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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.

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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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People say these 20 outdated financial myths could be hurting you in today's economy

"'That commodity prices, like gas and eggs, are controlled by the president.' False."

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Credit is still wildly misunderstood.

The economy has changed a lot since we all took our high school Economics class. And it is certainly miles away from what our parents grew up with. And yet, many still hold on to certain money beliefs that come from these bygone eras. Or frankly, ones that never had a right to exist in the first place.

And honestly, there’s so much conflicting information out there (about all things, really, but we’ll stick to finances for the sake of the conversation) that it’s no wonder that so many people might just stick with what they know, even if certain money truisms aren’t all that true, and even they aren’t actually helping.

Recently, someone flat out asked, “What’s the biggest financial myth people still believe that’s actually hurting them in today’s economy?" Below are some of the most illuminating answers.

Right off the bat, we have some politically fueled myths to debunk:

1. "'That commodity prices, like gas and eggs, are controlled by the president.' False. They're actually priced on a trade market, bought and sold, with production controlled by large corporations."

2. "That immigrants are taking our jobs! Like seriously. If every immigrant, legal or otherwise, disappeared tomorrow, it wouldn't do a single positive thing for me personally, much less the broader economy."

"People are so ignorant about this. The trades would be hurting horribly if this happened,” one person replied.

Next up were long running myths that were also deeply entwined with our collective relationship to hustle culture.

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3. "That hard work will lead to wealth. This simply is not correct for the vast majority of workers (read: anyone not C-level). The truth is that the US is a shareholder economy, not a labor economy. This means that even if someone is getting regular raises, they're likely barely keeping ahead of inflation."

4. "That your employer will be there for you when times are bad. Build and keep a savings. You are a liability to them, not an asset, and will ditch you the moment they can profit from it."

"^This. Always remember this,” someone replied. “You are a cog in the machine and if they can find a cheaper cog, they will. Oh, and HR is not your friend.”

Then there were the strategies many people implement in hopes to save money, which actually end up costing them in the long run, whether that’s with groceries or with housing.

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5. "Dollar stores are generally a worse food value based on size/quantity. Sure, it's $1, but the $2.25 box at the grocery store has 500% more food by weight, therefore, is a much better value. You're paying a little less to get a lot less."

"If anyone didn't know, US grocery stores almost always put a price per unit on the price sticker (i.e., $1.23/lb or $0.0865/oz). You should be looking at these when comparing prices for exactly this reason," one person wrote.

6. "That cheapening out on your laundry doesn't impact your clothes' lifetime. You can vastly improve the life and sustained quality of your clothes by not throwing everything in the wash together. Also, most better quality laundry detergents need less to clean better, so spending a little more on a decent brand will give you better returns. I have also found they wash out better, too."

7. "'Paying rent is like throwing your money away.' The truth is renting is a better financial move than buying in a lot of markets where home prices are too high."

And yet, certain things that could definitely add value…people are afraid of, it seems.

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8. "Not investing back into yourself. Investing doesn't always have to be some major cash return. It could be education, making your life easier so you have more time and energy, or simply relaxing. I know a lot of people who played the frugal game and are just now getting out in their 70s."

To this, someone replied, "I tell people that one of the best investments you can make early on in life is a top-tier mattress and office chair. The amount of money you'll save yourself on future medical bills is one of the best returns on investment you'll make in your life."

9. "'The stock market is just like gambling.' You are never going to accumulate enough money to retire without using the stock market. The market has always gone up in the long term. If it stops going up in the long term, society will be in pretty bad shape, and your money probably wouldn’t be worth anything anyway."

"'Time in the market beats timing the market.' The stock market can be gambling if you're into day trading and trying to achieve short-term gains. But if you're investing long term, then yes, it's a great tool for growing your wealth."

By and large, people seemed to think taxes were an elusive subject to most folks. And probably rightfully so. Along with credit cards, do any of us really ever get a basic education on this unless we actively seek it out?

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10. "Turning down raises because 'it means a giant jump in my taxes.'"

"11. Understanding tax brackets (in the US) in general. Can't tell you how many times I heard mention that their raise/overtime/bonus will just be eaten up by taxes.Fine, I'll take your raise and pay the taxes. No one ever went broke paying taxes."

