You Can Have A Checking Account, But Can You Do The Math?

Child's play
Child's play
Leonid Bershidsky

Which is the greater number: $105 or $100 plus 3%? You might think this a trivial question, but about 60% of adults can't answer it correctly â€" and many of them still use financial services. It's an alarming situation. After all, smokers understand they're taking a risk, if only because they've seen the health warning on cigarette packs; but bank clients, especially in poorer countries, are often clueless about money matters.

Standard & Poor's Global Financial Literacy Survey goes further than any of the previous research in examining the phenomenon throughout the world. It's based on 150,000 interviews in more than 140 countries, all conducted last year. The study's financial literacy criteria were rather loose compared with the ones developed in 2008 by two of the leading lights in this academic field, Annamaria Lusardi, currently of Dartmouth University, and Olivia Mitchell of the Wharton School of Business.

Lusardi and Mitchell asked just three questions to test for a basic understanding of compound interest, the effect of inflation on savings and risk diversification. S&P kept these three areas, and added the simple interest question. To be deemed financially literate, a respondent needed to understand three of the four financial concepts.

The questions won't seem difficult even if you don't remember when you last had to do sums in your head. Yet not a single of the four concepts got a majority of correct responses globally. Even in advanced economies, fewer than two-thirds of respondents got each of them right. S&P's estimate of financial literacy throughout the world? A mere 33%.

That alarming finding is no surprise â€" previous studies have shown a low level of understanding of basic financial concepts, too. They have also found that those who are bad at answering the simple questions typically pay higher credit card fees or get fleeced by payday lenders and other financial vampires. The S&P survey's more important contribution is that it highlights the stark difference in literacy between the more and less economically developed countries:


There's some variance among the rich countries, too â€" for example, it's higher in northern Europe than in Italy, Spain, Portugal, even France. But the rich-country average is about twice as high as for BRICS â€" Brazil, Russia, India, China and South Africa, the developing world's economic leaders. That means in the BRICS, where most people have bank accounts, only a small minority have a basic understanding of what's happening with their money:


This is a gap that can be partly closed by improving education. The S&P survey found a positive relationship between high math scores and financial literacy. Even in countries where people in general have a lower understanding of financial concepts than math scores would suggest â€" such as South Korea, China, Vietnam and Portugal â€" young people, the beneficiaries of recent improvements in education, are far more financially literate than the average. Yet improving the quality of math teaching won't quite fix the problem if the math is not put in a financial context early on. In South Korea, the country with the second-best math scores in the world after Singapore, only 48% of people aged 15 to 35 are financially literate â€" far fewer than the average in Germany and the U.S., where the math test results aren't as great.

The understanding of basic finance is often about experience. That's why it's high among homeowners, who are often paying back mortgages and are forced to understand compound interest; and that's why in countries that have seen high inflation, such as Argentina or Bosnia, an inordinately high percentage of respondents got the inflation question right. People in wealthier countries, where the financial systems are well-developed and information is more readily available from various sources, including friends and neighbors, the experience is the most rounded. Accumulating it, however, is potentially costly, and it doesn't work for everyone. According to the S&P study, in the U.S., "3 in 10 adults with a housing loan are unable to perform basic interest calculations on their loan payments. Since the global financial crisis was triggered in part by mortgage defaults in the United States, this should concern policymakers, not just homeowners."

I'm inclined to agree that the gap between financial literacy and the penetration of financial services is a regulatory problem as much as one of education. No country allows someone who hasn't taken a driving test to drive a car on public roads. Yet all countries allow, even encourage their citizens, to hold banks accounts, take out loans and make investments, even though it has been shows countless times that many of them have no idea what they're doing and therefore could get hurt.

Introducing a basic literacy test, or questionnaire doesn't have to be a major hassle: The financial institutions could administer the tests by including them in standard applications. There should be more questions than Lusardi and Mitchell or S&P have been asking, because sometimes a product â€" say, a floating-interest loan or one issued in a foreign currency â€" requires more specific knowledge. If a prospective client fails the test, the law should require that the client demonstrate understanding before the application be approved.

Including tests in applications should be especially important to developing country governments. It would potentially save them a lot of trouble during financial crises: They wouldn't, for example, have to deal with tens of thousands of people holding loans in steeply appreciating Swiss francs, a problem Hungary and Poland recently encountered. People will often act irresponsibly when they want something badly enough, and it would be too intrusive for governments to try to rule that out. People may still make ignorant decisions, but it is the job of regulators to make sure they fully understand the risks.

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How Low Trust In Government Fuels Violence Against Politicians

The deadly stabbing of UK MP David Amess confirms this researcher's ongoing study on trust and governance in democracies around the world: It's bad.

Tribute to slain UK MP David Amess in Leigh-on-Sea on Oct. 15

James Weinberg

The killing of British Conservative MP David Amess, who was stabbed to death in his constituency on October 15, is a tragic moment for democracy. What makes it even more devastating is that such a catastrophic failure is not without precedent or predictability. Labour MP Jo Cox was shot at her constituency surgery in 2016. Before her, another Labour MP, Stephen Timms, survived a stabbing in 2010. And Andrew Pennington, a Gloucestershire county councillor, died in a frenzied attack in 2001 while trying to protect local Liberal Democrat MP Nigel Jones.

This is to say nothing of the 2018 attack on the Palace of Westminster that left police officer Keith Palmer dead and MPs in a state of shock.

