Can You Beat 93% of Americans on a Financial Literacy Quiz?

Can You Beat 93% of Americans on a

Financial Literacy Quiz?

What do you really know about finance?

How would you rate your financial literacy?

Most folks say they're very knowledgeable about financial matters.¹

But guess what?

Only about 1 in 3 folks can score 80% on a simple financial literacy quiz.²

And only 7% answer every question right.²

So, how will you measure up?

Can you beat 93% of your fellow Americans?

Let's find out and take the financial literacy quiz.³

Test Your Money Smarts with

6 Basic Questions About Finance

QUESTION 1

Suppose you have $100 in a savings account earning 2% interest per year. After five years, how much would you have?

More than $102
Exactly $102
Less than $102
Don't know

ANSWER 1: A

It's more than $102 due to compounding interest.³

The Math: A savings account with $100 and a 2% annual interest rate would earn $2 the first year (an ending balance of $102). Year 2, the $102 would earn $2.04 (an ending balance of $104.04). By year 5, the savings account would grow to $110.41.

How many folks answered:¹

Correct: 43%

Incorrect: 11%

Don't know: 45%

QUESTION 2

Imagine that the interest rate on your savings account is 1% per year and inflation is 2% per year. After one year, would the money in the account buy more than it does today, exactly the same, or less than today?

More
Same
Less
Don't know

ANSWER 2: C

You have less due to inflation, the rate at which the prices rise.³ If the inflation rate is greater than the savings interest rate, your buying power will not keep up with inflation.

How many folks answered:¹

Correct: 55%

Incorrect: 22%

Don't know: 21%

QUESTION 3

If interest rates rise, what will typically happen to bond prices? Rise, fall, stay the same, or is there no relationship?

Rise
Fall
Stay the same
No relationship
Don't know

ANSWER 3: B

When interest rates rise, bond prices fall (and vice versa).³ This is because rising interest rates bring newer bonds to market. The newer bonds pay higher interest yields than older bonds, making those older bonds worth less.

How many folks answered:¹

Correct: 26%

Incorrect: 37%

Don't know: 36%

QUESTION 4

True or false: A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage but the total interest over the life of the loan will be less.

True
False
Don't know

ANSWER 4: A

Assuming the same interest rate for both, you pay less in interest for a 15-year loan because you repay the principal faster.³ That's also why the monthly payment for a 15-year loan is higher.

The Math: With a 30-year mortgage at 6% on a $150,000 home, you pay $899/month in principal and interest charges. Over 30 years, that's $173,757 in interest alone. A 15-year mortgage will cost you nearly $100,000 less — $1,266/month but only $77,841 in total interest.

How many folks answered:¹

Correct: 73%

Incorrect: 9%

Don't know: 17%

QUESTION 5

True or false: Buying a single company's stock usually provides a safer return than a stock mutual fund.

True
False
Don't know

ANSWER 5: B

A stock mutual fund lets you diversify*.³ In general, that makes a stock mutual fund less risky than a single stock because you can spread your risk by spreading your investments. With a single stock, all your eggs are in one basket.

How many folks answered:¹

Correct: 43%

Incorrect: 11%

Don't know: 45%

QUESTION 6

Suppose you owe $1,000 on a loan and the interest rate you are charged is 20% per year compounded annually. If you didn't pay anything off, at this interest rate, how many years would it take for the amount you owe to double?

<2 years
2 to 4 years
5 to 9 years
10+ years
Don't know

ANSWER 6: B

Compound interest would double the debt in less than five years.³

The rule of 72: In finance, this rule is a way to estimate an investment's doubling time. Divide the rule number (i.e., 72) by the interest percentage per period (usually years) to obtain the approximate number of periods for doubling. Using the rule, it would be about 3.6 years, which makes the correct answer "2 to 4 years."

How many folks answered:¹

Correct: 30%

Incorrect: 42%

Don't know: 26%

How'd you do? It's never too late to learn and level up your money smarts.

FINANCIAL LESSON

Your Quiz Score Doesn't Matter as Much as Your Willingness to Learn

How did you do on the quiz?

Were you surprised by any of the questions — or answers?

It's OK if you couldn't get every question right. You don't have to know everything – few people do.

In fact, these days, more folks are missing more questions on this quiz than they did about 10 years ago.¹

And that's not because they're dumb.

Actually, there are a couple of good reasons why many don't do so hot on this quiz.

One is that times have changed. In the 80s, inflation was rampant, and interest rates exploded. So, more folks back then were more familiar with these concepts.¹

Two, most folks (more than 4 in 5) never get a formal education on finances.¹

They learn from family, experience, and trial and error.

The good news?

It's never too late to learn and level up your money smarts.

Goran Ognjenovic
Independent Investment Advisors
https://independentadvisorsnw.com
(971) 350-8068

P.S. Sign up for my emails. My subscribers get my best insights.

Goran Ognjenovic

Independent Investment Advisors

Can You Beat 93% of Americans on a

Financial Literacy Quiz?

Test Your Money Smarts with