What financial literacy covers, and how it is measured

The definition most surveys use

There is a standard definition, and almost every national survey now uses it. The OECD, through its International Network on Financial Education, defines financial literacy as a combination of financial awareness, knowledge, skills, attitudes and behaviours necessary to make sound financial decisions and ultimately achieve individual financial well-being.

Two things in that sentence are easy to miss. The first is that knowledge is only one of five words in the list: attitudes and behaviour are part of the definition, not extras. The second is the endpoint, which is the person's own financial well-being, not a test result. A definition written that way rules out the idea that someone who can do the arithmetic is financially literate and someone who cannot is not.

The OECD's 2023 round of this survey collected answers from 39 countries and economies and just under 69,000 adults aged 18 to 79, using a shared questionnaire designed to work in countries at very different stages of economic development.

Knowledge, behaviour and attitudes

The survey score is built from three parts, added together and rescaled to run from 0 to 100.

• Knowledge: seven questions covering what inflation means and what it does to savings over time, the effect of interest on a loan, simple and compound interest, the link between risk and return, and the point of spreading money across different holdings.
• Behaviour: what people report actually doing, such as considering whether they can afford something before buying it, comparing products across providers, or seeking information from an independent source before a purchase.
• Attitudes: how strongly people agree with statements about spending now rather than saving for the long term.

The gap between the three parts is where the interesting findings sit. In the 2023 round the average knowledge score across all participating countries was 63 out of 100 and the average behaviour score 61 out of 100, and the overall average financial literacy score was 60 out of 100. The OECD sets a minimum target score of 70 out of 100, and on average only 34% of adults reached it.

A quiz, including the one on this site, reaches the knowledge part and nothing else. Answering every question here correctly says you can work out what compound interest does; it says nothing about whether you compare offers before signing one.

The three questions every survey borrows

If you have taken more than one financial literacy quiz you have probably met the same three questions twice. They are usually called the Big Three, and they were written by Annamaria Lusardi and Olivia Mitchell, of the Wharton School, as a short set of questions that indicate a person's financial literacy. They have been used worldwide, including in the United States National Financial Capability Study.

Described in prose rather than reproduced: the first asks what a small sum in a savings account is worth after several years once interest has been added each year, which tests whether someone applies compounding rather than simple multiplication. The second sets an interest rate against a higher rate of inflation and asks what the money would then buy, which tests whether someone separates the number in the account from what it can purchase. The third asks the reader to compare the risk of holding one company against holding many at once, which tests the idea of diversification.

Three questions are a blunt instrument, and that is the point: they were designed to be short enough to attach to a national survey that was mostly about other things. The quiz on this site covers the same three topics among six, with its own wording and its own numbers, and with more than one question each, so that a single guess does not decide a topic.

Why national results differ so much

Published financial literacy figures vary widely between countries, and the reasons are not only about how much people know.

• The questions are harder in some parts than others. Across the 2023 participants, 84% of adults answered the question on what inflation means correctly, but only 63% could apply the effect of inflation to their own savings, and fewer than half answered the compound interest question correctly.
• Who is asked matters. The OECD reports higher financial literacy among adults with more formal education, higher incomes and paid employment, so a country's education and employment profile moves its average before anything else does.
• Differences inside a country are often larger than the ones between countries. Average gaps by age and by gender were both under about two points out of 100 across all participants, while gaps between countries ran to tens of points.
• Surveys are run at different times, in different languages and sometimes with slightly different versions of the questionnaire, and the financial products available to an ordinary adult differ enormously from one country to another.

So a headline such as one country scoring far above another is a fact about the survey as much as about the population. It is not a reason to read your own quiz result as a national ranking, and this site does not compare your answers with anyone else's.

How to use a skill breakdown to learn

A single percentage tells you almost nothing you can act on. A breakdown by topic does, because the topics fail for different reasons.

• Compound interest usually fails as arithmetic. Redo the question on paper: work out one year, add the interest to the balance, then run the next year on the new balance.
• Inflation usually fails as a comparison. Write the two percentages side by side, the one your money grows by and the one prices grow by, and ask which is larger.
• Borrowing costs usually fail on vocabulary. Read one regulator page on what an annual percentage rate includes that an interest rate does not.
• Risk and diversification usually fail on a concept rather than a number, so an explainer will move you further than practice questions.
• Budgeting questions usually fail on arithmetic under time pressure, so slow down rather than read more.
• Credit record questions usually fail because the rules genuinely differ by country. Look up how credit reporting works where you live.

Then take the quiz again. A second attempt after reading measures what you took from the reading, which is a more useful thing to know than a first score.

One thing a breakdown cannot do is tell you what to do with your money. Knowing how compound interest works does not tell you where to save; understanding diversification does not tell you what to hold. Those are decisions for you, with help from someone qualified and regulated where you live.