Rich? Yes. Financially literate? Not so much

[braumeister]

Could the people you know pass this five question financial test?

Only 57% of Americans notched a passing grade, compared with over 70% in Norway, Denmark and Sweden, and over 60% in Israel, Canada, the U.K., the Netherlands, Germany, Australia, Finland and New Zealand.

1. Suppose you have some money. Is it safer to put your money into one business or investment, or into multiple businesses or investments?
2. Suppose over the next 10 years the prices of the things you buy double. If your income also doubles, will you be able to buy: Less than today, same as today, more than today.
3. Suppose you need to borrow $100. Which is the lower amount to pay back: $105 or $100 plus 3%?
4. Suppose you put money in the bank for two years and the bank agrees to add 15% per year to your account. Will the bank add more money the second year than the first year, or add the same amount of money both years?
5. Suppose you had $100 in a savings account and the bank adds 10% per year. How much money would you have after five years if you did not remove any? More than $150, Exactly $150, or Less than $150

The U.S. May Be the World’s Richest Country, But It Ranks 14th in Financial Literacy - Real Time Economics - WSJ

 

[youbet]

Could the people you know pass this five question financial test?

Some of the questions are lame and need clarification.

1. Suppose you have some money. Is it safer to put your money into one business or investment, or into multiple businesses or investments?

1. You need to know what businesses or investments. The morons who wrote the question are probably trying to get to the concept of diversification being "safer" than concentration. But........ What is the single investment was a US Treasury Bond and the multiple investments were five flaky penny stocks?

   [*]Suppose you need to borrow $100. Which is the lower amount to paback: $105 or $100 plus 3%?

   You can't calculate the answer without knowing the term of the loan and whether the 3% is an annual number.

   [*]Suppose you put money in the bank for two years and the bank agrees to add 15% per year to your account. Will the bank add more money the second year than the first year, or add the same amount of money both years?

   Is the 15% compounded or not?

   [*]Suppose you had $100 in a savings account and the bank adds 10% per year. How much money would you have after five years if you did not remove any? More than $150, Exactly $150, or Less than $150

Is the 10% compounded or not?

 

[Release The Hounds]

I think the answers to 2 of those questions could be answered by "It depends". The one about your income doubling...it assumes that you spend every dollar you earn, which is not exactly realistic.

And the one about paying back $105 vs. $100 @ 3%...that would depend on how long you have to repay, wouldn't it? If it's 2 years, then paying $105 is the better deal.

 

[Philliefan33]

Phew! I got them all correct. If I hadn't, I would be worried about my decision to ER.

 

[RunningBum]

I agree that the quiz is flawed. And unrealistic. What kind of bank adds 15% or 10% to your account every year? Yeah, it's just numbers to test your math knowledge, but my answer would be that I'll have less because I'll probably look into the bank and realize it's way too risky and pull my money out.

Also, at the end it says:

Answer three of four topics correctly, and you pass.

Not sure how many "topics" there are, but there are 5 questions.

 

[38Chevy454]

Also number 2 is dependent on tax rates.

Bad questions 1 and 2 since they are making assumptions.

 

[splitwdw]

Also, at the end it says:
Not sure how many "topics" there are, but there are 5 questions.

There were 4 topics and the last topic had 2 questions.

 

[hnzw_rui]

What kind of bank adds 15% or 10% to your account every year?

In fairness, there was a time when interest rates were 10-15%. Alas, so was inflation.

 

[bingybear]

5 for 5.... you guys must have had other questions. I think some are either reading more into the questions or looking for all the terminology to be in the terms they prefer.

 

[dallas27]

Some of the questions are lame and need clarification. You need to know what businesses or investments. The morons who wrote the question are probably trying to get to the concept of diversification being "safer" than concentration. But........ What is the single investment was a US Treasury Bond and the multiple investments were five flaky penny stocks? You can't calculate the answer without knowing the term of the loan and whether the 3% is an annual number. Is the 15% compounded or not? Is the 10% compounded or not?

I think ceteris paribus is implied.


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[RunningBum]

5 for 5.... you guys must have had other questions. I think some are either reading more into the questions or looking for all the terminology to be in the terms they prefer.

I got 5 for 5 too, but I still think it's a very flawed quiz.

 

[Closet_Gamer]

This thread is really funny. The people who took the above survey know too little ... But the people on this board know too much!!

This thread reminds me of a really funny Big Bang episode where Sheldon goes to get a driver's license and is asked to take a test. When asked how many car lengths you should stay behind the car in front of you, he says it can't be answered because a car length isn't a standard unit of measure. There is a question on braking distance or something similar and he starts talking about co-efficients of friction.

I love this board. We're where Sheldon would hang out if he were into finance instead of physics

 

[bingybear]

I got 5 for 5 too, but I still think it's a very flawed quiz.

Some of the questions could have been more clear. But to the "what banks would add 10 or 15% a year to ones account"? ... I would think a few did in the late 70's/early 80's, or at least close. Think of times back then with high inflation.

The question about which would you pay less $105 or $100 +3%. With no time given, one (at least me ) would assume the 3% would be on the life of the loan and it only implies a single payback.
The quiz is just basic concepts, not complex issues.
The one on diversification is the same. The assumption is that the person makes good investment choices.
Many people just over think the simple quizzes.

