Personal Finance Knowledge
You think you understand personal finance, right. You only read this blog to laugh at my errors, and conclusions.
Or do you admit you need help, and read The Millionaire Nurse Blog to try to improve your knowledge?
Why don’t we take a quick 5 question quiz and see how you do. It will only take a minute-even a fifth grader can do it?
The answers are at the bottom-but please, no cheating!!!
Taking a Quiz photo by Casey Serin
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
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
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 rate
4- 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
5- Buying a single company’s stock usually provides a safer return than a stock mutual fund.
a) True
b) False
Personal Finance Quiz Origin
I can’t take credit for making up these questions. They were part of a survey done by FINRA Investor Education Foundation. This organization was founded using funds from a large fine by the SEC and others in 2003 against 10 of the largest brokerage firms at the time for alleged conflict of interest violations.
A pdf file of FINRA Investor Education Foundation survey summary can be found here.
Here are some of the findings of the FIRA IEF survey:
- 51% of those surveyed had no rainy day or emergency funds.
- 12% of those surveyed have no checking and 28% have no savings accounts. (Un-banked is the buzz word here.)
- 23% of those surveyed had used what would be considered alternative (high interest/fees) form of borrowing, including payday loans, pawn shops, rent to own, and tax-refund loans.
- 41% of young people paid only the minimum payment on their credit card.
- 42% of those surveyed had not done any planning on the amount of funds they would need to support themselves in retirement.
- Young people and minorities had less knowledge of personal finance and the mathematical skills to do basic personal finance decision making, than their self-described abilities/knowledge.
How did you do on the quiz?
Answers:
1) a More than $102
2) c Your money will have less buying power if inflation goes up higher than your rate of return.
3) b The value of bonds goes down when interest rates go up-I will do a personal finance 101 post on bonds soon-I know you can’t wait!!!
4) a The lifetime interest on a 15 year mortgage is much less than on a 30 year, usually tens of thousands less (depending on the mortgage size of course).
5) b Single stock investing is considered much riskier than mutual fund investing. See this previous post about single stock investing HERE.
I hope you didn’t embarrass yourself. But if you missed any questions, that just means I have Blog Security! A reason to keep writing and teaching.
One of the main results of the survey is the knowledge that continued efforts to teach the public about personal finance is desperately needed.
An article in the WSJ discusses efforts by Uncle Sam to assist with personal finance education. One of Uncle Sam’s efforts at the Department of Labor can be seen in this link here. This article gives information on 401-k investing and fee structure, and why it is important.
Go to the site, and see if you can make yourself read to the end of the article. I think this kind of competition will keep us personal finance bloggers in business for years, as we try to make learning this stuff more digestible, in bite sized pieces, and hopefully a little more fun! (if learning about 401-ks can be fun!)
Reader Questions:
- How did you score?
- Do you think the government’s efforts to help spread the word on the need for personal finance education will be successful?
- Do you have any hints or tips?