Beyond these critical junctures in the public debate about politicians' safety, elected representatives must live with an increasingly insidious level of popular cynicism that threatens violence on an almost daily basis.

Between the divisive politics of Brexit and the growing polarization of British party politics, MPs currently work in a low-trust, high-blame environment. Even before the existential angst and subsequent politicking of the COVID-19 pandemic, a recent Hansard Society audit of political engagement concluded that “opinions of the systems of governing are at their lowest point in the 15-year Audit series – worse now than in the aftermath of the MPs' expenses scandal."

The ramifications of governing in such an age of distrust are significant for the mental health and wellbeing of politicians. With colleagues, I've argued that such visceral and endemic distrust is a key stressor in political life. People are not simply wary or skeptical of politicians, they now routinely criticize their personalities and dismiss their good intentions. At its most severe, this “distrust stressor" manifests in the growing threat of physical violence faced by politicians.

Unfortunately, the distrust stressor is commonplace in the febrile climate of post-millennial UK politics. Serious cases of stalking and harassment have become a “common experience" for MPs. In the UK general election of 2017, for example, 56% of surveyed parliamentary candidates expressed concern about the levels of abuse and intimidation they had received and 31% said they had felt “fearful" during the campaign. Misuse of anonymous social media accounts has intensified these problems and created a toxic environment for elected politicians that regularly exposes them to online rape and murder threats.

Governing under threat

As part of an ongoing study of trust and governance in five democracies around the world, I recently carried out more than 50 in-depth interviews with junior and senior politicians in national legislatures, including questions on the stresses and strains of political life.

Reflecting on the ramifications of simply doing their job, one Conservative MP commented:

There have been votes that have been controversial, and you can then get a lot of abuse as a result of picking a side. My office has been vandalized, I've had stuff sent to me in the post, I've received death threats. And you do build up a very thick skin doing this job, there's no shadow of a doubt. Because one week in it, if you're not able to roll with the punches, you won't see through a whole term.

Almost 40% of interviewees were able to cite more than one instance of serious abuse or threats of physical violence. Not only are these experiences felt across both sides of the political aisle in the UK, but they also appear to be growing more common in other democratic contexts where the climate of politics has been presumed to be both calmer and more volatile. As one MP in New Zealand told me:

I've had some pretty horrible death threats and I've had a lot of abuse, particularly through social media. But also, funnily enough, in writing and phone calls. Unfortunately it's becoming more part of our political life.

Another, this time in South Africa, said:

What [this group of constituents] were saying is that if the water supply was not fixed by a certain time, they were going to kill me. And what they did is they took a tyre and said that this tyre was going to go around my neck and they're going to light it and that was going to be my demise. Listen, when you see your life flash before your eyes… you start to question whether it's worth it.

In the UK, analysis of data from the Representative Audit of Britain (a survey of all parliamentary candidates who stood in general elections between 2015 and 2019) suggests that the harassment, abuse and intimidation of elected and aspiring politicians is also highly gendered. Women politicians, and black and minority ethnic women in particular, experience a disproportionate share of sexualized abuse online. They also receive more aggressive and sexualized threats offline.

Contact between politicians and the public is at the very heart of effective democratic representation.

It is relatively easy to understand why all this would be detrimental to politicians' professional competence and their sense of personal worth and wellbeing, but it is harder to find solutions to this crisis.

Home Secretary Priti Patel has called for increased security measures in the wake of Amess's death. This is welcome but it's an instrumental response which might not be easy to implement. Political contact between politicians and the public is at the very heart of effective democratic representation – and it is unlikely that most MPs will agree to suspend constituency surgeries or fill their offices with armed guards at a time when governor-governed relations are already so strained.

Photo of \u200bNew Zealand's parliament in Wellington

New Zealand's parliament in Wellington

Guo Lei/Xinhua/ZUMA

Compassion and education

While specific issues around MPs' security and training are grappled with, we also need a call for conscious restraint and compassion in political discourse. When some politicians themselves resort to dog-whistle populism, verbal abuse and infighting, it broadcasts an image of politics as an arena for incivility. At the same time, it perpetuates a binary worldview that crowds out the possibility of empathy and compromise.

Alongside this, we need to overhaul the media coverage of politics. Increasingly intent on personalizing the political and politicizing the personal, a 24-hour news media too often drip feeds blunt stereotypes about politicians' personalities and motives. In contrast to much news coverage of politicians, my own research with hundreds of elected MPs and councillors has shown that the majority enter politics with an extraordinary dedication to improving the lives of others that is rarely perceived or appreciated by those they govern.

A deficit in democratic education leads to inflated public expectations about what is possible.

Equally important, nations around the world must commit to fully funded and well-resourced programmes of democratic education. Politics is messy and full of contingencies, and a deficit in democratic education leads to inflated public expectations about what is possible or desirable. In turn, this breeds disappointment and lowered self-efficacy, which together disrupt the positive potential of deliberative participation.

Ultimately, there is no place for political violence, harassment or intimidation in a functioning democracy. At the very least, politicians are ordinary humans attempting to undertake an extraordinary job on behalf of everybody else. Whatever their political views, nobody who has the courage to "step into the arena", to paraphrase Theodore Roosevelt, deserves to fear for their life in the pursuit of public service. To say that we need to rediscover civility and respect in our politics is once again an understatement of a devastating truth.The Conversation


James Weinberg is a lecturer in Political Behavior at the University of Sheffield

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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