Do You Understand Money?

A few years ago, I wrote an article on financial literacy and came across this little quiz. Let’s see how well you do with the following questions.

1. Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After five years, how much do you think you would have in the account if you left the money to grow?

A) more than $102; B) exactly $102; C) less than $102;

2. Imagine that the interest rate on your savings account is 1 percent per year and inflation is 2 percent per year. After one year, would you be able to buy

A) more than, B) the same as, or C) less than today with the money in this account?

3. Do you think that the following statement is true or false? “Buying a single company share usually provides a safer return than investing in a portfolio”.

” A) true; B) false;

The correct answers are 1-A; 2-C; and 3-B.

How did you do? If you got them all right you would belong to a surprisingly small global minority.

Only 30% of Americans aced the quiz. The best-performing respondents were the Germans (53% got a perfect score) and the Swiss (50%), but this still leaves almost half of each country’s population without a basic understanding of financial matters. In countries with relatively strong economies, the numbers are sobering: 21% of Swedes, 25% of Italians, 37% of Japanese, and 31% of French could respond correctly to all three questions.

Makes you think!