5 questions to test your financial IQ

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Most of us think we’re pretty smart about money. But are we really?

More than 60 percent of Americans believe their own financial literacy is “good or excellent,” a new survey finds. However, only 29 percent believe the average American is in that camp. How do you think you’d do in a basic test of financial literacy?

This stuff matters because we all need to make good decisions in the short and the long term when it comes to our money. A short-term financial choice might be whether to cook dinner, rather than spend more to eat at a restaurant. As for the long term, many Americans need to make a commitment to save for retirement, or even to just put some money into savings in case of an emergency.

Even more broadly speaking, the decisions we make as voters have big financial implications for the nation. What should we do about the nation’s debt? Do we care about consumer regulations and protections?

April is financial literacy month — time to think and talk about this important subject. Since you are reading this, you are either someone who knows a lot about financial matters or wants to learn more. Or maybe both. Kudos to you for wanting to take matters into your own hands. That’s a big part of the battle.

Quiz time!

Check your own basic money know-how with a quick quiz. The answers are at the end of my blog — and no peeking!

  1. What is the basic benchmark used by money managers and other financial professionals for monitoring the stock market?
  2. What happens to bond yields when bond prices go higher?
  3. If you have money to invest, is it generally better to focus on one asset or should you spread your money around in a variety of investments?
  4. When asking to borrow money from a traditional lender — such as when you apply for a mortgage — your credit score is checked to determine the likelihood that you’ll pay the money back. What would be considered a good credit, or FICO, score?
  5. Which part of the federal government actually prints the paper money we carry in our wallets and purses?

The best kind of investment

Some ads on TV try to guilt us into going to the gym or try to sell us gym memberships. Others are aimed at selling us weight-loss products.

Sure, we need to be attentive to our physical health, but financial health is important, too. The sobering truth is that we all need to own our financial well-being.

A good place to begin is by making a budget. Other key steps include committing to emergency and retirement savings. Those should raise the chances of achieving financial success.

Financial literacy means having the kind of basic understanding of finance that allows you to make good investments in yourself.

Quiz answers

  1. The Standard and Poor’s 500 index (an index of 500 stocks). While the Dow Jones industrial average has been around longer and generates more headlines, the S&P 500 is viewed as a more accurate gauge.
  2. Bond yields and prices move in opposite directions. So, if bond prices are going higher, yields head lower. This is the way interest rates behave in the financial markets.
  3. By spreading your money around or diversifying, you are taking on less risk and reducing the chances of losing your principal.
  4. A FICO score in the 670 to 739 range is typically considered good. Anything higher is very good or exceptional.
  5. The U.S. Treasury Department’s Bureau of Printing and Engraving is responsible for production of the nation’s paper money. The U.S. Mint is responsible for coin production.

How did you do? Please let me know — and follow me on Twitter: @Hamrickisms

Mark Hamrick

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