five question financial literacy quiz for retirees

Quiz: Are you money smart?

Or do you fail this basic test?

There is often a discrepancy between our actual behaviours or skills – and how good we think we are.

Back in the early 70s there was an American survey on magazine readership. The results showed heavy consumption of Time magazine and low readership for Playboy.

Funny that.

This was the exact opposite of the actual readership numbers, with Playboy ranking in the top 10 magazines (seven million copies a year) and Time magazine which didn’t make the cut.

Perception is a wonderful thing, isn’t it. All those people thought they were reading the current affairs bible, but they actually weren’t.

So how does this work with financial literacy?

How good are you at understanding money basics? What’s your perception and what’s reality?

Here are five quick questions to test your skills:

  1. Suppose you put $100 into a no-fee savings account with a guaranteed interest rate of 2% per year. You don’t make any further payments into this account and you don’t withdraw any money. How much would be in the account at the end of the first year, once the interest payment is made?
  2. Imagine now that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, would you be able to buy more than today, exactly the same as today, or less than today with the money in this account?
  3. Do you think that the following statement is true or false? ‘Buying shares in a single company usually provides a safer return than buying shares in a number of different companies’.
  4. Again, please say whether you think the following statement is true or false: ‘An investment with a high return is likely to be high risk
  5. Suppose that by the year 2024 your income has doubled, but the prices of all of the things you buy have also doubled. In 2024, will you be able to buy more than today, exactly the same as today, or less than today with your income?

We’ll share the answers in a moment, but first you may be interested to know that Australians have gone backwards on this basic literacy test between 2016 and 2020.

A major study of household wealth and wellbeing called Household, Income and Labour Dynamics in Australia (HILDA), has found that the overall score in 2020 was worse than the previous one:

  • Respondents aged 15 to 24 scored an average of 3.4 out of 5 in 2016, and just 2.9 out of 5 in 2020 (this was the worst score).
  • Respondents aged 25 to 34 scored 3.9 out of 5 in 2016, and only 3.6 in 2020.

The news for those nearing retirement was slightly better, with both age groups performing better than those who were younger; but still worse compared with 2016:

  • Respondents aged 45 to 54 scored an average of 4.2 out of 5 in 2016, compared with 4.1 in 2020.
  • Respondents aged 55 to 64 also scored 4.2 out of 5 in 2016, compared with 4.1 in 2020.

Why have things gone pear-shaped?

We’ve had relatively favourable economic conditions – or at least until the pandemic hit – so perhaps some people haven’t had the exposure in recent years to the type of pitfalls that have occurred more recently. For instance, the need for diversification of assets. To those more familiar with mitigating risk, it may seem standard to spread their investments across several stocks and assets to lower the risk. However, to those less familiar with long-term investments, the concept of investing across many different assets may seem riskier as there are more areas to monitor.

Too much information?

Maybe the lower scores are related to the sheer deluge of information most people receive on a daily basis? As the old saying goes, information is not knowledge and knowledge is not wisdom. One can lead to the other, but information needs to be accurate, relevant and timely for it to be helpful and a basis of knowledge. Sometimes it’s just really hard to sort the chaff from the wheat.

You can check your financial literacy results using the link below. But regardless of how you’ve gone, why not treat this small test as a wakeup call if you got any of the answers wrong? Gaps in our knowledge can be fixed, so it may be time to find out more about how to make your money work harder for you.

How did you go?


  1. $102
  2. Less
  3. False
  4. True
  5. Exactly the same

If you feel some gaps in your knowledge could be affecting your finances you can always book a consultation.

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