No correct answers
I think I've debunked this shit before, but it still needs debunking. This is a quiz that supposedly rates your financial literacy, and supposedly most youngsters flunk it.

In fact everyone should flunk it because all the questions are impossible.

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1. Interest accumulation:
Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?
a. More than $102
b. Exactly $102
c. Less than $102
d. Not sure

The correct answer is $100.00 because savings accounts do not bear interest. The question specifies 2% interest, which is PHYSICALLY IMPOSSIBLE.

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2. Effects of payment behavior on credit cost:
Assuming the following individuals have the same credit card with the same interest rate and balance, which will pay the most in interest on their credit card purchases over time?
a. Joe, who makes the minimum payment on his credit card bill every month
b. Jane, who pays the balance on her credit card in full every month
c. Joyce, who sometimes pays the minimum, sometimes pays less than the minimum and missed one payment on her credit card bill
d. All of them will pay the same amount in interest over time
e. Not sure


Paying every month on time is the BEST choice, but there's no way to determine who will pay the most. Credit card companies don't use math. They change their policies and practices constantly.

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3. Impact of repayment term on cost of credit:
Imagine that there are two options when it comes to paying back a loan and both come with the same interest rate. Provided you have the needed funds, which option would you select to minimize your total costs over the life of the loan (i.e., all of your payments combined until the loan is completely paid off)?
a. Option 1 allows you to take 10 years to pay back the loan
b. Option 2 allows you to take 20 years to pay back the loan
c. Both options have the same out-of-pocket cost over the life of the loan
d. Not sure


Total out-of-pocket cost is completely unpredictable as in previous question, and it's not the important GOAL anyway. The GOAL is to get rid of the debt as FAST as you possibly can.

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4. Interest terminology:
Which of the following best defines the term “interest capitalization”?
a. The type of interest charged on high-balance loans
b. The addition of unpaid interest to the principal balance of a loan
c. Interest that is charged when you postpone payments on your loan


"Interest capitalization" is not a term anyone uses. I was a bookkeeper for several years, had various loans and savings accounts for most of my life, and now I read way too many econ websites. I've NEVER heard or read the phrase. It may have a meaning for academic economists, but not in any ordinary business or household usage.

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If you're going to grade people on "knowledge" of an important part of life, your STANDARDS need to be based on reality. These graders are expecting people to "know" myths and delusions, while completely skipping all important REAL knowledge.
  ¶ 10:33 AM