In a study, just 38% of individuals—including roughly a third of financial executives—answered all five questions correctly. These are staple questions that have been widely incorporated into financial literacy assessments, including the 2004 Health and Retirement Study and the 2009 and 2012 National Financial Capability Survey. See how you do.
Compounding 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
Less than $102
Inflation 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?
More than today
Exactly the same as today
Less than today
Diversification Buying a single company’s stock usually provides a safer return than a stock mutual fund.
Mortgages 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.
Bond Pricing If interest rates fall, what should happen to bond prices?
They will rise
They will fall
They will stay the same
There is no relationship between bond prices and interest rates
How did you do? Answers: 1) More than; 2) Less than; 3) False; 4) True; 5) They will rise.