Chapter 11. Financial Education

Financial education is not the same thing as investment education. Financial education is like basic food, necessary for economic survival; investment education is like icing on top of the cake. There's little point in giving employees investment education until they have first received financial education. In this chapter we explain why we think so.


See if you can answer either or both of the following questions.

  • Question 1: If five people all have the winning numbers in the lottery and the prize is $2 million, how much will each of them get?

  • Question 2: Let's say you have $200 in a savings account. The account earns 10 percent interest per year. How much would you have in the account at the end of two years?

If you got them both right, you are in a minority of the adult U.S. population. That startling insight comes from three authors[93] who took those questions from a longer list used in the 2004 Health and Retirement Study (HRS), a survey conducted with a nationally representative sample of almost 1,000 participants. They tell us:

"We label these questions 'Lottery Split' and 'Interest' ... Less than half were able to correctly answer the Lottery Split question. 60 percent of respondents answered the Interest question correctly." In a footnote they add: "Note that we give the respondent credit for the Interest question if they provide either the correct simple interest response or the correct compound interest response."[94] ...

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