12. "People do not realize that a tax refund is their money to begin with and that they should have their deductions set up to break even or owe a little. A lot of people still think it's some kind of stimulus."

13. "That tax breaks for the wealthy will allow some of their wealth to 'trickle down' to us poors. Something is trickling down on us, but it's not money."

Speaking of credit cards, that was also a popular topic in the responses.

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14. "Keeping a balance on your credit card DOES NOT improve your credit score. What it does do is get you comfortable having a balance on your credit card, which, when it likely gets out of control, is like napalm pouring down on your future financial hopes and dreams."

15. "Credit cards are great, but under no circumstance should you ever pay a penny of interest on your credit card. You absolutely need to pay off your entire credit card balance at the end of each month. Credit card debt is the last thing you want to have due to the ridiculous interest rates they charge."

16. "Credit cards are bad. If you use them right, you can actually come out ahead. Get a card with good cash-back rewards and use it for everything. I mean everything. If you can pay your rent, bills, and insurance with it, do it. If you can use it for work and they reimburse you, do it. Pay the balance off at the end of every month, and make sure you keep track of your ins and outs. It requires you to be responsible, but it's worth it."

There was also a lot of talk about how our mainstream views on success in general (what it looks like, how to actually achieve it, etc) are inherited myths.

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17. "That you have the smallest of chances of becoming a billionaire. People don't understand the orders of magnitude difference between even a low-level multi-millionaire and a billionaire. At 100 million dollars, you're still 10 times closer to homelessness than you are to becoming a billionaire. Stop trying to get there. Stop voting for people and policies that promise you that opportunity. The only way these people achieve that wealth is through siphoning it away from everyone else."

"My wildly successful uncle came from true poverty and he's worth about $50 million. If you look at what it takes to get even there, it looks BARELY possible at best. He worked his ass off from his early teens, he's incredibly smart, he's incredibly good with money, AND he was lucky, and he's still only 5% of the way to a billion after a lifetime of work,"one person replied.

"18. That you need to spend big to look successful."

19. "That you deserve something you can’t afford because you work hard. Deserves has nothing to do with it."

Lastly, we have the myth of the savings account. More specifically, the myth of how helpful it really is.

20. "Just save money.' No. You need to do more. Most savings are not beating inflation. As a result your money is shrinking by doing that. One of the most insidious ways our money is effectively being stolen is just by having inflation make it worthless by the time you'll go to use it.The easiest thing I am aware of is to put it in an index fund that automatically reinvests. These are automatic funds that follow a set algorithm of stocks (an index) and do not have a human element in the decision making. They regularly outperform professionals. They typically do very well compared to inflation, and require zero maintenance."

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Parenting

Mom's real world budgeting lesson goes viral after it leaves her kids feeling overwhelmed

"I just won't eat lunch. I'll just eat a big breakfast. I probably won't eat breakfast."

Ariel B.|TikTok

Mom does budgeting exercise with kids. They're stressed.

Kids, as much as we love them, they're like our little broke best friends. They seemingly always want something and have little to no concept on how much money things cost.

There are some parents that start explaining how finances and budgeting works at an early age so kids know what to expect. It also likely helps them understand that parents don't have an infinite amount of money to spend on unnecessary items. Ariel B. is a mom and content creator that created budgeting worksheets for her children to use to learn how to budget and uploaded the video to TikTok.

Let's just say, the kids were a bit stressed before they even finished the worksheet.

The mom of four gathered her children around the table with budgeting worksheets and a $3,000 imaginary budget, which is based off of a $15 minimum wage plus an additional $500. Ariel explained the average cost of rent in their area and instructed her kids to look up the average cost for utilities in an apartment.

"How long are you leaving your lights on," one of her daughters asks. To which Ariel responds, "well, all of our lights are on in here and you don't seem to mind."

At one point in the video, they're discussing a food budget when one of her children says he will eat take out daily. Reality quickly set in when Ariel encouraged them to crunch some numbers.

"That's too much money, actually," the younger daughter exclaims. "I just won't eat lunch. I'll just eat a big breakfast. I probably won't eat breakfast."

