What do people actually know about money, investing, and wealth? Well, a recent poll by Lexington Law asked 4,000 Americans four different multiple choice questions with a focus on basic investment knowledge on stocks, bonds, and building a safe portfolio to get a sense of U.S. financial literacy and found that the average score on the test was only 48.8%.
The 4 questions were:
- What is the safest investment type?
- What happens to bond prices when interest rates rise?
- What is a bull market?
- What happens to your stock if a company goes bankrupt?
#1: Safest Investment
Based on the options provided on the multiple choice, the correct answer was Treasury Bonds. Roughly 53% of Americans would get this right, if asked.
#2: Bond Prices
Only 25% of respondents said that bond prices would decrease if interest rates rise, which is the correct answer. To be fair, this relationship is somewhat counterintuitive.
#3: Bull Market
With the current bull market becoming the longest in history this month, this terminology has been all over the news. That said, just 53% of respondents understood a bull market to be a period in which stock prices are expected to rise.
If you own a stock and the company goes bankrupt, what happens? Interestingly, people fared best on this question, with 64% realizing that the stock becomes “virtually worthless”. It’s worth noting, however, that a 64% success rate is still the grading equivalent of a “D”.
How did you do on this test – are you financially literate about investments?