Are You Financially Literate?

Dartmouth Econ. Prof. Annamaria Lusardi has devised the following test to determine a person’s financial literacy. The results are disturbing. Only one third of the respondents that were older than fifty managed to get all three questions right. For the answers to the three questions and an interesting interview with Prof. Lusardi, follow this link.

1. Suppose you had $100 in a savings account and the interest rate was 2 percent 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

2. Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After 1 year, would you be able to buy more than, exactly the same as, or less than today with the money in this account?

a. More than today
b. Exactly the same as today
c. Less than today
d. Do not know

3. Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”

a. True
b. False
c. Do not know

P.S. More on Lusardi here.