Diversify for health says US professor

Fairfax Media

POOR UNDERSTANDING: Dartmouth College economics professor Annamaria Lusardi says risk diversification is good for you, but was poorly understood.

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It may not seem it, but risk diversification is like broccoli, says Dartmouth College economics professor Annamaria Lusardi.

"Broccoli is good for you, and risk diversification is too."

But while broccoli was known to be healthy, diversification having a mix of investments in order to spread risk was poorly understood, she said.

United States surveys on financial literacy had revealed only one third of respondents could correctly answer basic questions on diversification, interest rates and inflation.

Old people, young people and women tended to be the worst performers in the surveys, and financial illiteracy tended to be reflected in a person's financial security.

A survey of people aged 50 to 56 showed nearly one third had not thought about retirement, she said.

Those who planned for their retirement had a median net worth of US$308,000 (NZ$477,000) while those that didn't languished behind on US$122,000, Dr Lusardi said.

"People with low knowledge are also a lot more likely to borrow money at a higher cost, are less likely to participate in the stockmarket and are less likely to save."

Dr Lusardi was a keynote speaker at the Retirement Commission's Financial Literacy summit last week.

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