Financial Literacy Quiz

Test your financial literacy!  Are you smarter than most middle-age Americans when it comes to money?  Find out!

Part 1 – Basic Financial Literacy

  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?
    1. More than $102
    2. Exactly $102
    3. Less than $102
    4. Do not know
  2. Suppose you had $100 in a savings account and the interest rate is 20% per year and you never withdraw money or interest payments. After 5 years, how much would you have on this account in total?
    1. More than $200
    2. Exactly $200
    3. Less than $200
    4. Do not know
  3. 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?
    1. More than today
    2. Exactly the same
    3. Less than today
    4. Do not know
  4. Assume a friend inherits $10,000 today and his sibling inherits $10,000 3 years from now. Who is richer because of the inheritance?
    1. My friend
    2. His sibling
    3. They are equally rich
    4. Do not know
  5. Suppose that in the year 2010, your income has doubled and prices of all goods have doubled too. In 2010, how much will you be able to buy with your income?
    1. More than today
    2. The same
    3. Less than today
    4. Do not know

Part 2 – Sophisticated Financial Literacy

  1. Which of the following statements describes the main function of the stock market?
    1. The stock market helps to predict stock earnings.
    2. The stock market results in an increase in the price of stocks.
    3. The stock market brings people who want to buy stocks together with those who want to sell stocks.
    4. None of the above
    5. Do not know
  2. Which of the following statements is correct?
    1. Once one invests in a mutual fund, one cannot withdraw the money in the first year.
    2. Mutual funds can invest in several assets, for example invest in both stocks and bonds.
    3. Mutual funds pay a guaranteed rate of return which depends on their past performance.
    4. None of the above
    5. Do not know
  3. If the interest rate falls, what should happen to bond prices?
    1. Rise
    2. Fall
    3. Stay the same
    4. None of the above
    5. Do not know
  4. True or false? Buying a company stock usually provides a safer return than a stock mutual fund.
    1. True
    2. False
    3. Do not know
  5. True or false? Stocks are normally riskier than bonds.
    1. True
    2. False
    3. Do not know
  6. Considering a long time period (for example 10 or 20 years), which asset normally gives the highest return?
    1. Savings accounts
    2. Bonds
    3. Stocks
    4. Do not know
  7. Normally, which asset displays the highest fluctuations over time?
    1. Savings accounts
    2. Bonds
    3. Stocks
    4. Do not know
  8. When an investor spreads his money among different assets, does the risk of losing money:
    1. Increase
    2. Decrease
    3. Stay the same
    4. Do not know

Answers:

Part 1: 1, A; 2, A; 3, C; 4, A; 5, B.

Part 2: 1, C; 2, B; 3, A; 4, B; 5, A; 6, C; 7, C; 8, B.

So, how did you do?  I’ll bet it came as no surprise that “Do not know” was never the correct answer (even if it is true.)  The reason that answer is included is that these questions are from Rand American Life Panel’s consumer survey.  Read more about the survey, it’s methodology, and results here [PDF].

Did you miss some questions?  You’re in good company.  Less than half of the survey sample got all five of the basic questions correct, while less than on-fourth of the sample answered all the sophisticated questions correctly.

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