How financially literate are you? Would you like to find out? By answering this 8-question quiz, designed by investment manager AllianceBernstein, you can see how your results stack up against a pool of defined contribution participants who knew shockingly little about a few basic investment terms and products.
A mere 12% of the respondents surveyed answered all 8 questions correctly. A third got 3 to 5 questions right. However an astonishing 25% only answered 2 or less questions correctly. You can see the questions below, followed by the answers at the very end. How does your score compare?
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. Don’t know
e. Prefer not to answer
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. Buy more than
b. Exactly the same as
c. Less than today with the money in this account
d. Don’t know
e. Prefer not to answer
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 interest rates
e. Don’t know
f. Prefer not to answer
4. 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. Don’t know
d. Prefer not to answer
5. Which of the following statements describes the main function of the stock market?
a. It helps to predict stock earnings
b. It results in an increase in the price of stocks
c. It brings people who want to buy stocks together with those who want to sell stocks
d. None of the above
e. Don’t know
f. Prefer not to answer
6. Considering a long time period (for example 10 or 20 years), which asset normally gives the highest return?
a. Savings accounts
b. Bonds
c. Stocks
d. Don’t know
e. Prefer not to answer
7. Normally, which asset displays the highest fluctuations over time?
a. Savings accounts
b. Bonds
c. Stocks
d. Don’t know
e. Prefer not to answer
All told, 67 percent answered correctly, though roughly one-fourth of the two younger age brackets chose inaccurate answers.
8. When an investor spreads his money among different assets, does the risk of losing money:
a. Increase
b. Decrease
c. Stay the same
d. Don’t know
e. Prefer not to answer
Answers:
- a
- c
- b
- b
- c
- c
- c
- b
For explanations and more info on how different age groups answered each question, check out this article on BenefitsPro.