Can You Answer These 5 Basic Financial Questions? 90% of Americans Can’t

by Darwin on June 16, 2011

Stemming from last week’s post (Disturbing Study: Americans Are HORRIBLE With Money) on the abysmal study results highlighting America’s lack of financial literacy, here are the 5 questions they used to measure people.  Less than 10% of respondents got all of them right.  Are able to get all 5?  Come on, avid readers of Darwin’s Money should be able to get at least 4, right???

1) Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?
More than $102
Exactly $102
Less than $102
Do not know
Refuse to answer

2) Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account?
More than today
Exactly the same
Less than today
Do not know
Refuse to answer

3) If interest rates rise, what will typically happen to bond prices?
They will rise
They will fall
They will stay the same
There is no relationship between bond prices and the interest rates
Do not know
Refuse to answer

4) Please tell me whether this statement is true or false. A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage, but the total interest paid over the life of the loan will be less.
True
False
Do not know
Refuse to answer

5) Please tell me whether this statement is true or false. Buying a single company’s stock usually provides a safer return than a stock mutual fund.
True
False
Do not know
Refuse to answer

Only 10% of Americans could answer these questions…

If Americans can’t answer these basic questions, then surely, they’re not in a position to decide if a reverse mortgage or buying an annuity is appropriate for them or even what the rule of 72 is, and they probably haven’t even contemplated a personal income statement.

What Are Your Thoughts?

{ 15 comments… read them below or add one }

krantcents June 17, 2011 at 12:48 am

Who was in this survey?
Here is my answers:
1. More than $102.
2. Less than today.
3. They will fall.
4. True
5. False

Reply

Darwin June 17, 2011 at 3:36 pm

Pretty big data set, over 1000.

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David M June 17, 2011 at 12:53 pm

I agree with Krantscents answers – thus if we are both correct – 100% of Americans can!

Of people that read financial blogs probably 60% of so will get all 5 correct – IMHO!

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Darwin June 17, 2011 at 3:36 pm

I agree, avid finance blog readers would certainly fare better.

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JT June 17, 2011 at 1:23 pm

Krant wins!

I almost goofed up on #1. I read too fast, and didn’t notice the whole 5 years thing. Instead, I started debating APR and APY in my head before reading it again and realizing it really wasn’t a trick question…just a stupid question.

Hard to believe 90% of Americans can’t answer those.

Reply

Darwin June 17, 2011 at 3:48 pm

It’s pretty alarming. But then again, most of what I know is self-taught. Not learning this in schools.

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JT June 18, 2011 at 12:51 pm

Same here. Not sure highschools even touch on most of this. I took a personal finance class in HS, if that was all I had in terms of a PF education, I’d know #1 and maybe #5. Worthless class, but an easy A!

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PennyPincher June 17, 2011 at 2:02 pm

I could definitely believe that most people cannot answer those questions. The reason so many Americans make poor investment decisions is chiefly due to lack of financial education – or bad advice. If more people put effort into understanding their opportunities, how to save and how to spend, then we would see a tremendous change. You don’t have to be a economist to know how to invest, but you do have to learn to take advice from the right sources before you can build your own instinct.

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Darwin June 17, 2011 at 3:49 pm

It seems so simple, yet vast majority struggle with it. Not sure it will ever change…

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Ginger June 17, 2011 at 3:41 pm

Those are not hard questions, high school students should be able to answer them. I’m going to curl up in a corner now and cry. Then I’m going to start writing more basic info on my blog, sigh!

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Darwin June 17, 2011 at 3:48 pm

LOL, glad to provide some inspiration!

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Squirrelers June 18, 2011 at 5:54 pm

Those are easy questions. Its just so bizzare that 90% of Americans couldn’t get them right, though not surprising.

It speaks to getting no guidance at home, though in many cases that would be the blind leading the blind. Here’s to an increased focus on quality financial education in our school systems!

Reply

Kevin June 27, 2011 at 7:43 pm

B.A. Economics, M.S. Accounting. I’ve been answering these questions for others for years.

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JoeTaxpayer January 28, 2012 at 2:52 pm

Sorry if I am a cynic, but I believe the average person is innumerate. Numbers simply confuse them and when there are $$ before the numbers it gets worse.

I’m sorry this wasn’t set up as a quiz to take here. Odds are good your readers are closer to the 60% David guesses. “what’s bigger, the moon or an elephant?”
An actual adult on a quiz show got this wrong. I asked my daughter this when it first hit the news. She asked “actual size or how it looks because how far away the moon is?” Uh, actual size. “Dad, guys landed on the moon, it’s smaller than earth, but pretty big.”

To #5, many will ask “what’s a stock?”

Too bad.

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Martin December 11, 2012 at 1:15 am

I can’t believe that there is someone who cannot answer those questions. Sad reality.

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