Objective (assessment) measure of financial knowledge (OA) - Source: 2008 Canadian Financial Capability Survey
OA_Q01 If the inflation rate is 5% and the interest rate you get on your savings is 3%, will your savings have at least as much buying power in a year’s time?
OA_Q02 A credit report is…?
1. A list of your financial assets and liabilities.
2. A monthly credit card statement.
3. A loan and bill payment history.
4. A credit line with a financial institution.
OA_Q03 Who insures your stocks in the stock market?
1. The National Deposit Insurance Corporation.
2. The Securities and Exchange Commission.
3. The Bank of Canada.
4. No one.
OA_Q04 True or false: By using unit pricing at the grocery store, you can easily compare the cost of any brand and any package size.
OA_Q05 If each of the following persons had the same amount of take home pay, who would need the greatest amount of life insurance?
1. A young single woman with two young children.
2. A young single woman without children.
3. An elderly retired man, with a wife who is also retired.
4. A young married man without children.
OA_Q06 If you had a savings account at a bank, which of the following statements would be correct concerning the interest that you would earn on this account?
1. Sales tax may be charged on the interest that you earn.
2. You cannot earn interest until you pass your 18th birthday.
3. Earnings from savings account interest may not be taxed.
4. Income tax may be charged on the interest if your income is high enough.
OA_Q07 Inflation can cause difficulty in many ways. Which group would have the greatest problem during periods of high inflation that lasts several years?
1. Young working couples with no children.
2. Young working couples with children.
3. Older, working couples saving for retirement.
4. Older people living on fixed retirement income.
OA_Q08 Lindsay has saved $12,000 for her university expenses by working parttime. Her plan is to start university next year and she needs all of the money she saved. Which of the following is the safest place for her university money?
1. Corporate bonds.
2. Mutual funds.
3. A bank savings account.
4. Locked in a safe at home.
OA_Q09 Which of the following types of investment would best protect the purchasing power of a family’s savings in the event of a sudden increase in inflation?
1. A twenty-five year corporate bond.
2. A house financed with a fixed-rate mortgage.
3. A 10-year bond issued by a corporation.
4. A certificate of deposit at a bank.
OA_Q10 Under which of the following circumstances would it be financially beneficial to borrow money to buy something now and repay it with future income?
1. When something goes on sale.
2. When the interest on the loan is greater than the interest obtained from a savings account.
3. When buying something on credit allows someone to get a much better paying job.
4. It is always more beneficial to borrow money to buy something now and repay it with future income.
OA_Q11 Which of the following statements is not correct about most ATM (Automated Teller Machine) cards?
1. You can get cash anywhere in the world with no fee.
2. You must have a bank account to have an ATM card.
3. You can generally get cash 24 hours-a-day.
4. You can generally obtain information concerning your bank balance at an ATM machine.
OA_Q12 Which of the following can hurt your credit rating?
1. Making late payments on loans and debts.
2. Staying in one job too long.
3. Living in the same location too long.
4. Using your credit card frequently for purchases.
OA_Q13 What can affect the amount of interest that you would pay on a loan?
1. Your credit rating.
2. How much you borrow.
3. How long you take to repay the loan.
4. All of the above.
OA_Q14 Which of the following will help lower the cost of a house?
1. Paying off the mortgage over a long period of time.
2. Agreeing to pay the current rate of interest on the mortgage for as many years as possible.
3. Making a larger down payment at the time of purchase.
4. Making a smaller down payment at the time of purchase.
I have all of the respondents' answers to all 14 of these questions. I want to use these answers to these questions to come up with a measure of each respondent's level of financial literacy. Unfortunately the codebook doesn't tell me which of the answers are correct, and which of the answers are incorrect.
This is what I think the right answers supposed to be:
Q1 (2), Q2 (3), Q3 (4), Q4 (1), Q5 (1), Q6 either (3) or (4) because of TFSAs, Q7 (4), Q8 (3), Q9 (2), Q10 (3), Q11 (1), Q12 (1), Q13 (4), Q14 (3).
However I can see that there are arguments that can be made for other answers, e.g. for Q14 (2) might be correct in some circumstances, and sometimes (1) might be the right answer to Q10.
Do you agree/disagree with these responses?