Learn to play the money game to grow your wealth
IMAGINE that you have a savings account with an interest rate of 1 percent a year, while inflation annually is running at 2 percent. After one year, with the money in this account, would you be able to buy more than you could today, less or exactly the same?
If you guessed that your money would be worth less than it did a year ago, you join the 64 percent of Americans who answered this question correctly. This information emerged out of a pioneering study designed by economists Annamaria Lusardi and Olivia Mitchell measuring financial literacy levels in the US in 2018. These economists discovered that only 30 percent of Americans were able to answer all three of their questions correctly. Low levels of financial literacy were also prevalent in developed markets such as Germany, the Netherlands, Sweden, Italy, Japan and New Zealand.
In South Africa last year, researchers who have developed their own index found that below-average financial literacy is common among women, young adults, high-school drop-outs, the unemployed and people living in rural areas.
So what is financial literacy and why is it important? Lusardi and Mitchell define it as knowledge about a few but fundamental financial concepts, while the Organisation for Economic Co-operation and Development says financial literacy requires having the skills and motivation to make effective decisions.
The inflation scenario mentioned is one of the “big three” questions used to measure financial literacy in more than 20 countries. Once economists had developed a way to gauge financial literacy, they were able to investigate whether knowledge actually influences behaviour.
Empirical evidence published by Lusardi suggests that people with financial savvy are more likely to accumulate wealth because they are more likely to plan for retirement. Financial knowledge helps people to make informed decisions about spending and retirement. This is why interactive educational tools are growing in popularity here and abroad.
A study published in 2015 by Lusardi and her colleagues supports the notion that these tools are having a positive impact.
Moneyversity by Old Mutual is an example of how videos, quizzes and interactive games are teaching people about compound interest, bond repayments and saving for retirement. Similarly, Fundaba by FNB teaches people about entrepreneurship and running a business in a visual, bitesized way that uses animation and infographics to bring the business owner’s journey to life.
Capitec’s Livin’ It Up app is a strategic game in which the user has to balance daily expenses with aspirations of buying big-ticket items such as a new home or car.
Apps and games are also changing the face of financial education by making it fun and accessible for diverse audiences.
Glenn Gillis is founder of Sea Monster, a South African animation, gaming and augmented-reality company.
CAPITEC’S Livin’ It Up app is a strategic game in which the user has to balance daily expenses with aspirations of buying bigticket items, such as a car.