 

[GravitySucks]

Horribly worded test. There's way to many like this in the media "We asked so many Americans these questions, look how stupid they are!" In reality the tests are incredibly flawed.
(5 of 5 though)


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[Letj]

In question 2 presumably your tax rate would go up so if we assume you spend every time you should afford less not the same.


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[MRG]

This thread is really funny. The people who took the above survey know too little ... But the people on this board know too much!!

This thread reminds me of a really funny Big Bang episode where Sheldon goes to get a driver's license and is asked to take a test. When asked how many car lengths you should stay behind the car in front of you, he says it can't be answered because a car length isn't a standard unit of measure. There is a question on braking distance or something similar and he starts talking about co-efficients of friction.

I love this board. We're where Sheldon would hang out if he were into finance instead of physics

+1
The test is multiple guess geared toward folks with basic math skills! Bunch of highly educated folks are trying too hard. The test is as basic and flawed as it is.

 

[RunningBum]

Some of the questions could have been more clear. But to the "what banks would add 10 or 15% a year to ones account"? ... I would think a few did in the late 70's/early 80's, or at least close. Think of times back then with high inflation.

The question about which would you pay less $105 or $100 +3%. With no time given, one (at least me ) would assume the 3% would be on the life of the loan and it only implies a single payback.
The quiz is just basic concepts, not complex issues.
The one on diversification is the same. The assumption is that the person makes good investment choices.
Many people just over think the simple quizzes.

Yeah, we're being a bit picky about some. I really disagree about the diversification one though. Just having a few things doesn't make it safer than having one thing without knowing what those things are. People really do make that mistake. If the article can criticize the financial literacy of the US, I can criticize their financial literacy when they have issues too.

 

[Mulligan]

Yeah, we're being a bit picky about some. I really disagree about the diversification one though. Just having a few things doesn't make it safer than having one thing without knowing what those things are. People really do make that mistake. If the article can criticize the financial literacy of the US, I can criticize their financial literacy when they have issues too.

I agree... With what I invest in I have over a third of my money in two companies preferred stock, with a dozen or so making up the rest. I really would have no problem with all of it in one of the two. But its too hard to squeeze the money in at the right price. But it is a lot easier doing what I do, knowing I am not even using the money in retirement.


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[bingybear]

In question 2 presumably your tax rate would go up so if we assume you spend every time you should afford less not the same.

When I saw your other post, I looked at the numbering and questions in youbet's post. I went back to the quiz and now understand your comment. Maybe they meant that your money doubled after taxes. The question did not did not mention taxes or other factors that would change the buying power.

I tried to just use the information given to guess what they were after.

krotoole put it well suggesting this is like the big bang theory. Normally I would be the one that this comparison is used for... at least in an engineering topic.

 

[bingybear]

+1
The test is multiple guess geared toward folks with basic math skills! Bunch of highly educated folks are trying too hard. The test is as basic and flawed as it is.

- e^(j*pi)+e^(j*pi*2)

 

[donheff]

This thread is really funny. The people who took the above survey know too little ... But the people on this board know too much!!

This thread reminds me of a really funny Big Bang episode where Sheldon goes to get a driver's license and is asked to take a test. When asked how many car lengths you should stay behind the car in front of you, he says it can't be answered because a car length isn't a standard unit of measure. There is a question on braking distance or something similar and he starts talking about co-efficients of friction.

I love this board. We're where Sheldon would hang out if he were into finance instead of physics

+1 We were all able to come up with the "correct" answers but we over thought the questions. The resulting thread is more fun than endless, "I got em all" answers. This reminds me of a couple of mistakes I made in school when I thought a standardized test question was a trick question designed to make me go for the too obvious answer when on deeper reflection you could see why that answer was wrong. It always turned out they were looking for the low thought answer -- irritating as hell.

 

[Totoro]

This thread reminds me of a really funny Big Bang episode where Sheldon goes to get a driver's license and is asked to take a test. When asked how many car lengths you should stay behind the car in front of you, he says it can't be answered because a car length isn't a standard unit of measure. There is a question on braking distance or something similar and he starts talking about co-efficients of friction.

I actually flunked my first written driver license exam because of a (in my view) strangely worded question.

Basically it went like this: On an intersection before proceeding:

• I must pay attention
• Everyone must pay attention
• Everyone except you must pay attention

I chose option 1 because I can't influence other people's behavior, let alone check whether they actually are paying attention.

Correct answer was number 2, because that's what it said in textbook.

 

[donheff]

I actually flunked my first written driver license exam because of a (in my view) strangely worded question.

Basically it went like this: On an intersection before proceeding:

• I must pay attention
• Everyone must pay attention
• Everyone except you must pay attention

I chose option 1 because I can't influence other people's behavior, let alone check whether they actually are paying attention.

Correct answer was number 2, because that's what it said in textbook.

Ha, this reminded me of my road test at age 16. I was driving down a straight-away with no signs and no obstructions. The test monitor suddenly said "stop!" I assumed he was trying to trick me into making a sudden unwarranted stop so I slowly and carefully proceeded. He gave me a raft of sh** but when I explained my reasoning he told me to listen to him next time and continued with the test. I got my license.

 

[marko]

If we're so stupid, why aren't we poor?

 

[Totoro]

Because we're lucky