6 Questions to Test Your Financial Literacy !
Before you begin looking for the exit route, let me assure you this test does not require you to solve complex algebraic equations, demand a masters in finance or even require you to declare your financial well-being.
In order to be financially successful, you have to be financially literate. This is as simple as knowing the basics of supply and demand of green peppers today, and how it will impact your grocery store bill this week. You know that if the supply is short, prices will go up and so will your bill.
But, if your foundations in finance are messed up, then you have a strong chance of making the wrong financial decisions that can heavily impact your livelihood. So let’s answer 6 simple questions to test your financial literacy ! ( Don’t skip to the answers at the bottom before trying, PLEASE )
1. Suppose you have $100 in a savings account earning 2 percent interest a year. After five years, how much would you have ?
a. More than $102 b. Less than $102 c. Exactly $102 d. Don’t Know
2. Imagine that the interest rate on your savings account is 1 percent a year and inflation is 2 percent a year. After one year, would the money in the account buy more than it does today, exactly the same or less than today ?
a. More b. Less c. Same d. Don’t Know
3. If interest rates rise, what will typically happen to bond prices? Rise, fall, stay the same, or is there no relationship?
a. Rise b. Fall c. Stay the Same d. No Relationship e. Don’t Know
4. True or False : A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage but the total interest over the life of the loan will be less.
a. True b. False c. Don’t Know
5. True or False : Buying a single company’s stock usually provides a safer return than a stock mutual fund.
a. True b. False c. Don’t Know
6. BONUS QUESTION : Suppose you owe $1,000 on a loan and the interest rate you are charged is 20% per year compounded annually. If you didn’t pay anything off, at this interest rate, how many years would it take for the amount you owe to double ?
a. Less than 2 years b. 2 to 4 years c. 5 to 9 years d. 10 or more years e. Don’t Know
Phew ! I’m sure the last one took a little longer than the rest, but if you got that one right, pat yourself on the back 🙂
This test was created by FINRA Investor Education Foundation in consultation with the U.S. Department of Treasury in order to assess financial capability. While these 6 questions are not the only metrics to assess a sound understanding in finance, it will certainly help you realize your shortcomings.
Here’s the answer key to all the questions along with the U.S. National average of correct answers
The national average in U.S. for this test is 3.16, so if you got all 6 correct, you’re a finance master 🙂
You did great in taking the first step towards educating yourself for a better financial well-being, but there’s much more to learn in this journey to achieve financial independence!
Begin your journey of investing with my Completely FREE Beginners Guide to Stock Market Investing where I cover everything from stock fundamentals, interest rates, market valuations and volatility to investing in mutual funds !
Keep Learning !