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U.S. Trails (14th Place) Israel, Canada & Germany for Financial Literacy

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Nearly two-thirds of adults consider their own financial literacy to be good or excellent, however, their perception of the average American isn’t quite as favorable. Only 29% of respondents perceive the average American’s financial literacy as good or excellent.

Reality falls somewhere in between. An S&P Global study found that 57% of American adults could be classified as financially literate. 

In recognition of April as Financial Literacy Month, the ABA Foundation is asking five questions to test consumers’ knowledge of key financial concepts.

How confident are you in your financial literacy skills?  Try your hand at these questions.

Credit:

Q: What is generally considered a good credit score?

A: Credit scores can range from 300 to 850. Generally, anything over 700 is considered a good score. Factors like payment history, types of credit, and outstanding debt can influence your score.

Interest:

Q: Let’s say you need to borrow $200. Would you rather pay back $205 or $200 plus 5 percent interest?

A: You’d rather pay back $205 because $200 plus 5 percent interest comes out to $210.

Compounding Interest:

Q: You have $1,000 in a savings account earning 2 percent interest a year. After two years, how much would you have?

A: The savings account would grow to $1,040.40 by the end of the second year because your interest will compound over time. That means the account holder earns interest not only on the money they’ve saved but also on the interest earned in prior years.

Diversification:

Q: If you’re investing money, is it safer to put that money into a single asset or into multiple assets?

A: It’s safer to put money into multiple assets. This is the investment principle of diversification. Your risk of losing money decreases when money is spread across multiple investments.

Inflation:

Q: Over the next 15 years, the cost of living and your income double. Will you be able to buy more, the same or less than you can today?

A: You will be able to buy the same amount of things as you do today. Inflation, or the rate at which the price of goods and services rises, causes cost of living to go up. Your buying power stays the same when inflation and your income rise at the same rate.

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