The FINRA Investor Education Foundation published a report that found “…financial literacy has significant predictive power for future financial outcomes, even after controlling for baseline financial characteristics and a wide set of demographic and individual characteristics that influence financial decision making.”
Financial literacy may be more important today than ever. That’s because the responsibility for saving and investing for retirement has shifted from companies, in the form of pensions, to individuals, who manage their own 401(k)s, IRAs and other retirement accounts.
The foundation gathered data at the beginning and end of the research period – which lasted six years. The quiz included questions taken from questions asked by the National Financial Capability Study – that were a lot like the following:
Suppose you have $100 in a savings account and it is earning 2% a year. After five years, how much money will be in the account?
- More than $102
- Exactly $102
- Less than $102
- I don’t know
Now, suppose the interest rate on your savings account is 1% a year and inflation is 2% a year. After one year, will the money in the account buy more than it does today, exactly the same as it does today, or less than it does today?
- More
- Same
- Less
- I don’t know
When interest rates increase, what typically happens to bond prices? Do they rise, fall, or stay the same? Or is there no relationship between interest rates and bond prices?
- Rise
- Fall
- Stay the same
- No relationship
- I don’t know
Suppose you owe $1,000 on a loan and the interest rate you are paying is 20 percent per year, compounded annually. If you don’t pay anything on the loan, how many years will it take for the amount you owe to double?
- Less than two years
- Two to four years
- Five to nine years
- Ten or more years
- I don’t know
How did you do?
Answers: 1. A – More than $102; 2. C – Less; 3. B – Fall; 4. B – Two to four years.
Kevin Theissen is the owner of HWC Financial in Ludlow.
