Less Than 25% Of College Graduates Can Answer These 4 Simple Money Questions

[Anti Federalist]

Less Than 25% Of College Graduates Can Answer These 4 Simple Money Questions

https://www.zerohedge.com/news/2019-...oney-questions

by Tyler Durden Sun, 04/21/2019 - 06:28

Authored by Mac Slavo via SHTFplan.com,

Americans have become numb to financial intelligence. This is no more evident than a recent Sallie Mae survey, which indicated that college graduates can’t even answer simple questions about financial concepts, such as interest.

The statistics are not looking good for the United States, a nation deeply indebted, addicted to consumerism, and woefully ignorant about it all. Not long ago, SHTFPlanreported that a mere 1 in 10 Americans is actually capable of getting an A on a basic financial security test.

And even college graduates, who are likely tens of thousands (if not more) dollars in debt because of school, learned little to nothing about handling their personal finances. The big red flag comes from consumer banking firm Sallie Mae. The firm released its new “Majoring in Money” study which asked hundreds of current and recently graduated college students up to age 29 about basic financial concepts. The results are worrisome.

Sallie Mae asked these individuals four questions related to credit and interest, and fewer than one in four got all four of these correct.

1. Interest accumulation:
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?
a. More than $102
b. Exactly $102
c. Less than $102
d. Not sure

2. Effects of payment behavior on credit cost:
Assuming the following individuals have the same credit card with the same interest rate and balance, which will pay the most in interest on their credit card purchases over time?
a. Joe, who makes the minimum payment on his credit card bill every month
b. Jane, who pays the balance on her credit card in full every month
c. Joyce, who sometimes pays the minimum, sometimes pays less than the minimum and missed one payment on her credit card bill
d. All of them will pay the same amount in interest over time
e. Not sure

3. Impact of repayment term on cost of credit:
Imagine that there are two options when it comes to paying back a loan and both come with the same interest rate. Provided you have the needed funds, which option would you select to minimize your total costs over the life of the loan (i.e., all of your payments combined until the loan is completely paid off)?
a. Option 1 allows you to take 10 years to pay back the loan
b. Option 2 allows you to take 20 years to pay back the loan
c. Both options have the same out-of-pocket cost over the life of the loan
d. Not sure

4. Interest terminology:
Which of the following best defines the term “interest capitalization”?
a. The type of interest charged on high-balance loans
b. The addition of unpaid interest to the principal balance of a loan
c. Interest that is charged when you postpone payments on your loan

The fact that we have an entire generation, largely college educated, who cannot answer these questions does not bode well for our future as a society. Not knowing the answers to these could end up costing people a lot of money down the road. According to Market Watch, 83% of college grads carry a credit card as revealed by Sallie Mae, but only about six in 10 say they pay the balance(s) in full and on time each month. Coupled with the fact that nearly seven in 10 college students take out student loans, graduating with an average of nearly $30,000 in debt, the decline in financial intelligence is evident.

There are ways to learn the basics of personal finance. Dave Ramsey’s Total Money Makeover book was of the most help to many people, and Ramsey is perhaps the most well-known personal finance guru out there. He takes a strict “no debt” approach that has worked not only for himself, but countless others. He also offers an easy to follow guide which he’s dubbed “the baby steps” that will get people on the path to financial freedom.

Other resources are those such as Robert Kiyosaki’s Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!

Both books are excellent resources that teach the very basics about money and personal finance that no one is learning about in their public school educations.

* * *

The answers are 1: A, 2: C, 3: A, and 4: B

[ATruepatriot]

Those are too hard... All I care about is remembering my PIN number so that I can get money until it stops giving me anymore. lol

[Zippyjuan]

3. Impact of repayment term on cost of credit:
Imagine that there are two options when it comes to paying back a loan and both come with the same interest rate. Provided you have the needed funds, which option would you select to minimize your total costs over the life of the loan (i.e., all of your payments combined until the loan is completely paid off)?
a. Option 1 allows you to take 10 years to pay back the loan
b. Option 2 allows you to take 20 years to pay back the loan
c. Both options have the same out-of-pocket cost over the life of the loan
d. Not sure

This one is actually a bit tricky. Since you have the money to make the payments there is another factor to consider- what return can you get on the money which could have gone to paying off the loan? If you can get a higher return than the interest rate on the loan, you may be better off taking the longest time to pay. If your loan is three percent and you can get five percent, invest the money and put as little as necessary towards the loan.

[acptulsa]

This one is actually a bit tricky. Since you have the money to make the payments there is another factor to consider- what return can you get on the money which could have gone to paying off the loan? If you can get a higher return than the interest rate on the loan, you may be better off taking the longest time to pay.

