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Only 4 percent of Americans can answer these 7 financial questions correctly. Can you?

In the current economy, financial literacy is more important than ever.

Photo credit: Canva

A quiz reveals some holes in Americans' financial literacy.

Financial literacy is always important, but in uncertain economic times, it's vital. The financial world is complex and multi-faceted, and there's no exact gauge of what you need to know in order to be considered informed. There are, however, some financial fundamentals that everyone needs to understand on a basic level in order to avoid making catastrophic money decisions and to be able to follow what's happening with the economy on a larger scale.

Unfortunately, many Americans have never taken an economics class and aren't well-versed in things like inflation, investments, interest rates, and other economic realities. To be fair, economics can be confusing even when you try to learn, but without understanding some basic concepts, it can make a huge difference in your financial wellbeing.

financial literacy, money, finances, economics, economyMany Americans need to increase their financial literacy.Photo credit: Canva

The non-profit FINRA Investor Education Foundation surveyed 25,500 adult Americans and asked them to take a seven-question financial knowledge quiz to test their financial literacy. The results were a bit concerning, as only a small fraction of quiz-takers answered all seven questions correctly.

Here are the questions they asked:

1. Suppose you have $100 in a savings account earning 2 percent interest a year. After five years, how much would you have?

More than $102

Exactly $102

Less than $102

Don't Know

2. Imagine that the interest rate on your savings account is 1 percent a year and inflation is 2 percent a year. After one year, would the money in the account buy more than it does today, exactly the same or less than today?

3. If interest rates rise, what will typically happen to bond prices? Rise, fall, stay the same, or is there no relationship?

4.True or false: A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage but the total interest over the life of the loan will be less.

5. True or false: Buying a single company's stock usually provides a safer return than a stock mutual fund.

6. 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?

a) 0 to 2 years

b) 2 to 4 years

c) 5 to 9 years

d) 10 or more years

e) Don't know

financial literacy, math literacy, economics, finances, money managementSome financial literacy is just math literacy—understanding percentages and probabilities. Photo credit: Canva

7. Which of the following indicates the highest probability of getting a particular disease?

a) There is a one-in-twenty chance of getting the disease

b) 2% of the population will get the disease

c) 25 out of every 1,000 people will get the disease

d) Don't know

"Don't know" was an option for each question, and the average correct score across the Americans who took the quiz was 3.3 out of 7. Nationwide, 27% of people who took the quiz got the right answers on at least five of the questions, and only 4% aced all seven questions.

- YouTubewww.youtube.com

Which states fared the best and worst? Here are the 10 top states by percentage of survey respondents that correctly answered five or more of the quiz question:

1. Minnesota (34.78%)

2. Wisconsin (34.46%)

3. District of Columbia (34.41%)

4. Colorado (33.89%)

5. Wyoming (33.85%)

6. Washington (32.54%)

7. Vermont (32.34%)

8. North Dakota (32.00%)

9. Oregon (31.86%)

10 Kansas (31.44%)

And here are the bottom 5 by the same metric:

New Mexico (23.2%)

West Virginia (21.4%)

Alabama (20.2%)

Mississippi (19.2%)

Louisiana (18.1%)

One piece of good news: Americans' understanding of inflation has increased significantly since the last time FINRA did a similar survey in 2021. (Or maybe that's not such good news, as it's likely a better understanding that came from experiencing an inflation crisis, but learning is learning.)

"Overall, the findings show that knowledge of everyday financial concepts remains a challenge for many Americans. The wide disparities in financial knowledge across states demonstrate that more work is required to empower all Americans with the skills and tools to make informed financial decisions and safeguard their investments,” said Gerri Walsh, President of the FINRA Foundation. "The increase in the number of respondents who correctly answered the question about the impact of inflation on savings is an encouraging sign, likely reflecting the impact of lived experience as well as increased focus on the topic. However, continued efforts are needed to ensure all Americans fully understand the effects of economic factors on their personal finances."

Not only does a lack of financial knowledge have the potential to impact people's personal finances, such as getting into credit card debt trouble or choosing unwise investments, but not understanding how things like inflation and the relationship between interest rates and investment markets can lead people to vote for politicians with questionable economic policies. How can you believe a politician will be good for the economy if you don't understand what factors contribute to keeping the economy stable and strong?

