We recently came across the "Big Three" set of financial literacy questions, which are expanded with three additional questions for more advanced financial literacy.
According to a recent study, only 16% of millennials could correctly answer the Big Three questions, compared to 34% of working-age adults. Only 3% of millennials answered all six questions correctly. Women also consistently score lower on these questions.
Here are the questions to help you assess for yourself if you can answer them.
"Big Three" financial literacy questions
1. Interest Rate Question
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
- Exactly $102
- Less than $102
- Don’t know
2. Inflation Question
Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account?
- More than today
- Exactly the same
- Less than today
- Don’t know
3. Risk Diversification Question
Buying a single company’s stock usually provides a safer return than a stock mutual fund.
- True
- False
- Don’t know
Additional Financial Literacy Questions:
4. Bond Pricing Question
If interest rates rise, what will typically happen to bond prices?
- They will rise
- They will fall
- They will stay the same
- There is no relationship between bond prices and the interest
rate - Don’t know
5. Compound Interest Rate 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?
- Less than 2 years
- At least 2 years but less than 5 years
- At least 5 years but less than 10 years
- At least 10 years
- Don’t know
6. Mortgage Question
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.
- True
- False
- Don’t know
Answers:
1) More than $102
2) Less than today
3) False
4) Bond prices will fall
5) At least 2 years but less than 5 years
6) True
Up Next: Can you answer all the questions for opening an online trading account?
Financial terms alert.... we use some terms here that you may not be familiar with. Please look them up on places like Investopedia if you don't understand them. As we are just starting out with the blog we cannot cover them here now but we will strive to do so in the future.