Can you answer these three financial questions?

[Gonad the Barbarian]

Do you understand money? Let’s see how well you do with the following questions.

1. Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After five 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; refuse to answer.

2. Imagine that the interest rate on your savings account is 1 percent per year and inflation is 2 percent per year. After one year, would you be able to buy A) more than, B) exactly the same as, or C) less than today with the money in this account?; D) do not know; refuse to answer.

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; refuse to answer.

The correct answers are

Spoiler

1-A; 2-C; and 3-B.

How did you do? Did you respond correctly to all three questions? If you did, then you belong to a surprisingly small global minority.

In Russia, 96 percent of those surveyed could not answer the three questions correctly. While that might be expected of a post-communist nation, the mecca of capitalism didn’t exactly yield glowing results—only 30 percent of Americans aced the quiz. The best-performing respondents were the Germans (53 percent got a perfect score) and the Swiss (50 percent), but this still leaves almost half of each country’s population without a basic understanding of financial matters. In countries with relatively strong economies, the numbers are sobering: 79 percent of Swedes, 75 percent of Italians, 73 percent of Japanese, and 69 percent of French could not respond correctly to all three questions.

The rest of the article is worth reading, widespread financial illiteracy can pose a pretty serious threat to global economic stability.

 

[BoberFett]

I've long that that this is one area where schools fail massively.

The conspiracy theorist in me (we all have a tiny bit in us) would say that is intentional.

 

[smackababy]

The questions are too vague to realistically answer. My savings account has a $4 a month charge if you average daily balance is less than $300. So, after a year, I'd have zero dollars before 5 years.

The other two, I am okay with.

 

[TheSiege]

I never understood why better accounting and financing classes aren't taught at the high school level.

 

[fskimospy]

I never understood why better accounting and financing classes aren't taught at the high school level.

Sadly, the evidence shows that these classes aren't correlated with superior financial management later in life.

 

[Gonad the Barbarian]

Sadly, the evidence shows that these classes aren't correlated with superior financial management later in life.

There's actually an article on that I was tempted to edit into the OP:
http://www.theatlantic.com/business/archive/2014/05/why-are-americans-so-bad-with-money/361883/

 

[alzan]

The rest of the article is worth reading, widespread financial illiteracy can pose a pretty serious threat to global economic stability.

1) A
2) C
3) B

Woohoo, I'm in the 30% of Americans!

I've long that that this is one area where schools fail massively.

The conspiracy theorist in me (we all have a tiny bit in us) would say that is intentional.

+1 to your first comment
+10 to your second

 

[MongGrel]

42

 

[werepossum]

The questions are too vague to realistically answer. My savings account has a $4 a month charge if you average daily balance is less than $300. So, after a year, I'd have zero dollars before 5 years.

The other two, I am okay with.

Sucks that savings accounts now have fees.

I have a very hard time believing that even 30% of Americans missed one of those questions, let alone 70%. Did they do this study at a rave?

 

[MongGrel]

Sucks some investments here aren't going fast enough, need to change some.

 

[ivwshane]

Savings accounts are a joke nowadays anyway, 2% wtf!

 

[Jhhnn]

In broader societal terms, how much money will you have at the end of 30 years of normal market returns of 7%?

The correct answer is almost 8 times as much, because the total basically doubles every 10 years.

If you work for 30 years continuously and get a 2% raise every year, what will your wage be at the end of 30 years?

The correct answer is a helluva lot less than 8 times as much.

It all trickles down, of course, if only in the fantasies of well indoctrinated Righties.

 

[nehalem256]

In broader societal terms, how much money will you have at the end of 30 years of normal market returns of 7%?

The correct answer is almost 8 times as much, because the total basically doubles every 10 years.

If you work for 30 years continuously and get a 2% raise every year, what will your wage be at the end of 30 years?

The correct answer is a helluva lot less than 8 times as much.

It all trickles down, of course, if only in the fantasies of well indoctrinated Righties.

It appears that someone doesn't understand the difference between wealth and income.

And the bigger problem with your analysis is you seem to be assuming you have to spend every penny of your income for the next 30 years. But the person earning market returns doesn't have to spend a penny of it.

Gee, who would have thought that if you don't spend money for 30 years you will have a lot more than the person who spent all of their money? :hmm:

 

[Sonikku]

Unsurprisingly, I aced the quiz on account of my advanced intelligence. With the exception of the second question; It was a trick question on account of the fact that inflation is actually much higher in reality than Obama is telling us.

 

[alzan]

In broader societal terms, how much money will you have at the end of 30 years of normal market returns of 7%?

The correct answer is almost 8 times as much, because the total basically doubles every 10 years.

If you work for 30 years continuously and get a 2% raise every year, what will your wage be at the end of 30 years?

The correct answer is a helluva lot less than 8 times as much.

It all trickles down, of course, if only in the fantasies of well indoctrinated Righties.