You can take the quiz yourself here and see how your knowledge compares.

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Joy

Man uses the shoe aisle to explain a troubling economic trend in middle-class American life

"The thing is, most people don’t want longevity anymore. They want new."

via Canva/Photos

Remember things being built to last?

It’s been proven that over the past few years, Americans have been dealing with shrinkflation, where food companies reduce the sizes of their products while the price remains the same at the grocery store. You see this in fast food restaurants when you pick up a burger and feel like your hand has grown a few inches, and at the supermarket when you buy a box of cookies, it weighs less than it did a few weeks ago. Companies use this strategy when they think you’ll be less likely to notice a dip in quantity than a hike in the price.

Another big trend in retail is fast fashion. People are buying cheaper garments made from low-quality materials. These products last about as long as the trend, so people throw them away and buy the next hot thing. This can be a real problem because fast fashion harms the environment and leads to exploitative labor practices.

A TikToker named Tom (@SideMoneyTom), popular for making videos about consumer products, recently went viral for a video where he called out shoe manufacturers for dropping their quality while keeping prices high. “So many of you guys want to shoot the messenger, but look, it's not my fault shoes are made out of Styrofoam and oil now,” Tom says in a TikTok with over 528,000 views. “It's literally every shoe you look at now. It's not even just the cheap ones. I can find hundred dollar plus pairs of shoes all day long with glue squeezing out of their Styrofoam cracks.”

@sidemoneytom

Replying to @Oscar Magaña shoes are done #fyp #shoes #foryou

Tom notes that recently, shoes have been made with foam soles instead of rubber. Both have pros and cons. Foam is a little more comfortable, but rubber lasts a lot longer. Rubber shoes keep shape and support over time and are much more durable. Conversely, foam shoes compress over time, losing their support and comfort. When companies sell cheaper shoes that wear out more quickly, they make much more money because you must keep replacing them.

In the video, Tom adds that many companies that used to have shoes made with rubber heels, such as Carhartt and Timberland, have switched to foam. This is an interesting choice for brands that pride themselves on selling durable products.

Cora Harrington, a writer and lingerie expert, says that companies aren't entirely to blame. Americans don’t want to pay higher prices. “People don’t exactly want to pay more for all that stuff,” Harrington told Vox. "So what has to happen if everything is more expensive and the customers still want to pay the same price, something has to be cut and that’s often going to be the quality of the garment.”

“There is an entire generation of consumers at this point that doesn’t actually know what high-quality clothing feels like and looks like,” Harrington continues. “It gets easier, I think, for consumers to just not know any better.”

@sidemoneytom

Replying to @donkles #shoes #fyp #sketchers #nike

Many commenters have noticed the decline in shoe quality and praised Tom for pointing it out. "I am so happy I’m not the only one who is baffled by shoes being made of styrofoam and then being upcharged for them," one commenter wrote. "When shoes started being named some version of 'Air Light Cloud float,' my thought was it was because they went from quality rubber to cheap foam and less materials,” another commenter added.

Tom believes the decline in shoe quality is an example of a more significant trend affecting American consumers' products: quality is decreasing while prices remain the same. “The quality of everything is going to hell, and the prices are going up," Tom concludes his video. "The problem is, so many of us have just become used to it that we keep buying it, and we basically allow them to dumb down the quality of everything. Everything in our lives. These shoes are just the tip of the iceberg. Start thinking about it in your life. What are you gonna allow to be garbage quality?

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Family

Mom shares the major reason why people can't afford to have children and how to change it

via Canva/Photos

A couple realizes that can't afford having a child.

Since 2014, the U.S. birthrate has declined by about 2% a year. In 2023, just 3.59 million babies were born, the lowest number since 1979, when the overall US population was about 120 million lower. The precipitous drop in the American birthrate could lead to significant problems with the social safety net because there won't be enough young workers to pay into social security to take care of retired people.

In 2023, the fertility rate was 1.6 births per woman, significantly lower than the 2.1 births per woman necessary to sustain the population. There are many reasons why people aren't having as many children as they did in the past. A big one is that modern American life provides people with so many different lifestyle options that people believe they can live a fulfilled life without children. Others are also concerned about bringing a child into the world, given the state of the environment.