@the_arielb

Teaching my kids budgeting💰 FREE PDF 🔗 in bio ❤️

In another video, one of the children is appalled that they would be expected to pay first and last month's rent when moving into an apartment. The older daughter is simply flabbergasted at the lack of available money.

"I have nothing. I have no money at all. And I don't know what to do about it," the girl says. I cut all of my ones and I'm already on a bike. Like I don't know what to do. Like what else can I do?"

Oh, little ones, welcome to Adulting 101. These kids are likely thanking all of the stars in the sky that this was just an imaginary situation and not something they need to worry about for a long time.

@the_arielb

Teaching my kids budgeting, they only have $3,000 a month. 💰 FREE PDF 🔗 in bio ❤️

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Young boy's wows his parents with an impressive 'financial plan' to invest in his future

Some kids know exactly what they want out of life from the get go. And how to get there.

@linsfam33/TikTok

This ten-year-old is going places

It’s uncanny how some kids really don’t seem like kids at all.

Instead, they think, speak and behave like adults (just, you know, child-sized adults). There’s an inherent savviness to these old souls that makes them not only aware of what they want out of life, but able to create concrete steps towards that goal…both skills that don’t reach many of us until well into adulthood.

Take for instance Neil Lims, a 10-year-old who is so determined to go to Morris College that he spent an entire Friday evening coming up with an impressive financial plan to save money for tuition.

Neil presented the plan to his parents, Shark Tank style, and thanks to a recording of it blowing up on TikTok, now we can all marvel at this young man’s natural entrepreneurial abilities.

In the clip, Neil unrolls a large sheet of brown paper with math scribbles as he explains how opting out of Christmas and birthday presents could help the family save big.

"I asked mom how much money she spends on my present for my birthday. She said $100. When I'm 19, I'll be moving out. So if I put all that money, $900, then I have to think about Christmas. It's also $100. Nine-hundred dollars plus $900 is 1800,” he said.

Then came the proposal: “So then the price of Morris for two years is $24,000 currently. If... instead of getting presents from you, I just get the money for college, then I'll be 9% of the way there!"

@linsfam33 It was 10:30 on a Friday night. Our youngest had been quiet. So quiet that i thought he had gone to bed. Nope. He was just preparing a finacial presentation for us. 😂 #collegeplan #financialliteracy #fridaynight #kidsarethebest ♬ original sound - n-lins

When Neil’s mother asks if he’s sure that he would like money for college over presents, the boy’s answer is simple and definitive. “I. Care. About. My. Future.” Wow. It’s hard to tell which is more impressive—this kid’s analytical prowess or his resolve. Plus, good on Neil’s mom for mentioning investing at the end of the video. Judging by the way his face lights up when she utters the word, it’s clearly a passion that she’s paying attention to.

After the clip went viral on TikTok, even Morris College saw Neil’s financial plan, and ended up sending him a swag box to encourage to keep pursuing his dreams.

@linsfam33 Replying to @linsfam33 THANK YOU @umnmorris for this awesome box of fun things for the whole family!! Please follow and subscribe to us on youtube and instagram. (Linsfam33) We have a few things in the works that we will be sharing. #viral #financialliteracy #collegeplan #kidsarethebest ♬ original sound - n-lins

And while a small handful of folks shared concern over Neil sacrificing toys (and therefore an aspect of his childhood) in the name of steep college tuition prices, research has shown that it’s perfectly natural and healthy for kids as young as four or five to be able to formulate plans for their future.

In another video, Neil’s mom explained how at the ripe old age of three when he came up with the idea for a candy stand, with the ultimate goal of owning one on every continent—it’s a business Neil still has today. In fact, following his sudden internet fame, Neil’s family started an Indiegogo campaign to help cover startup costs for the business, including website development, business planning, and marketing.

Learning at least the basics of financial literacy—such as savings, controlling impulse buys, and finding creative ways to make money—can be one of the best ways to ensure a kid’s future. Luckily, there are plenty of ways to make this kind of learning fun for children nowadays, so one doesn’t have to be born with Neil’s shrewdness in order to succeed.

But financial prowess aside, it’s always cool to see it when kids are just so sure of themselves and where they want to be. And Neil is no exception.

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