Financial literacy test: 7 money questions with answers explained

All monetary examples use hypothetical currency units. Use one currency throughout each calculation; the amounts are not local price, income or rate benchmarks.

Researchers have asked adults the same basic money questions for more than twenty years, in dozens of countries. The questions involve no advanced maths, yet large shares of adults answer at least one of them incorrectly or say they do not know. Below are seven questions: three classics used in academic surveys and four modern scenarios. Note your answers before reading each explanation.

Round one: the three classic questions

These three questions were developed by economists Annamaria Lusardi and Olivia Mitchell and are often called the “Big Three”. The versions here are adapted for an international audience. Lusardi & Mitchell, NBER Working Paper 18952.

Question 1: interest

You put 100 into a savings account that pays 2% interest a year. You leave it untouched for five years. How much is in the account?

A) More than 102 · B) Exactly 102 · C) Less than 102 · D) There is no way to know

Answer: A, more than 102. After one year you have 102. In the second year you earn interest on 102, not on 100, and so on. After five years the balance is 100 × 1.02⁵ ≈ 110.41, assuming no fees or taxes. The effect is small over five years and large over decades; read why the timeline matters for compound interest.

Question 2: inflation

Your savings account pays 1% a year. Prices of the things you buy rise by 2% a year. After one year, what can you buy with the money in the account?

A) More than today · B) Exactly the same · C) Less than today · D) Impossible to tell

Answer: C, less than today. The balance grows, but prices grow faster. The real return is approximately the interest rate minus inflation; precisely, 1.01 / 1.02 − 1 ≈ −0.98%. A rising balance can still mean falling purchasing power. See nominal versus real numbers.

Question 3: risk

Which of these usually carries less risk of a large loss?

A) Shares of one single company · B) A fund that holds hundreds of companies · C) They carry the same risk · D) It depends only on the share price

Answer: B, the fund. One company can fail, face a scandal or lose most of its value. Across hundreds of companies, one failure has a smaller effect on the total. Diversification does not remove market risk, since a whole market can fall, but it reduces the risk that one holding determines the outcome. Read diversification: different holdings, different risks.

What surveys found on the classic questions

United States (FINRA Foundation, NFCS 2024). More than 25,000 adults were surveyed between June and October 2024. Shares answering correctly: interest 69%, inflation 58%, risk 41%. On the risk question, 47% said they did not know, the highest “don’t know” share of all seven NFCS knowledge questions. The survey also found that 64% of respondents rated their own financial knowledge highly; among them, only 49% answered the risk question correctly and 32% the compound-debt question. FINRA Foundation, NFCS 2024 report.

Worldwide (S&P Global FinLit Survey). More than 150,000 adults in over 140 economies were interviewed in 2014. Defining financial literacy as understanding at least three of four basic concepts, the report found that 33% of adults worldwide met that definition. The data is more than a decade old and should not be read as a current rate. S&P Global FinLit Survey report.

39 countries and economies (OECD/INFE 2023). Across participants, 34% of adults reached the OECD minimum target score, and 42% answered a compound-interest question correctly. The United States, the United Kingdom and Canada were not part of this survey, so these figures say nothing about those countries. OECD/INFE 2023 survey.

United States (TIAA Institute–GFLEC P-Fin Index 2026). In January 2026, US adults answered on average 47% of 28 index questions correctly, the lowest level in the survey’s ten years. Questions about understanding risk had the lowest share of correct answers, 36%. 2026 P-Fin Index report.

These surveys use different questions, samples and definitions. Their percentages are not directly comparable, and none of them is a ranking of countries by intelligence.

Round two: four modern questions

The next four questions apply financial concepts to borrowing, paying abroad and investing. They are original scenarios, not survey questions, so no survey percentages apply to them.

Question 4: minimum payments

You owe 2,000 on a credit card at 24% a year, charged monthly (2% per month). You stop using the card and pay only the minimum: the month’s interest plus 1% of the balance, with a minimum payment of 25. Roughly how long until the balance is paid off?

A) About 2 years · B) About 5 years · C) About 8 years · D) About 12 years

Answer: D, about 12 years. The first minimum payment is 60, of which 40 is interest and only 20 reduces the debt. Because the payment shrinks as the balance shrinks, progress slows. In this model it takes about 143 months and roughly 2,890 in interest, more than the original balance.

The formula is an assumption. Card issuers calculate minimums differently, and rules vary by country. In the US, Regulation Z requires statements to show a minimum payment warning and estimated payoff time. CFPB, Regulation Z § 1026.7. Read why minimum payments can mean a long repayment path and test your own numbers with the credit card payoff calculator.

Question 5: paying abroad

You are paying by card in another country. The terminal asks whether to pay in your home currency or in the local currency. Which is usually cheaper?

A) Home currency, so there are no surprises · B) Local currency · C) It makes no difference · D) Whichever shows the smaller number

Answer: B, usually the local currency. Choosing your home currency triggers dynamic currency conversion: the merchant’s or ATM operator’s provider converts at a rate it sets, often with a markup. In a 2016 German consumer test reported by the European consumer organisation BEUC, choosing the home currency at cash machines cost between 2.6% and 12% more. BEUC position paper on dynamic currency conversion. Paying in local currency means your own card provider converts, which may involve its own foreign transaction fee. The full mechanism is explained in currency conversion fees: the spread, DCC and card charges.

Question 6: fees

Two funds both earn 7% a year before fees. One charges 1% a year, the other 0.1%. You invest 10,000 in each for 30 years. How much more does the cheaper fund leave you with?

A) About 900 · B) About 2,700 · C) About 16,600 · D) No meaningful difference

Answer: C, about 16,600. A common shortcut is 0.9% × 30 years × 10,000 = 2,700. That misses compounding: every unit paid in fees stops growing for all remaining years. In this simplified model, with the fee deducted from the return and annual compounding, 10,000 × 1.069³⁰ ≈ 74,017 and 10,000 × 1.06³⁰ ≈ 57,435. The difference is about 16,582. Taxes, inflation and the timing of real fee deductions are ignored; the 7% return is an assumption, not a forecast. See investment fees: small percentages, ongoing consequences.

Question 7: volatility

An investment rises 50% in one year and falls 50% the next. Where are you compared with where you started?

A) Back where you started · B) Up 25% · C) Down 25% · D) Down 50%

Answer: C, down 25%. 100 rises to 150, and half of 150 is 75. The fall applies to a larger base than the rise did. After a 50% loss, an investment needs a 100% gain to return to its starting value. Percentage gains and losses of the same size do not cancel out.

What your score means, and what it does not

Seven correct answers show that you already know the mechanisms behind interest, inflation, diversification, card debt, conversion, fees and volatility. If round one went well and round two did not, the gap is in rules that apply to specific everyday decisions, which you can revisit with the worked examples.

A short test does not measure intelligence and does not predict how anyone will manage money. Income, obligations, access to products and local rules also shape outcomes. Treat your score as a list of concepts to revisit, not as a verdict.

Take the full Money IQ test

For eight more scenario questions on purchasing power, borrowing costs, liquidity, diversification and currency risk, try the free Money IQ test. It uses its own questions, so its results cannot be compared with the survey percentages above. Every answer includes an explanation.

Turn seven answers into seven checks

Choose one practical check from the concepts you want to revisit:

Write the input you need, where to find it and when to review it. Completing a check is evidence about that decision, not a diagnosis of financial health. Keep the calculation alongside your actual cash-flow plan.