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FAQ only, USA TODAY
A large-scale survey on financial literacy found that many American consumers do not understand the basic calculations of inflation.
In recent months, the FINRA Investor Education Foundation, a financial education nonprofit, administered a seven-question quiz to 25,500 adults to test their knowledge of consumer finance. Results: 3 out of 10 test takers missed a simple question about interest rates. Two out of five people stumbled on a question about inflation. The item about compound interest confused 71% of consumers.
Regarding questions regarding inflation,
Imagine if the interest rate on your savings account was 1% a year and inflation was 2% a year. After a year, how much money will you be able to buy with the money in this account?
- more than today
- exactly the same
- less than today
- I don’t know
The correct answer is “less than today.” If inflation is higher than the interest rate on your savings account, your purchasing power will decline over time.
In a FINRA Foundation quiz conducted in 2024, 58 percent of respondents answered the questions correctly. The group published its findings in April 2025.
Many Americans don’t know how inflation and interest rates interact
The idea that two-fifths of Americans may not understand the relationship between inflation, interest rates, and purchasing power has financial experts concerned.
“I think it’s a failure to connect the dots between economic factors like inflation and how it applies to our daily lives,” said Caleb Silver, editor-in-chief of financial journalism site Investopedia. “I trace this back to what was taught, or not taught, in high school.”
Experts say U.S. consumers need to learn about the sometimes difficult calculations of inflation and interest rates, as both indicators are trending upward.
Inflation soared to a 40-year high in 2022, and interest rates hit a 20-year high in 2023.
Financial literacy can save consumers from credit card debt
According to Bankrate, consumers who don’t understand interest rates risk incurring debt on credit cards, which have an average interest rate of 20%.
Another question from the FINRA quiz is:
Let’s say you have a $1,000 loan and the interest rate you’re being charged is 20%, compounded annually. If you don’t pay anything back, how many years will it take for your loan to double at this interest rate?
- less than 2 years
- 2-4 years
- 5-9 years
- over 10 years
- I don’t know
The correct answer is “2 to 4 years.” At a 20% interest rate, a $1,000 debt will become a $2,000 debt over that period.
Approximately 3 out of 10 test takers answered correctly.
The problem with not understanding interest rates is that you run the risk of “compounding your debt out of control,” says Gary Mottola, director of research at the FINRA Foundation. FINRA stands for Financial Industry Regulatory Authority, an organization that oversees brokers.
Financial education helps consumers make investment choices
Consumers who don’t understand interest rates may also miss out on opportunities to make money by opening high-yield savings accounts or investing in the stock market.
One item on the FINRA quiz tested consumers’ understanding of a fundamental investment concept: diversification.
True or False: Buying stock in a single company typically provides safer returns than stock mutual funds.
Only two-fifths of the quiz participants guessed the correct answer. Generally, it is riskier to invest in a single stock and safer to spread the risk across many stocks within a mutual fund.
“Many people don’t understand what it means to have a truly diversified portfolio,” says Investopedia’s Silver.
One of the easiest quiz questions is
Let’s say you have a savings account with $100 and it earns 2% interest per year. How much will you have in 5 years?
- Over $102
- just $102
- less than $102
- I don’t know
The correct answer is “more than $102.” More than 30% of respondents were wrong.
And this is the quiz’s most difficult question, with only 25% of consumers getting it right.
What typically happens to bond prices when interest rates rise? Do they rise, fall, stay the same, or have no relationship?
Bond markets are notoriously complex. Investopedia explains that bonds have an inverse relationship to interest rates. When interest rates rise, bond prices typically fall.
Nationally, 27% of quiz takers answered at least 5 out of 7 questions correctly. Only 4% answered all seven correctly.
Here are the states with the strongest and weakest financial literacy
The FINRA Foundation received enough respondents to rank all 50 states and the District of Columbia on financial literacy. The states with the most quiz takers getting at least 5 out of 7 questions correct are:
- Minnesota (34.8% of respondents answered 5 or more questions correctly)
- Wisconsin (34.5%)
- District of Columbia (34.4%)
- Colorado (33.9%)
- Wyoming (33.9%)
And the states with the lowest financial literacy are:
- Louisiana (18.1% of respondents answered 5 or more questions correctly)
- Mississippi (19.2%)
- Alabama (20.2%)
- West Virginia (21.4%)
- New Mexico (23.2%)
Industry leaders are pushing to improve financial education in schools.
Twenty-seven states now guarantee personal finance courses to all high school students, up from 11 states in 2021, according to a dashboard maintained by financial education advocates.
“There’s an interest and a real, genuine desire to have this taught in schools,” said Lindsey Toriko, executive director of the American Bankers Association Foundation.
Most American consumers (87%) think financial concepts should be taught in high school, according to a new survey released in April by the ABA Foundation.
However, only 15% of Americans in that survey cited school as their primary source of financial literacy.
Mottola said the FINRA Foundation has been testing consumers’ financial knowledge since 2009.
This study was last conducted in 2021. Between that year and 2024, the percentage of respondents who correctly answered the same question about inflation rose from 53% to 58%. Foundation leaders took this as a sign of progress.
“There’s probably some experiential learning going on as a result of living with inflation,” Mottola said.