Cost is a significant factor among those who want to have children but are putting it off until their financial situation improves. Thirty-six percent of childless people under 50 say they cannot afford a child. A big reason for the cost is childcare, which has increased 36% over the past decade.

@sheisapaigeturner

People are choosing to have no kids or fewer kids because they simply cannot afford them. The cost of childcare has gone up exponentially over the last 10 to 20 years. On average in the state of Massachusetts it’s about $20,000 a year per child. These rates are unsustainable for most families, which is why more and more people choosing not to have children. Affordable childcare would not only benefit families and children, but it would benefit our economy and society as a whole ##childcare##daycare##daycarelife##childcarecrisis##millennialmom##momsoftiktok##newparents##workingmom

Paige Connell, known as @sheisapaigeturner on TikTok, is a working mom of four who, after seeing what it costs for childcare in Massachusetts, took to TikTok to call for change. “How do you afford kids here? Because nobody knows how anybody is paying for this," Connell shared. “For an infant, for five days a week with 10 hours of care is $664 a week. That is just shy of $35,000 a year for one child, and the price does not drop that much when they hit pre-K,” noting that it costs $521 a week for a child in pre-K, about $28,000 a year.

Things get worse when parents have multiple children to go to daycare, which could run up to $60,000 yearly. Who has an extra $60,000 lying around to pay for childcare? “That is unsustainable for most families. And yes, the cost goes down slightly as they get older, but that doesn't account for that rate sheet, [which is] the annual increase every single September," Conell continues.

childcare, daycare costs, inflationA teacher taking care of children at a daycare.via Canva/Photos

Things get even more dire as the costs of mortgages and other necessities have risen astronomically over the past few years. "The older generations have zero idea how serious younger people are when they say we can't afford kids," TwinDadTim wrote in the comments. "Yup. My husband and I are both professionals who make good money, and we just had our first (and likely only) child. Daycare, diapers, and formula together cost as much as our mortgage," J.TT added.

Connell believes that the only way to solve this is for the government to subsidize childcare costs, as they do in many other developed countries. Americans spend the highest percentage of their incomes on daycare compared to other developed nations. “If we had affordable childcare, it would not only benefit families and children it would benefit the economy. It would benefit businesses and it would benefit us as a greater society. The economy would be better for it,” Connell concludes her video. “This is not just a parent problem, right? But like people constantly are looking at adults who are married or of birthing years and saying, ‘Why aren't you having kids? And we’re looking around saying, ‘How could we possibly have kids when we can't even afford to buy a house?’”

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Business

This Map Reveals The True Value Of $100 In Each State

Your purchasing power can swing by 30% from state to state.

Image by Tax Foundation.

Map represents the value of 100 dollars.

As the cost of living in large cities continues to rise, more and more people are realizing that the value of a dollar in the United States is a very relative concept. For decades, cost of living indices have sought to address and benchmark the inconsistencies in what money will buy, but they are often so specific as to prevent a holistic picture or the ability to "browse" the data based on geographic location.

The Tax Foundation addressed many of these shortcomings using the most recent (2015) Bureau of Economic Analysis data to provide a familiar map of the United States overlaid with the relative value of what $100 is "worth" in each state. Granted, going state-by-state still introduces a fair amount of "smoothing" into the process — $100 will go farther in Los Angeles than in Fresno, for instance — but it does provide insight into where the value lies.

The map may not subvert one's intuitive assumptions, but it nonetheless quantities and presents the cost of living by geography in a brilliantly simple way. For instance, if you're looking for a beach lifestyle but don't want to pay California prices, try Florida, which is about as close to "average" — in terms of purchasing power, anyway — as any state in the Union. If you happen to find yourself in a "Brewster's Millions"-type situation, head to Hawaii, D.C., or New York. You'll burn through your money in no time.

income, money, economics, national average

The Relative Value of $100 in a state.

Image by Tax Foundation.

If you're quite fond of your cash and would prefer to keep it, get to Mississippi, which boasts a 16.1% premium on your cash from the national average.

The Tax Foundation notes that if you're using this map for a practical purpose, bear in mind that incomes also tend to rise in similar fashion, so one could safely assume that wages in these states are roughly inverse to the purchasing power $100 represents.


This article originally appeared seven years ago.

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