Are you smarter than a fifth-grader?
That's the title of a television quiz show hosted by comedian Jeff Foxworthy. Adults risk embarrassment before a national TV audience as they try to answer questions from a 5th grade curriculum. Questions cover the usual academic topics, such as geography, math, science and history.
Nowadays, the topic of personal finance is becoming more commonplace in the school curriculum, even in 5th grade.
But, apparently, it's not prevalent enough in school or elsewhere.
Some 70 percent of parents in a survey sponsored by Visa said their child has not had any formal training in money management, either in school or outside the home. And 76 percent said schools should be required to teach money-management skills.
Financial knowledge is important to school children and adults, said Don Silver, author of the "High School Money Book" and other personal finance books. "It's very important for being able to make choices in life that we have financial freedom," he said.
Many adults lament the fact that their schools never addressed the subjects of debt and credit cards, saving and investing, and being a smart consumer.
Many learned lessons the hard way, through trial and error, painful money mistakes and accumulating debt. The common refrain of many a 50-year-old consumer is, "If I only knew then what I know now about money."
As a result, many adults could be asked, "Are you smarter than a 5th grader" about money.
Here's a 10-question quiz--let's call it the SAT, or spending aptitude test--that many 5th graders could pass. Can you?-- You desperately want a new baseball glove that costs $50 but you only have $30 saved. What should you do?a) Wait until you save $20 more from weekly allowances.
b) Borrow money from your parents at 18 percent interest and buy it now.
c) Sell part of your Pokemon card collection on eBay for $20 and buy it now.
Answer: a or c. Saving and selling stuff are smart ways to pay for things. Borrowing at 18 percent interest is a very expensive way to spend money you haven't yet earned.
-- "Opportunity cost" refers to the chance to pay less. True or false?
Answer: false. When weighing a spending decision, opportunity cost is an evaluation of what else you could have done with that money. Every spending choice has an opportunity cost.
-- If your allowance is $5 a week, and you already have $150 saved, how many more weeks will it take to buy a $250 video game system?
a) 20 weeksb) 15 weeksc) It depends
Answer: c. It depends on how much of your allowance you save. You could save enough in 20 weeks if you don't spend any of your allowance. It could be slightly sooner if your savings is in an interest-bearing account while you're saving.-- At the end of one month, would you rather be paid $1 million or the total of a penny doubled every day?
Answer: a penny. Receiving $1 million is nice, but a penny doubled every day yields $5.4 million in a typical month, or nearly $11 million if the month has 31 days. That's the power of compounding, in this case 100 percent per day.
-- Saving is a spending decision. True or false?
Answer: true. Saving is simply making a mature decision to spend later rather than now.
-- You received cash gifts totaling $50 for your 10th birthday and $60 for your 11th birthday. By what percentage did your birthday earnings increase from one year to the next?
a) 16.7 percentb) 20 percentc) Not enough information.
Answer: b. Calculating a percentage increase is fundamental to managing your finances. The math is the difference, $10, divided by the original amount, $50, times 100 to get the percentage.
-- In making an important purchasing decision, you should:
a) Evaluate whether it is a need or a want.b) Perform a cost-benefit analysis.c) Ask whether your friends have the item.
Answer: a and b. A first step toward reaching financial goals is to distinguish between wants and needs and rank them in importance. Careful consumers compare the benefits and costs of spending alternatives. Avoid peer pressure--adults call it "keeping up with the Joneses"--in spending decisions.
-- Rich people don't have to make decisions about what they can afford. True or false.
Answer: false. No matter how rich you are, financial resources are limited, and you always will have to make financial choices.
-- A debit card is most similar to a:
a) Check.b) Credit card.c) Home-equity line of credit.
Answer: a. Debit card purchases are paid directly from your checking account, similar to a check.
-- Setting goals and saving money are related. True or false?
Answer: true. There's no reason to save unless you have something to save for.
-- Bonus question: Your dad's employer matches part of his savings in a 401(k) retirement plan. Your parents want you to start saving more of your $15 weekly allowance and will use a similar matching plan. They will match every dollar you save up to $5 per week and 50 cents for each saved dollar over that. How quickly could you accumulate $100 on a $15 allowance?
(a) 4 weeks(b) 7 weeks(c) Not enough information.
Answer: a. The first $5 of savings is matched, so that's a total of $10 per week. The next $10 of allowance savings is matched at 50 percent, which adds $5 more, or a total of $15. If you save every allowance dollar to get the maximum match, you could accumulate $25 per week or $100 in four weeks. That's the power of a money-matching plan.
Note: Questions were adapted from suggestions by Silver and concepts included in the National Standards in K-12 Personal Finance Education by the Jump$tart Coalition for Personal Financial Literacy.
Gregory Karp is a personal finance writer for The Morning Call, Allentown, Pa., a Tribune Co. newspaper. E-mail him at firstname.lastname@example.org. For additional discussion on spending wisely, see the Spending Smart blog at http://blogs.mcall.com/spendingsmart/.Copyright © 2015, CT Now