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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Re: The 401(k) World Date: 5/4/2013 1:08 AM
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katiewa writes,

<<The average person can't balance a checkbook and has no idea of what compound interest is.>>

But we aren't talking about people who are mentally disabled--they are capable of learning. So they didn't think math was important when they were in high school--doesn't mean they can't learn it now. I had never balanced a checkbook until I got out of college--no money, no checking account. I followed the directions that came with each statement.

</snip>


Yeah, but you're in the Top 5% with respect to financial knowledge since you're posting here.

When I got hired into my first engineering job after college (1978), they sent me to one of those week-long management training seminars put on by a consultant. Here's the most interesting thing I learned in that week:

If you measure functional literacy by the ability to do these three things. 1) write a simple business letter, 2) balance a checkbook, and 3) pass the written part of a driver's license exam -- only 10% of the population can do all three. That doesn't mean that people are necessarily stupid -- you might have a Harvard grad that's bad at math or an MIT grad who can't write clearly, but the more you expect from an employee, the fewer people you'll be able to find to do that job.

Author William Bernstein says that when you look at the skills someone needs to manage their own retirement funds, maybe one person in 10,000 is qualified to manage their 401k.

William Bernsteirn: I have come to the sad conclusion that only a tiny minority will ever succeed in managing their money even tolerably well. Successful investors need four abilities.

#1 - an interest in the process

#2 - more than a bit of math horsepower, far beyond simple arithmetic and algebra, or even the ability to manipulate a spreadsheet. Mastering the basics of investment theory requires an understanding of the laws of probability and a working knowledge of statistics.

#3 - a firm grasp of financial history, from the South Sea Bubble to the Great Depression.

#4 - the emotional discipline to execute their planned strategy faithfully, come hell, high water, or the apparent end of capitalism as we know it.

I expect no more than 10 percent of the population passes muster on each of the above counts. This suggests that as few as one person in ten thousand (10 percent to the fourth power) has the full skill set.

</snip>


intercst
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