The Carr Report: Take the Financial Literacy Pop Quiz

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I listened to a personal finance podcast, “The Truth About Your Future,” this past weekend. The topic was about accredited investors.  The most experienced, most knowledgeable, most sophisticated, and wealthiest investors are at big risk because of cognitive decline. Accredited investors tend to be older and more seasoned investors. The big problem/risk is that these accredited investors don’t know that they’re in cognitive decline. They were sharp when they were younger.  As they have aged, they’re not as sharp as they used to be. In fact, many of these accredited investors scored worse on a financial literacy quiz than those who were considered simpletons on the subject of personal finance. 

Listening to this podcast prompted me to seek out statistics on financial literacy. Below are statistics provide by

Financial literacy is one of the most important skills a person can have, but that doesn’t mean everyone has it. From knowing how to save money to knowing just how much you can afford to spend, there are many skills that make someone financially literate. According to our research:

  • Only 57 percent of American adults are financially literate.
  • 73 percent of teens want more personal finance education.
  • Americans lose an average of $1,819 annually due to financial illiteracy.
  • 77 percent of Americans are financially anxious.
  • Women are 40 percent more likely to have low levels of financial literacy.

Approximately 21 percent of women score a low level of financial literacy, compared to 15 percent of men.

  • Asian and White Americans score the highest on financial literacy tests, answering 53.3 percent of questions correctly.

Asian Americans and White Americans answered an average of 3.2 out of 6 financial literacy questions correctly, while Hispanic Americans answered 2.6 out of 6 questions correctly (43.3 percent), and Black Americans answered 2.3 out of 6 questions correctly (38.3 percent).

  • 25 percent of American adults don’t have anyone to ask for trusted financial guidance.
  • 63 percent of Americans live paycheck to paycheck.
  • 71 percent of Americans believe they have high financial literacy levels.
  • Only 16 percent of Millennials understand basic financial principles.
  • Only 25 percent of American teens have confidence in their personal finance knowledge.
  • 53 percent of Americans don’t have an emergency fund.
  • Despite working full-time, 35 percent of American families still can’t afford rent, food, transportation, medical care, and minimal household expenses.
  • 18 percent of adults claim to just “get by” financially.
  • 55 percent of Americans don’t think their retirement savings are on track.
  • 73 percent of American adults rank finances as their primary stressor.
  • 29 percent of Americans stress about money daily.

Startling statistics! I’ve read similar statistics over the years that confirm these statistics. Based on these statistics, it’s safe to say that Americans are grossly undereducated on personal finances. Especially African Americans. When it comes to money and personal finances, ignorance isn’t bliss. What you don’t know can bankrupt you!

Below is a Financial Literacy Pop Quiz. If you’re like 71 percent of Americans who believe that they have high financial literacy levels, confirm it. If you know that you need to enhance your financial knowledge, use this pop quiz as a starting point. 

Let’s get started: You need to get 12 of the 15 correct to be considered “Financially Literate.”

  1. What is the definition of budgeting?
  2. a) Setting financial goals
  3. b) Tracking income and expenses
  4. c) Investing in the stock market
  5. What is the purpose of an emergency fund?
  6. a) To save for vacations
  7. b) To cover unexpected expenses
  8. c) To buy luxury items
  9. For a young person, which insurance policy provides the most coverage at the lowest cost?
  10. a) Term life
  11. b) Whole life
  12. c) Universal Life
  13. When you buy an insurance policy that has a high deductible, the premiums will be…?
  14. a) Higher
  15. b) Lower
  16. c) The same
  17. What is the concept of compound interest?
  18. a) Earning interest on the initial deposit only
  19. b) Earning interest on the initial deposit and the accumulated interest
  20. c) Earning a fixed interest rate on a savings account
  21. What is the purpose of diversification in investing?
  22. a) Minimizing the risk by spreading investments across different assets
  23. b) Maximizing the return by investing in a single asset
  24. c) Avoiding taxes on investment gains
  25. What is the difference between a traditional IRA and a Roth IRA?
  26. a) Traditional IRA contributions are tax-deductible, while Roth IRA contributions are not
  27. b) Traditional IRA withdrawals are tax-free, while Roth IRA withdrawals are taxable
  28. c) Traditional IRA has higher contribution limits than Roth IRA
  29. Net worth is equal to?
  30. a) Total Assets
  31. b) Total Assets plus liabilities
  32. c) Total Assets minus liabilities
  33. What does FICO score measure?
  34. a) Income level
  35. b) Credit worthiness
  36. c) Savings account balance
  37. What is the purpose of a 401(k) retirement plan?
  38. a) To save for a down payment on a house
  39. b) To save for college education
  40. c) To save for retirement
  41. What is the concept of inflation?
  42. a) Increase in the value of money over time
  43. b) Increase in the supply of money in the economy
  44. c) Increase in the prices of goods and services over time
  45. Savings Accounts and Money Market Accounts are most appropriate for…?
  46. a) Long-Term Investments like retirement
  47. b) Emergency Funds and Short-Term Goals
  48. c) Earning a High rate of return
  49. What is the purpose of a will?
  50. a) To transfer assets to beneficiaries after death
  51. b) To pay off debts and liabilities
  52. c) To create a trust fund for future generations
  53. What is the concept of risk tolerance in investing?
  54. a) Willingness to take risks for higher potential returns
  55. b) Avoiding all risks by investing in low-risk assets
  56. c) Determining the maximum loss one can tolerate
  57. For which type of loan is interest never tax deductible?
  58. a) Home Equity Loan
  59. b) Adjustable Rate Mortgage
  60. c) Personal vehicle loan

Answer key: 1. b), 2. b), 3.  a),  4.  b), 5.  b), 6.  a), 7.  a), 8.  c), 9.  b), 10.  c), 11.  c), 12.  b) 13.  a), 14.  c), 15 c)

(Money Coach Damon Carr can be reached at 412-216-1013 or visit his website @




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