One of the biggest problems Americans have is we believe we know more about money than we do. We are 70% overconfident about our money skills, and so we take risks we never should.
How many can you get right?
Suppose you had $100 in a savings account, and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?
Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account?
Buying a single company’s stock usually provides a safer return than a stock mutual fund.
If interest rates rise, what will typically happen to bond prices?
Suppose you owe $1,000 on a loan and the interest rate you are charged is 20% per year compounded annually. If you didn’t pay anything off, at this interest rate, how many years would it take for the amount you owe to double?
A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage, but the total interest paid over the life of the loan will be less.
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