building wealth. Most people who obsess over markets do not make any more money than those who know the basics.
You don’t need a Michelin star; you just need to know how to make a healthy meal.
So, can you hold the knife?
Answering 3 out of 4 questions correctly is the benchmark for financial literacy*. The equivalent of chopping safely: Research shows that people who are financially illiterate are more likely to have debt and less likely to have emergency funds and plan for retirement.
The questions have been carefully curated to create a minimum standard for a particular reason: there is a sharp focus on stopping people from losing money and being in debt. If you lose money, it’s very hard to get it back. This stems from the “maths” of percentages: if you lose 50%, you need to make 100% just to get back to where you were. The knife is sharp and wound is difficult to heal.
The 4 questions for financial literacy
I’ve listed them from easiest to the hardest based on global pass rates.
Take the quiz here
Aim for 4/4 as you could get 2 just by guessing. I’ve put the answers at the very end. Good luck.
I challenge you to make a meal
Lots of us know how to chop and we have, quite rightly, higher standards for ourselves. In the next post, I’ll test you on whether you can make a decent meal: I have created a 28-question quiz based on the global standard that covers the most important areas of personal finance.
Perhaps it goes without saying, you can learn to cook but if you don’t get in the kitchen it doesn’t matter. Again, personal finance is the same, the aim is to spend wisely, make sure to save and to make your savings earn a decent return. Then let time do the work.
I work with those who can hold the knife and make a decent meal but want to get better. Excited to publish my new website where people can now sign up to learn about investing.
*This is the global survey done in a huge team effort with GFLEC, The World Bank, Gallup and S&P Global.