Two years ago, author and entrepreneur Braun Mincher developed FinancialLiteracyQuiz.com, a fifty-question test that mimics the kind of final exam on money that is missing from most schools. Many respondents get a score of around 57 on their first try, hinting at a lack of understanding about how money works. Mincher answered some questions about the origin of the quiz and its role in encouraging serious talk about money.
Joe: Why did you create the Financial Literacy Quiz?
Braun: Hopefully, it gives people incentive or inspires them to learn what they don't know about important personal finance topics, such as:
- credit and banking
- real estate
- saving for the future
- simple estate planning
Joe: How did you come up with the questions?
Braun: I took them out of my book, The Secrets of Money. I picked questions that, just in informal conversations with friends and colleagues, would come up about yield spread premiums or buying a car. These are the types of questions that people would ask because I was their go-to guy for personal finance.
Joe: Only 33% of respondents knew what Annual Percentage Rate really means. Explain how this knowledge can impact the decisions a consumer might make.
Braun: The reason it's important to understand APR, whether it be on a consumer loan, credit cards, or payday loans, is to understand what options are available. For example, for every $100 you borrow on a payday loan, you pay $15. Informally asking people, less than 5% know that the APR on that loan is really 396%. Even if you did a cash advance on a credit card, with interest as high as 37%, it's going to cost a lot less than that payday lending percentage. (Editor's Note- we are pleased to offer reviews of low interest credit card offers on our site).
Joe: You've said that today's American is more likely to declare bankruptcy than to get cancer. Why don't we talk about our financial health?
Braun: Financial literacy is more taboo than religion, politics, or sex. People over the dinner table or at a cocktail party are more likely to talk to you about an affair they've had than they are about their credit score. Financial illiteracy is an epidemic that has not gotten anywhere near the level of attention of things like early detection of breast cancer, childhood obesity, or reasons not to smoke. People are wearing bracelets and ribbons and promoting awareness about all these different epidemics that are affecting us as Americans. And yet, I've never seen anybody wear a bracelet or a ribbon for financial literacy.
I would like to echo Braun's remarks and encourage you to take the quiz if you haven't already and to share it with your friends and family members. Braun will follow up the Financial Literacy Quiz this summer with a feature-length documentary based on his book, The Secrets of Money.
Do you think you can pass the financial literacy quiz? We welcome you to share your ideas on our active credit card forum.