Yeah it trickles down alright.

 

[shira]

This quiz is pathetically simple.

But I have a huge gripe with question #3: The wording of this question is highly ambiguous. I was pretty sure that the intended interpretation is: "Is picking individual stocks a wiser investment strategy then putting the same amount of money into a broad stock-index fund?"

But the actual question uses the phrase "safer return," which suggests that the interpretation is "If a large group of people each randomly invests in a stock and another large group of people each randomly invests in a mutual fund, which group's approach is more likely not to lose everything while still providing a reasonable return on the investment?" That's a very, very difficult question to answer.

 

[Exterous]

There's actually an article on that I was tempted to edit into the OP:
http://www.theatlantic.com/business/archive/2014/05/why-are-americans-so-bad-with-money/361883/

Its good to see more studies being done and they corroborate the findings of other studies. There have been several studies that show the following:

So far, the study has shown that parents hold enormous sway over shaping kids' financial lives.

Yet no one really talks about getting the parents involved. Its all about how the schools have to handle this despite the universally poor results from taking a couple of classes. Heaven forbid we focus on parents having to do work when that has been shown to have the best results

Sucks that savings accounts now have fees.

Heh - like the banks weren't going to find other places to charge fees when the government said they couldn't charge them in other areas

 

[Newell Steamer]

only 30 percent of Americans aced the quiz

It's OK, we can rely on corporations to do math for us!

I mean, they self-regulate, so we have nothing to worry about - ever!! In the past, present and future!

 

[fskimospy]

Heh - like the banks weren't going to find other places to charge fees when the government said they couldn't charge them in other areas

If banks are going to charge fees I VASTLY prefer that they are up-front and transparent like a savings account fee. What banks were doing in the past with overdraft fees was dishonest, deceitful, and predatory. We should all be happy that things like that were done away with.

 

[werepossum]

Its good to see more studies being done and they corroborate the findings of other studies. There have been several studies that show the following:

Yet no one really talks about getting the parents involved. Its all about how the schools have to handle this despite the universally poor results from taking a couple of classes. Heaven forbid we focus on parents having to do work when that has been shown to have the best results

Heh - like the banks weren't going to find other places to charge fees when the government said they couldn't charge them in other areas

Yep.

If banks are going to charge fees I VASTLY prefer that they are up-front and transparent like a savings account fee. What banks were doing in the past with overdraft fees was dishonest, deceitful, and predatory. We should all be happy that things like that were done away with.

I know that my local bank used to sort all deposits and checks by person each day, then line up the checks by amount and post largest first and deposits last. That way if one bounced a check, one would bounce as many checks as possible.

 

[fskimospy]

Yep.


I know that my local bank used to sort all deposits and checks by person each day, then line up the checks by amount and post largest first and deposits last. That way if one bounced a check, one would bounce as many checks as possible.

Yeap, they all used to do this. (or at least most of them) Reasonable people would expect your transactions to hit your account in the order you made them. Banks need to make checking profitable for themselves somehow and if they have to raise other fees to make that happen so be it. At least in these circumstances people know what fees to expect.

 

[Genx87]

Well to be fair to the avg Russian's. The same people who ran the polls in Crimea also ran this one.

Anyways I got all three correct. Scary so many people cant answer these correctly.

 

[cubby1223]

I've long that that this is one area where schools fail massively.

The conspiracy theorist in me (we all have a tiny bit in us) would say that is intentional.

Until the common core mathematics came out, I would have said the lack of knowledge was intentional on those who refused to want to learn. That shit they're teaching is so damn confusing, I have an engineering degree from one of the top universities in the nation, and a minor in math, that common core stuff is insane! I can recognize the thought process behind it, it's trying to write out methods of how various people perform calculations in their heads, but it just flat out doesn't work the way they are teaching it.

 

[piasabird]

It depends how the money is compounded for interest. You could compound monthly. Just take the annual interest rate and divide by 12. Use that interest rate to add interest to the account every month. In a savings account it is probably more common for an annual interest rate to compound quarterly. At any rate every time you add interest, the principal changes, and you have a larger principal for the compounding to work on. They make charts and calculators with compounding formulas. One other factor you have to look at is will you make more money than the Inflation rate. The future value of money is also important.

Your questions are somewhat simplistic. A mutual fund could have front loaded charges, Back loaded charges, and maintenance charges for managing the money.

When you purchase a stock there is a fee to both purchase and sell stock. Then that stock could pay a dividend, and it can also increase or decrease in stock or become worthless for complete loss like GM Stock or AIG.

Then there is the risk factor of stocks. People buy different kinds of stocks because at times different technology stocks go up and down, Oil goes up and down, Housing is boom and bust and has a maintenance cost. Other stocks like Wal-Mart are pretty stable and don't move much.

 

[DominionSeraph]

E: never mind. It does say APR.