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42% of Americans Couldn’t Answer This Simple Financial Question (Can You?)

A new national study revealed that only 42% of Americans could correctly answer a basic question about inflation.

By Kristin Hitchcock

Edited by Calista Headrick

Updated May 28, 2025

A recent national survey revealed a surprising gap in Americans' understanding of basic financial concepts: only 42% correctly answered a fundamental question about interest rates. This statistic underscores the pressing need for improved financial literacy across the country.

The survey, conducted by the FINRA Investor Education Foundation, asked over 25,000 adults across all 50 states and Washington, D.C., seven questions about inflation and other financial issues. The results found that many Americans could not answer simple questions about how money worked, which could impact their ability to achieve financial fitness. Find out if you can.

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The question that stumps Americans

One of the most revealing questions from the FINRA Foundation's National Financial Capability Study asked this question:

"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," but despite being a relatively straightforward question about interest and inflation, only 58% of respondents answered correctly. This shows that many Americans may not fully grasp how inflation impacts their spending power.

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What the findings show

That said, the survey did reveal an improvement in Americans' understanding of inflation across practically all age groups. In 2021, only 34% of adults aged 18 to 34 correctly answered the inflation question; by 2025, this figure rose to 44%.

Similarly, the 35 to 54 age group saw an increase from 49% to 55%. The 55 and older cohort maintained a steady 72% correct response rate. This finding suggests that Americans are, in fact, gaining financial knowledge about inflation, although it does demonstrate that everyday financial concepts are challenging to many.

States that scored higher

Financial literacy levels vary significantly across the country, and some states demonstrate higher levels of financial understanding than others.

According to the survey, in the top-ranking states, over one-third of respondents correctly answered five or more of the financial knowledge questions. In contrast, fewer than 20% achieved this benchmark in the lowest-ranking states.

The states that answered the most questions correctly? Minnesota, Wisconsin, the District of Columbia, Colorado, and Wyoming ranked highest.

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The importance of financial literacy

It is concerning that 42% of Americans couldn't answer a basic question about interest rates and inflation. This gap in understanding can lead to poor financial decisions, such as underestimating the impact of inflation on savings or mismanaging debt. As a result, people might mistakenly believe they have more spending power than they really do.

In the long run, financial literacy helps Americans make informed choices and avoid costly mistakes. Building a strong financial future is challenging if you don't understand how money works, and it leaves people open to financial pitfalls that can cost them dearly later (especially during retirement planning).

Overall, improving your financial literacy is important for building wealth. Here are three steps to help you get started.

Sit down with a financial professional

Consult a financial advisor to get personalized guidance specifically tailored to your financial goals and situation. It's tough to gain all the knowledge you need to make sound financial decisions immediately, but that's exactly why these professionals are there.

They can help you budget and plan for retirement, explain financial concepts, and a good financial professional can help you develop strategies for managing debt and offer suggestions for building wealth over time.

Utilize online financial education resources

There are tons of online resources that can help you grasp financial concepts or help you make financial decisions. While this advice isn't personalized (like it is with a financial advisor), it is an easy (and often free) step towards financial literacy.

This might take the form of a quick search for a specific topic you're interested in, or you may subscribe to an email newsletter to stay updated on current topics in the financial world. And don't worry about learning everything at once. The idea is to start slow and learn at your own pace.

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Practice financial skills in daily life

Once you learn about a financial concept, apply it to your daily life as you manage your finances. For instance, you might concentrate on learning how to create a monthly budget, tracking your expenses, and setting saving goals. Using a budgeting app can also be helpful in the beginning, and many of these apps have free informational resources, too.

Bottom line

The 2025 National Financial Capability Study highlights a critical gap in Americans' financial literacy: only 42% correctly answered a fundamental question about interest rates and inflation. And while younger adults have shown improvement since 2021, financial literacy still isn't high enough in many states for healthy financial decision-making.

An encouraging finding from a different survey by FINRA is that 53% of Americans reported having three months of emergency savings in 2021, up from 49% in 2018 and 35% in 2009. This trend shows growing action in taking steps towards financial wellness, and that more Americans are on the right track to build wealth.

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