Indians can take prudent financial decisions and avert an economic crisis better than the Americans as financial literacy level in the world's largest democracy is higher than in the US, says a study.
According to a study by economists at the Federal Reserve Bank of Chicago, majority of Indians (80 per cent) responded correctly to a financial literacy test, while only 60 per cent of respondents from the US gave right answers to the test.
The findings of the study also reaffirms better preparedness of Indians in fighting the recent economic crisis which rattled many of the big economies globally.
Most of the Americans do not understand the difference between compound and simple interest, the characteristics of financial assets such as stocks and bonds, the study 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 said.
Moreover, majority of Indians (97 per cent) take interest in creating financial plans, although the US has not more than one per cent planers.
In terms of taking loans, Indians are more conservative, most of the loans taken by individuals were for buying a home or a car, while American maintain large outstanding balances on credit cards when cheaper forms of credit are available.
Even the US' citizens fail to plan 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.
However, the survey suggested that financial counselling is an important tool in educating consumers in their decision making. People can be educated through employer-provided seminars on retirement planning, to state-mandated personal finance classes, to one-on-one mortgage counselling.
The study is based on various research reports conducted in different parts of the world including the US and India.