From Yahoo Finance: 2025-04-19 05:05:00

Many American consumers struggle with understanding inflation and interest rates, as shown by a recent study by the FINRA Investor Education Foundation. The quiz found that 3 in 10 missed questions about interest rates, and 2 in 5 missed questions about inflation, with 71% stumped by compound interest.

The study revealed that 58% of respondents correctly answered a question about inflation, showing a concerning lack of financial literacy among Americans. Financial experts worry that the inability to connect economic forces like inflation to everyday life could lead to financial troubles.

Consumers who fail to grasp interest rates risk accumulating debt on credit cards with an average rate of 20%. Understanding interest rates is crucial to avoiding compounding debt, according to experts from the FINRA foundation, who stress the importance of financial education.

The study also tested consumers on diversification in investing, with only 2 in 5 understanding that investing in a single stock is riskier than spreading risk across many stocks in a mutual fund. Experts emphasize the need for a truly diversified portfolio for financial success.

Financial literacy is a crucial skill, as 27% of quiz-takers nationwide answered at least five of the seven questions correctly. The study underscores the importance of understanding concepts like inflation, interest rates, and investing for financial well-being.

The FINRA foundation’s study ranked all 50 states and the District of Columbia on financial literacy, highlighting states with both strong and weak financial knowledge among residents. Advocates are pushing for better financial education in schools, with more states now offering personal finance courses for high school students.

Read more: Can you pass a seven-question quiz on financial literacy? Most Americans could not.