Monday , 22 July 2019

Are You Financially Ignorant? Only 30% of Americans Passed This Simple Financial Quiz – Can You? (+3K Views)

Do you understand money? Many couldn’t pass this simple finance quiz. Can you?

Let’s see how well you do with the following questions:

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?

A) more than $102?

B) exactly $102?

C) less than $102?

D) do not know; refuse to answer.

2.  Imagine that the interest rate on your savings account is 1% per year and inflation is 2% per year. After one year, with the same amount of money, would you be able to buy

A) more?

B) exactly the same?

C) less than today?

D) do not know; refuse to answer.

3.  Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”

A) True;

B) False;

C) Do not know; refuse to answer.

(The correct answers are 1-A; 2-C; and 3-B)

How did you do? Did you respond correctly to all three questions? If you did, then you belong to a surprisingly small global minority:

  • 96% of those surveyed in Russia could not answer the three questions correctly,
  • 79% of Swedes, 75% of Italians, 73% of Japanese, 70% of Americans, and 69% of French could not respond correctly to all three questions.
  • The best-performing respondents were the Germans (53%) and the Swiss (50%).

The economists write:

  • “…changes in the pension landscape are increasingly thrusting responsibility for saving, investing, and accumulating wealth on to workers and retirees…
  • [Today], Baby Boomers mainly have defined contribution (DC) plans and Individual Retirement Accounts (IRAs) during their working years. This trend…is increasingly requiring people to decide how much to save and where to invest and, during retirement, to take on responsibility for careful accumulation so as not to outlive their assets while meeting their needs.”

For a large and fast-growing number of people, personal bankruptcy is just one bad decision away. This threat will become more critical as the global middle class continues to expand. The new-found prosperity of millions of families in the developing world could be shattered if they:

  • mismanage expenses,
  • acquire large and expensive debts,
  • fail to adequately protect their savings,
  • or don’t know how to identify a tempting but catastrophically risky investment.

The truth is, these problems are everywhere, and all countries stand to benefit from programs that encourage greater consumer knowledge.

Lusardi and Mitchell found that providing financial knowledge to people:

  • with low levels of formal education boosts their economic situation by an amount equivalent to 82% of their initial wealth, while those
  • with a college degree saw their economic situation boosted by a substantial 56%.

Good news, right? On the basis of these results, one might presume that demand for financial education is very strong. It is not, and that’s mostly because people are prone to over-estimate how much they know about money. Asked to rank their financial knowledge on a scale of 1 (very low) to 7 (very high),

  • 70% of the Americans surveyed by Lusardi and Mitchell ranked themselves at level 4 or higher,
    • yet only 30% of them got all three questions in the finance quiz right.
  • The same pattern was apparent in Germany and the Netherlands.

The research also found that:

  • women, the poor, and the elderly are the groups with the lowest levels of financial literacy.
  • Ironically for the elderly, confidence in one’s money-managing prowess seems to grow with age, widening the gap between perceived and actual knowledge.
  • Men seem to better grasp the subject than women, independent of age and education.
  • Women are more aware of their shortcomings…[with a] greater numbers of women responding that they “don’t know” on the financial quiz – a result that held true all over the world. The upshot is that women, more conscious of their limitations, are more likely to be interested in financial-education programs.

Conclusion

As financial products become more diverse, complex, and widespread, and more people join the middle class, fighting the world’s financial illiteracy will become even more of a priority. Practical and accessible education programs should be offered to the millions of people whose economic well-being would improve if they only knew more about managing their incomes and savings, however meager they may be.

Related Articles from the munKNEE Vault:

1. Are You An Economic Zombie – An Economic Idiot? Take the Test

  • Do you focus almost solely on the present?
  • Do you assume tomorrow will be just like today?
  • Do you think that just because your current behavior regarding debt has not created trouble or hardship thus far, that it won’t tomorrow or on into the future?
  • Would you not be able to get by if debt/credit were outlawed?

Really?? Then you’re an economic zombie – or perhaps even an economic idiot!

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2. Think You Know All About Silver? Take This Quiz and Find Out

CPM Group’s recently released its 2011 Silver Yearbook…[which] presents some interesting facts that paint a decidedly bullish picture for the metal going forward. If you’re a silver investor, and/or are concerned about the recent selloff, you may find the following data very compelling. It provides an inside track on the market and will certainly make you a more knowledgeable investors.[Read on!]

3. A Money Quiz: How Much is Enough?

How do you know how much is enough? Being able to answer this question means having a sense of “good enough” inside, which results in an internal affirmation of worth. If you equate love and self-esteem with money and power, “more” will never be enough.

4. Fiat Currencies from Around the World: An Interactive Quiz

Paper money was first used by the Chinese during the Tang Dynasty in 806 AD–500 years before Europe began printing money in the 17th century. It would be another 100 years before America started circulating a national paper currency…. How familiar are you with banknotes from around the world?

 

 

 

2 comments

  1. Editor Wilson,

    The appalling degree of financial illiteracy shouldn’t be surprising.

    Why? Because I see the same thing in understanding public policy, partisan politics and government processes…virtually total ignorance and continuing disinterest.

    On the other hand, professional sports, movies, TV and pop music is where most people ‘invest’ their time.

    We get the kind of government and policy decisions we deserve!

  2. According to this simple quiz, I’m a financial Genius but I must admit that most people I know much more about how to spend money that how to grow money, which gives an entirely new definition to the term Green Thumb.

    Most readers of this site are content with accessing the material but since I am one of the few that post comments, I believe that most readers either don’t understand what they are reading or only look at the titles of the articles and their images and move on to something else.

    People spend vast amounts of time working as “was slaves” in order to make money then refuse to spend time making things easier for both then and their families by using the money they do have wisely.

    Here is another question for all readers to consider along with an extra credit question, I hope you will answer by leaving a comment explaining why you choose the answer you did:

    If you had 10% of your portfolio invested in physical Sliver and the value of the rest of your portfolio decreased by 50% due to a revaluation of the US$ relative to Silver what percentage of your original portfolio’s value would you have?

    A. Less than half the amount

    B. Half the original amount

    C. More than half the amount

    ===> Two Extra Credit Questions:

    1. What percentage of Silver would you have to have in your portfolio (as described in the above question) would you have to have to start with in your portfolio in order to end up with the same total value in your portfolio after the decrease in your portfolios assets except for Silver?

    A. 25% Silver

    B. 33% Silver

    C 50% Silver

    2. What percentage of all physical PM do you now have in your portfolio and why do you have that amount (no actual amounts need to be listed, percentages only please?

    Answer: _______________________________________________________________________

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