According to a study conducted by the economists at the Federal Reserve Bank of Chicago,a majority of Indians (80 per cent) responded correctly to a given financial literacy test, while only 60 per cent of respondents from the American population gave right answers to the test.
The findings of this study also reaffirms the better preparedness of Indians in fighting the economic crisis which rattled many of the big economies globally.
According to the study many Americans do not understand the difference between compound and simple interest and the characteristics of financial assets such as stocks and bonds, the study has noted.
“There is considerable evidence that a large segment of the US population is not financially literate. This means that many people do not understand basic financial concepts and products well enough to make sound short and long term financial decisions for themselves and their families,” the study has reported.
The study has also revealed that a majority of Indians (97 per cent) take an interest in creating new financial plans, while in the US not more than one per cent of the population made financial plans.
In terms of taking loans, Indians emerged as more conservative as most of the loans that were taken by an individual were for buying a home or a car, while Americans maintained large outstanding balances on credit cards even when cheaper forms of credit were available.
US citizens also lagged behind when it came to planning for retirement, reaching it with little or no savings as majority of those surveyed were unable to accurately report their Social Security or pension entitlements.
The survey also suggested that financial counselling is an important tool in educating consumers and would help in their decision making. People can be educated through seminars on retirement planning along with state-mandated personal finance classes.
The study is based on various research reports conducted by the federal bank of chicago in different parts of the world including the US and India.