Below is a three question financial literacy quiz. Have a go at it and then see the answers at the end.
1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years, how much do you think you would have in the account if you left the money to grow?
A. More than $102
B. Exactly $102
C. Less than $102
2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, how much would you be able to buy with the money in this account?
A. More than today
B. Exactly the same
C. Less than today
3. 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.”
Before I show you the answers, I'd like to point out a few facts about the quiz that were uncovered in a study done by Olivia S. Mitchell of the University of Pennsylvania’s Wharton School and Annamaria Lusardi of the George Washington University School of Business:
- In a survey of Americans over the age of 50, only half could answer the first two of the above questions correctly. Only one-third got all three right.
- Forty-four percent of Americans with a college degree answered all three questions correctly. The figure was 31% for people with some college and 64% for Americans with postgraduate education.
- “Even well-educated people are not necessarily savvy about money,” the professors write.
- In the U.S. and other countries, men are much more likely to get all three correct answers. The figure is 38% for men vs. 23% for women in this country.
- Another striking finding, also consistent across countries, is that men are more confident about their financial knowledge than they should be: even when they were wrong, they reported being ‘very confident’ about their answers. In contrast, women generally answer fewer of the financial knowledge questions correctly, on average, but they are more likely to admit when they do not know how to answer our questions.
Here are the answers:
So, how did you do? Too easy? Good.
Perhaps we can try are harder one some time soon.