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Just the FAQs, USA TODAY
Many American consumers fail to grasp the basic math of inflation, according to a large-scale study of financial literacy.
The FINRA Investor Education Foundation, a financial education nonprofit, administered a seven-question quiz to 25,500 adults in recent months, testing their knowledge of consumer finance. The results: Three in ten test-takers missed a simple question about interest rates. Two in five flubbed a question about inflation. An item on compound interest stumped 71% of consumers.
The inflation question asked,
Imagine that the interest rate on your savings account was 1% per year, and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account?
- More than today
- Exactly the same
- Less than today
- 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 goes down over time.
Fifty-eight percent of respondents got the question right, in a quiz administered in 2024 by the FINRA foundation. The group released its findings in April 2025.
Many Americans don’t know how inflation, interest rates interact
The notion that two-fifths of Americans might not understand the relationship between inflation, interest rates and purchasing power worries financial experts.
“I think it’s a lack of being able to connect the dots between economic forces like inflation and how they apply to our everyday lives,” said Caleb Silver, editor in chief of Investopedia, the financial journalism site. “I take this all the way back to what we’re taught in high school, or what we’re not taught.”
American consumers should educate themselves on the sometimes-tricky math of inflation and interest rates, the experts say, because both metrics have been on the rise.
Inflation spiked to a 40-year high in 2022. Interest rates reached a two-decade high in 2023.
Financial literacy can save consumers from credit card debt
A consumer who doesn’t understand interest rates risks falling into debt on credit cards, which carry an average rate of 20%, according to Bankrate.
Here’s another question from the FINRA quiz:
Suppose you owe $1,000 on a loan and the interest rate you are charged is 20% per year, compounded annually. If you didn’t pay anything off, at this interest rate, how many years would it take for the amount you owe to double?
- Less than 2 years
- 2 to 4 years
- 5 to 9 years
- 10 or more years
- Don’t know
The correct answer is “2 to 4 years.” At 20% interest, a $1,000 debt becomes a $2,000 debt in that span.
Roughly three in 10 test-takers got it right.
The problem with not understanding interest rates is the risk of “your debt getting out of control through compounding interest,” said Gary Mottola, research director at FINRA foundation. FINRA stands for Financial Industry Regulatory Authority, a group that oversees brokers.
Financial education can help consumers make investment choices
Consumers who don’t understand interest rates might also miss opportunities to earn money, by opening a high-yield savings account or investing in the stock market.
One item on the FINRA quiz tested consumers on their understanding of diversification, a fundamental concept of investing:
True or false: Buying a single company’s stock usually provides a safer return than a stock mutual fund.
Only two-fifths of quiz-takers divined the correct answer: It is generally riskier to invest in a single stock, and safer to spread risk across many stocks in a mutual fund.
“A lot of people don’t understand what it means to have a truly diversified portfolio,” said Silver of Investopedia.
One of the easier quiz questions asked,
Suppose you have $100 in a savings account earning 2 percent interest a year. After five years, how much would you have?
- More than $102
- Exactly $102
- Less than $102
- Don’t know
The correct answer: “More than $102.” More than 30% of respondents got it wrong.
And here is the most difficult question on the quiz, answered correctly by only 25% of consumers:
If interest rates rise, what will typically happen to bond prices? Rise, fall, stay the same, or is there no relationship?
The bond market is notoriously complex. As Investopedia explains, bonds have an inverse relationship to interest rates. When interest rates rise, bond prices usually fall.
Nationwide, 27% of quiz-takers got the right answers on at least five of seven questions. Only 4% answered all seven correctly.
Here are the states with the strongest, weakest financial literacy
The FINRA foundation reached enough respondents to rank all 50 states and the District of Columbia on financial literacy. Here are the states where the most quiz-takers got at least five of seven questions correct:
- Minnesota (34.8% of respondents got 5 or more questions correct)
- Wisconsin (34.5%)
- District of Columbia (34.4%)
- Colorado (33.9%)
- Wyoming (33.9%)
And here are the states with the weakest financial literacy:
- Louisiana (18.1% of respondents got 5 or more questions correct)
- Mississippi (19.2%)
- Alabama (20.2%)
- West Virginia (21.4%)
- New Mexico (23.2%)
Industry leaders have been pushing for better financial education in schools.
Twenty-seven states now guarantee a personal finance course for all high school students, up from 11 states in 2021, according to a dashboard maintained by advocates for financial education.
“There is interest and a real, genuine appetite for this to be taught in schools,” said Lindsay Torrico, executive director of the American Bankers Association Foundation.
Most American consumers, 87%, believe financial concepts should be taught in high school, according to a new survey, released in April by the ABA Foundation.
And yet, in that survey, only 15% of Americans cited school as their main source of financial literacy.
FINRA’s foundation has been testing consumers on financial knowledge since 2009, Mottola said.
The study was last conducted in 2021. Between that year and 2024, the share of respondents who answered the same inflation question correctly rose from 53% to 58%. Foundation leaders took that as a sign of progress.
“There’s probably some experiential learning going on,” Mottola said, “as a result of living with inflation.”
