Quiz yourself, just for the heck of it and see how well or poorly you do.
2 Likes
Here is the actual quiz that you can take without going through the wordy article in USA Today:
Here is the FINRA press release about it:
2 Likes
I got all 7. Didn’t think it was hard.
4 Likes
That’s the scary thing—so few Americans get all the answers correct. It’s seemed quite basic.
Same here.
However, I am not surprised that some questions may be hard for people who had difficulty in high school math (exponential functions, anyone?). Or that some may be opposed to adding some diversity in equity investments by inclusion of mutual funds instead of, or in addition to, individual company stocks.
1 Like
Innumeracy continues to be a huge problem in this country. Hand in hand with low literacy rates.
4 Likes
These statistics are disturbing. Financial literacy education is important to me. I taught all our kids these concepts and more when they were teens -before they could have credit cards for sure. With the lack of financial literacy taught in many K-12 schools, it seems to be up to parents. But if these statistics are true, that’s not even a possible scenario.
In my opinion, all of the questions that the majority answered incorrectly are poorly worded.
I’d quibble with the wording of the bond question, as the relation depends on several other factors that are not mentioned, such as market expectations. For example, if the question was slightly modified as follows, it would have the opposite answer. I do not think this question belongs on the test, as it’s not what I’d consider a basic financially literacy question.
“If fed rate increase is less than market expectations, what will typically happen to bond prices? Rise, fall, stay the same, or is there no relationship?”
I also don’t like the wording in the how long it takes 20% interest to double question. It has choices as follows. Between 4 and 5 years seems like a reasonable answer for a financially literate person (who is doing math in head instead of using calc). However, 4 to 5 is not an option. Perhaps the person designing the test is assuming the financially literate person will think 5+ is eliminated, so it must be 2-4. However, they also might think 4.x rounds up to 5, rather than taking the wording literally. It would be more clear to have intervals without gaps.
- Less than 2 years
- 2 to 4 years
- 5 to 9 years
- 10 or more years
- Don’t know
The final question that the majority answered incorrectly was Buying a single company’s stock usually provides a safer return than a stock mutual fund. I suspect that if you asked the people why they got the question wrong, most would indicate that they didn’t have a good understanding about what a mutual fund is and were not picturing a broad market index fund composed of many individual stocks . For example, if the wording replaced “stock mutual fund” with “S&P 500 index fund”, I suspect a much larger portion would get the question correct.
While not having a good understanding of mutual funds is a form of financially illiteracy, it’s important to distinguish between not having a good understanding of mutual funds vs not knowing that diversity reduces risk. If the author of the test was trying to evaluate the latter, this question does not do so.
5 Likes
One of the things we had in Boy Scouts was a financial literacy badge (or something similar). It was required for getting your Eagle Scout award and one of the parents was an economics professor and she came and spoke to all the boys about finances and helped them meet the requirements.
Both kids had some limited financial stuff covered in middle/intermediate school and also briefly touched on in PE in HS. Clearly not enough parents understand enough to adequately instruct their kids and this just isn’t being done. It’s hard for kids to understand if they don’t learn it anywhere and the finance sector wants them to believe there’s “free money” for the taking.
Yes, the questions aren’t worded as well as they could be but clearly it seems that many don’t even know what they don’t know. The rule of 72 is what I used to easily see that the principal would double in under 4 years if interest was 20%. 72/20=3.6 years for it to double.
5 Likes
I know a lot of people in general don’t understand finance. It’s partially responsible for where “we” are today.
That said, I got 7 out of 7. But I do have a finance background.
I have no finance background but have been reading bogleheads.org for years now. I got 7 of 7. Many of these Qs & concepts are pretty basic.
It reminds me of when I was taking a statistics for sociology course in college and had to teach a classmate how fractions and percentages were related. I tutored her and another kid in the class and we all got As and she understood statistics after better, as well as fractions & percentages.
Calculators can be dangerous as people can use them and not understand what the numbers they are entering or results really mean.
My husband and I have always thought that high school curriculum needs more info about basic finances, especially things like impact of high interest rate credit cards.
1 Like
@Colorado_mom it has long been my opinion that ALL students should have a required personal finance course in high school…or at least in college.
Both of my kids had this in college (in their cases specific to their careers), and both said the personal finance course was one of the BEST and most useful for everyday life that they took.
3 Likes
54% of Americans ages 16-74 read below a 6th grade level. While I agree that personal finance should be taught, a personal finance class in high school isn’t going to solve this issue.
Khan Academy offers a course on personal finance right now. It is worth checking out as it is definitely designed to help with the literacy issues at hand (video as well as transcripts available for each lesson).
7 Likes
Shame on us.
6 Likes
It’s appalling how poorly many read and how low health literacy is because of how low reading levels are. We as a country have a lot to improve.
3 Likes
I got 7. Those questions weren’t hard.
I was at Bloomingdale’s when they were have a sale. I overheard some high school students trying to figure out additional 25% off already 50% off items. I am sure their parents were going to spend few hundred $ per hour for SAT preps.
5 Likes
Credit card companies rely on this to make money.
Anyone who fails this test automtically gets approved with a 24.9% APR.
3 Likes
I’ll admit I got the bond question wrong. My husband and our FA are well versed on investment detail. For me, having some bonds is just part of our “stay diversified” strategy.
1 Like
7/7 here. Guess we’re skewing their stats.
I have a strong suspicion that most of the people they asked can’t do percentages.
1 Like