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To rule the financial jungle, you need "The Financial Lyon."

Disclosure Statement:  The material provided here is for informational use only.  The views expressed are those of the author and do not necessarily reflect the views of any life insurance company.  This information is not a substitute for obtaining legal, tax, or other professional advice from a qualified, independent advisor. You should not rely solely upon this information in making any decision to buy a product from any life insurance company.  Wendy Lyon is insurance licensed in the following states: CA, GA. This is not an offer or solicitation in any states where not properly licensed and/or registered.  [CA License No. O1O9071; GA License No. 3102106; NPN No. 16813596]

How did you score?  For the answers, email wendy@wendylyon.com with the word "Quiz" in the Subject Line.

After you get your score, be sure to check back to see how you did compared to other Americans. 

According to The American College, here's how retirees and pre-retirees with at least $100,000 in household assets (not including their primary residence) stacked up on a recent Retirement Literacy Quiz.

Only 20% of Americans passed, and only 1% received a grade of B. Not one single person got an A.

A huge percentage of the American population is financially illiterate and lacks basic skills in the areas of doing calculations, debt management, and asset building, the National Bureau of Economic Research found.

When asked five multiple-choice questions about topics like interest calculations, mortgage payments and investments, just 39% of adults could answer at least four correctly, according to the FINRA Investor Education Foundation.

And the Securities and Exchange Commission found that “investors have a weak grasp of elementary financial concepts, and lack critical knowledge of ways to avoid investment fraud.”

You may think investment fraud could never happen to you, but the list of people who got snookered by the Bernie Madoff pyramid scheme reads like a Who’s Who of the rich, famous, and powerful. Which means financial literacy isn’t just “nice to have,” it’s critical to have.


After you take the quiz and get the answers, you’ll be much more savvy about personal finance and more competent in handling your money and making wise decisions than the vast majority of Americans.


1) Since 1929, how many market crashes have there been in which the Dow Jones Industrial Average took at least 16 years to return to pre-crash levels?

  A. 0
  B. 1
  C. 3
  D. 7

2) What percentage of mutual funds, financial experts, and investment advisory services under-perform the overall market and comparable indexes?

  A. 95%      
  B. 80%      
  C. 50%
  D. 20%

3) How much of the value of your savings will be consumed over the next 35 years, if you pay fees of 1% per year and your returns average 7% per year?

  A. 1%
  B. 3%
  C. 10%
  D. 28%      

4) The top-performing mutual fund for the decade ending December 31, 2009, enjoyed an 18% annual return. What annual return did the fund’s typical investors actually receive?

  A. 17%, after fees
  B. 14% - 18% depending on investors’ hold time
  C. Lost an average of 11%    
  D. 8%, due to inflation, taxes, and fees    

5) If you own a $20 stock and it goes up by 40%, how much money did you make on that stock?

  A. $8, less the commission
  B. Nothing   
  C. It depends on your original purchase price (cost basis)
  D. $28

6) The Pension Protection Act of 2006, passed by Congress, is about 401(k) retirement plans. Who does this law protect?

  A. Employees who put money into their companies’ 401(k) plans
  B. Employers who offer 401(k) plans  
  C. Workers not eligible for a 401(k) plan
  D. Workers whose pension funds were at risk

7) If someone had made a $10,000 investment in gold in 1802, how much would that investment have been worth in 2008 (206 years later), after adjusting for inflation?

  A. $26,000   
  B. $132,500
  C. $436,000
  D. $1.2 million     

8) Investors are often advised to invest in asset allocation mutual funds, which spread your money among a blend of equities and fixed-income funds. In theory, this reduces risk of loss. What annual return did the average investor in asset allocation funds realize over the last 30 years?

  A. Less than 2% per year     
  B. About 7%
  C. About 10%
  D. More than 12%

9) Many people today say they’ll just keep working to make up for their retirement savings shortfall. But that may not always be an option. What portion of current retirees were forced out of work earlier than they planned?

