Lusardi (Wharton) and Mitchell (Harvard) created the global standard for financial literacy measurement. Their famous "Big Three" questions test compound interest, inflation, and diversification.
In America: only 30% of adults can answer all three Big Three questions correctly according to FINRA Foundation's National Financial Capability Study.
Why financial IQ matters
Studies show high financial IQ correlates with: - 3.2x more likely to have emergency fund - 4.7x more wealth accumulated by 50 (controlling for income) - 68% less debt overload - 2.4x better investment decisions
Financial IQ predicts financial success better than income level.
The 10 essential concepts (American context)
- Compound interest
- Inflation
- Diversification
- Interest rate / Fed funds rate
- 401(k), IRA, Roth IRA, HSA
- Debt-to-income ratio (DTI)
- Investment products (index funds, ETFs, S&P 500)
- FICO credit score
- Credit cards (minimum payment trap)
- Rule of 25 (financial independence)
The 3 zones
Basic IQ (45%)
Missing fundamentals.
Intermediate IQ (40%)
Core concepts handled. Need depth.
Advanced IQ (15%)
Concepts most don't know. Challenge: consistent application.
Compound interest — the most underused concept
American example: $10,000 at 7% for 30 years: - Simple interest: $31,000 - Compound interest: $76,123
Difference: $45,123 from how interest is calculated.
Practical takeaway: person investing in S&P 500 index at 25 with $200/month ends with MORE than person starting at 35 with $800/month. Time beats amount.
How to raise your IQ in 90 days
Month 1: Foundations
- Read "The Simple Path to Wealth" by JL Collins
- Subscribe to ChooseFI podcast
- Read r/personalfinance wiki
Month 2: Application
- Calculate DTI
- Calculate FI number
- Audit subscription leaks
Month 3: Deepening
- Learn 401(k) options at work
- Open Roth IRA at Fidelity/Vanguard/Schwab
- Read Bogleheads investment philosophy
Resources
- FINRA Foundation: financial capability research
- SEC.gov investor education
- CFPB.gov: consumer financial education
- Khan Academy Personal Finance: free courses
Based on Lusardi-Mitchell Big Three methodology + FINRA Foundation NFCS 2024.
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About the author
Enrique 'Kike' Faúndez is an Information Systems and Management Control Engineer from Universidad de Chile, with master’s degrees in Finance from Universidad de Chile and Industrial Engineering from Pontificia Universidad Católica de Chile. He has 15+ years of experience in regulated financial services across finance, operations, and digital product development. He founded CashControlly in Santiago, Chile, with the conviction that personal financial control should not be a privilege, but an accessible and well-designed tool.
- Master's in Finance, Universidad de Chile
- Master's in Industrial Engineering, Pontificia Universidad Católica de Chile
- Information Systems and Management Control Engineer, Universidad de Chile
- AI and ITIL certifications
- 15+ years in regulated financial services
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