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Tuesday, June 14, 2011

1 Out of 10 Passed This Quiz


In this post you'll learn two things. The myth of the "Little Dutch Boy" who plugged the dyke on his way to school isn't a real Dutch myth, and the American public is financially illiterate.

The story of the Little Dutch Boy was made up by American writer Mary Mapes Dodge. It is very popular around the world but is not, as widely believed, well-known in the Netherlands.

Speaking of plugging the dike brings to mind the effort to raise financial literacy in the U.S. According to financial literacy expert Anna Maria Lusardi, only 10% of people who took the following quiz got all 5 questions right:

1) 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?
a. More than $102
b. Exactly $102
c. Less than $102
d. Do not know
e. Refuse to answer

2) 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?
a. More than today
b. Exactly the same
c. Less than today

d. Do not know
e. Refuse to answer

3) If interest rates rise, what will typically happen to bond prices?
a. They will rise
b. They will fall
c. They will stay the same
d. There is no relationship between bond prices and the interest rates
e. Do not know
f. Refuse to answer

4) Please tell me whether this statement is true or false. 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.
a. True

b. False
c. Do not know
d. Refuse to answer

5) Please tell me whether this statement is true or false. Buying a single company’s stock usually provides a safer return than a stock mutual fund.
a. True
b. False
c. Do not know
d. Refuse to answer


(Answers: a, c, b, a, b)

7 comments:

  1. It is appalling if only 1 in 10 got these questions right!

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  2. Appalling and scary. No wonder some of the shenanigans in the financial services industry thrive.

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  3. It's hard to believe only 10% passed this quiz and scary. The questions are pretty basic. No wonder so many people get ripped off when it comes to investing.

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  4. This is amazing Robert, but it doesn't surprise me. It's the main reason I wrote the book I did!

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  5. Andrew's book, "Millionaire Teacher", would certainly correct the financial illiteracy problem. As one reviewer said, "it could be the best investment" many people make.

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  6. I guess # 3 is the tough one lol

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  7. That is very sad that people don't take more responsibility for their finances, which requires a little education. There is so much information out there, especially in this internet age. Really amazing, actually..considering these are fairly easy questions if you think about them for a second. Thanks for the quiz!

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