  A. About one-fourth
  B. Almost one-third 
  C. Almost half       
  D. About 75%

10) If you take distributions from a 401(k), IRA, or other tax-deferred retirement plan before you’re 59½, in most cases you’ll pay:

  A. Income tax on the amount you withdraw, plus a 10% penalty on the amount you withdraw
  B. Income taxes but no penalty, if you pay the money back within five years
  C. A penalty of 5%, plus tax on any gains in your account
  D. Just the taxes you would have owed at the time you put the funds into the plan

11) In a tax-deferred government-approved retirement account, such as a 401(k) plan or an IRA, when must you start taking required minimum distributions (RMDs) and paying taxes on the distributions?

  A. If you don’t need the money, you may file the proper IRS form and not take a distribution until you need it. No taxes will be due until you withdraw money from your account
  B. You must start taking distributions and paying taxes on them beginning when you turn 70½
  C. You may defer distributions until age 80, although you must pay tax annually on any capital gains
  D. You must pay estimated taxes starting at 70½, but you may defer distributions until you are 80, so your fund can continue to grow.

12) Many 401(k) plans allow workers to take loans up to certain limits from their accounts during their employment. If you lose your job or leave the company for any reason, how soon must you pay back your loan (plus interest), in order to avoid owing income taxes plus a 10% penalty?

  A. 10 days
  B. 30-60 days
  C. 180 days 
  D. One year, as long as you continue to pay the interest due on your loan

13) One of the biggest appeals of 401(k) plans and IRAs is that they let you defer paying income tax on the money you place in them. How much can you expect to save by deferring the tax?

  A. 10%-22%. You’ll probably be in a lower tax bracket when you have to pay the tax, since your income will likely be reduced in retirement
  B. You might not save anything, and in fact, you might end up paying more  
  C. It’s impossible to say, but the amount you will save is likely to be substantial
  D. You can typically expect to save about 40% of the taxes you would have had to pay

14) What is the difference between saving and investing?

  A. To save means to put money where it will grow very slowly (or not at all); to invest means to put money where it will grow much faster
  B. To save means to put money in a vehicle that is safe, protected from loss, and has guaranteed growth, and to invest means to put money in a financial vehicle or asset that has a certain amount of risk and no guarantees of growth     
  C. To save means to put money into any kind of an account at a bank, and to invest means to put money into a brokerage account
  D. There is no significant difference between saving and investing. The words mean essentially the same thing and can be used interchangeably

15) What is the definition of a liquid asset?

  A. An asset is liquid if you can sell it relatively quickly to a willing buyer to get your money out, although you may have to take a loss
  B. Money you have in bonds or CDs is liquid
  C. Your money is liquid if you can get your hands on it immediately, without incurring a loss or selling an asset    
  D. Any asset you can use as collateral for a loan is, by definition, liquid

16) If you pay cash for a $25,000 car (meaning you pay for it up front, and you don’t make payments to a finance or leasing company), what is your actual cost to purchase the car?

  A. $25,000
  B. About $22,000 ($25,000, less approximately $3,000 in finance charges you didn’t have to pay)
  C. Trick question; it’s usually better to lease
  D. $25,000 plus the interest or investment income you could have earned, if you hadn’t withdrawn the money to pay cash for the purchase      
17) What return on investment do you receive on the payments of principal you make into your home as you pay down your mortgage?

  A. The same percentage as the increase in the appraised value (or sales price) over the cost basis of your original purchase
  B. The reduction in the loan amount, subtracted from the current appraised value
  C. The return you receive is equal to the interest rate you pay on your mortgage
  D. Payments of principal you make into your home do not earn interest or make you any money  

18) How much money will a typical 65-year-old couple retiring today need to cover out-of-pocket health care costs during their lifetimes?

  A. $3,500 per year, for supplemental insurance
  B. $220,000  
  C. The husband (average life expectancy 83) will require $28,000 while the wife (average life expectancy 85) will require $41,000
  D. About $5,000 per year, thanks to the Affordable Care Act

19) At least 70% of people over 65 will require long-term care services at some point, and 40% will need nursing home care, according to the U.S. Department of Health and Human Services. Based on the length of an average nursing home stay, how much money will you need to cover a typical stay in a nursing home?

  A. $30,000
  B. $100,000
  C. $250,000  
  D. Medicare covers most of the cost

20) According to the Social Security Administration, what percentage of people turning 65 today will live past age 90?

  A. 5%
  B. 10%
  C. 25%     
  D. 40%