It's not tricky. It says, '...which option would you select to minimize your total costs...' There's nothing tricky about that at all. The question is about total costs, not alternate ways to pay the total costs. You said yourself the total costs would be higher even as you were dreaming up ways to get a superior net in the end.

If you want to spin or discredit this, or make the idiots who can't ace it look savvy, you're going to have to spin it harder than that. Or do your duties spinning things in favor of the Federal Reserve and the huge private banks that own it include saying that paying banks interest is always and forever a good and wise thing to do?

[timosman]

The way the questions are asked is tricky. This is discriminatory. The only people who would benefit from analysis at this depth are conspiracy theorists.

[juleswin]

Got the 1st 3 answers right and missed the 4th question. So I will b included in the 3 out of 4 college grads who couldn't answer all the 4 simple questions. This makes me wonder how many people actually got the 3 right and the definition question wrong.

[timosman]

It's not tricky. It says, '...which option would you select to minimize your total costs...' There's nothing tricky about that at all. The question is about total costs, not alternate ways to pay the total costs. You said yourself the total costs would be higher even as you were dreaming up ways to get a superior net in the end.

If you want to spin or discredit this, or make the idiots who can't ace it look savvy, you're going to have to spin it harder than that. Or do your duties spinning things in favor of the Federal Reserve and the huge private banks that own it include saying that paying banks interest is always and forever a good and wise thing to do?

Yeah, the person in charge of Zippy's account today seem to be financially illiterate.

[timosman]

Got the 1st 3 answers right and missed the 4th question. So I will b included in the 3 out of 4 college grads who couldn't answer all the 4 simple questions. This makes me wonder how many people actually got the 3 right and the definition question wrong.

Q.4 is trivial when you realize:

a) introduces a non-factor: "high-balance"
c) describes an extremely low probability event.

[Krugminator2]

I have never heard the term interest capitalization in my life. I got it right only because I guessed b.

[timosman]

I have never heard the term interest capitalization in my life. I got it right only because I guessed b.

You must have heard Compound Interest?

[juleswin]

Q.4 is trivial when you realize:

a) introduces a non-factor: "high-balance"
c) describes an extremely low probability event.

I answered 4 with C. I just didn't know what it meant and made the wrong guess.

[Schifference]

I had no issue with the questions. I would call #4 C Deferred interest. Without guessing and by using logic B would be the correct answer.

[acptulsa]

I had no issue with the questions. I would call #4 C Deferred interest. Without guessing and by using logic B would be the correct answer.

That's because you know what the word 'capital' means. I think all these kids are missing it and whining because they stopped teaching them the definition of that word about twenty-five years ago. Probably don't want them to know what capitalism really means.

[jkr]

I LOVE LAMP

[sam1952]

Honestly I’d be shocked to find anyone who couldn’t answer 1-2 and 3 correct. And I didn’t know the answer to 4, would only have guessed B as a 50/50 chance of being right.

[Schifference]

It is hard to say for sure how good of an example this test is. When my kids were in HS they were taking Chemistry, Trig, Calculous, physics, biology..... and so much more. I could not answer their homework. They were way ahead of me. Now my son will be graduating from college. I would think the kids my children have rolled with are very smart. Smarter than I am for sure.

[juleswin]

Honestly I’d be shocked to find anyone who couldn’t answer 1-2 and 3 correct. And I didn’t know the answer to 4, would only have guessed B as a 50/50 chance of being right.

Well, that's because you definitely don't know what the word 'capital' means. I think all these kids are missing it and whining because they stopped teaching them the definition of that word about twenty-five years ago. Probably don't want them to know what capitalism really means

[Zippyjuan]

Got the 1st 3 answers right and missed the 4th question. So I will b included in the 3 out of 4 college grads who couldn't answer all the 4 simple questions. This makes me wonder how many people actually got the 3 right and the definition question wrong.

57% of those tested got at least three out of the four correct. 72% got at least half of the answers correct. 92% got at least one right. https://www.salliemae.com/assets/abo...eport-2019.pdf

[oyarde]

Got the 1st 3 answers right and missed the 4th question. So I will b included in the 3 out of 4 college grads who couldn't answer all the 4 simple questions. This makes me wonder how many people actually got the 3 right and the definition question wrong.

Most of them probably missed #1

[Zippyjuan]

Most of them probably missed #1

Actually that one got the most right answers.

#1) 83% got it right.

#2) 54% were correct.

#3) 70%

#4) 55%

[oyarde]

Actually that one got the most right answers.

#1) 83% got it right.

#2) 54% were correct.

#3) 70%

#4) 55%

So t is possible 83 percent are able to do 1970 third grade math story problems . Excellent . Now they can figure out how much those student loans are really going to cost them and how much home interest they will save too by not being able to afford one .