In Friday's Style Plus consumer quiz, the correct response for Question 11, $116,000, did not appear in the list of possible answers. (Published 10/2/90)
Texas Agriculture Commissioner Jim Hightower once was told a former governor was taking Spanish lessons. "Oh good," said Hightower. "Then he'll be bi-ignorant."
So's the American consumer. Buy-ignorant, that is.
According to a survey of 1,139 people released this week by the Consumer Federation of America (CFA), the majority of folks have limited practical knowledge about such everyday items as mortgages, automobiles, insurance policies, service contracts, unit pricing on food, and saturated versus polyunsaturated fats. The average score was 54 percent; in none of the six general subject areas did consumers score as high as 60 percent. Since all the questions were multiple choice, it was possible to score 25 percent just by guessing.
"It's hard to give an overall grade," says CFA executive director Stephen Brobeck. "I would call it passing -- but just barely. There's much room for improvement."
Barely a third of the respondents understood, for instance, that the annual percentage rate (APR) is the best indicator of what a loan will actually cost, and less than one in five knew what used car dealers are required to disclose.
But the picture isn't completely bleak. "Consumers appear to know a great deal about a number of important subjects," Brobeck says. "We were heartened, for example, to learn that 87 percent of respondents understand the significance of cosigning a loan. That's one of the greatest pitfalls in the area of consumer credit -- that the cosigner is as obligated as the borrower to repay that debt."
Drugs are another area where scores were relatively high. Sixty-one percent of respondents, for instance, are aware of the possible dangers in routinely giving aspirin to a child with the flu, while more than three-quarters understand what generic drugs are and their price advantage.
Brobeck gives the credit here to advertising. "Clearly," he says, "advertising appears to have an impact, and represents a potential means of communicating essential information to consumers." He hastily adds, however, that CFA still considers most consumer advertising inferior.
From the highest to the lowest: "There is widespread ignorance about how to buy a house efficiently," the report states. Only a third of the quiz-takers knew that a real estate agency represents only the seller. "I would have thought it would have been double," says Brobeck. "I was shocked at that finding."
For related questions, like the meaning of a point, the approximate interest charge on a typical mortgage loan and the purpose of title insurance, the percentage answering correctly drops even more -- to a level quite a bit lower than the percentage of home-owning adults.
While there were few differences in scores between men and women, the other breakdowns are about what you would expect: the more education you have and the more money you make, the better you did. And while those aged 30 to 59 all scored roughly the same (between 57 and 59 percent), the 60-plus group took a tumble: 52 percent.
The touching -- and misplaced -- tendency of older people to trust what companies, advertising and product labels tell them was explored more fully in an American Association of Retired Persons survey released in June.
For example, while nearly two-thirds of those under 65 said they believed businesses attempted to mislead consumers at least half the time, only 44 percent of the 65-plus group felt this way. Similarly, nearly half the older respondents did not know that it was illegal to deny someone credit because of their age.
"Older consumers' buying habits were formed during a time when a more trusting relationship existed between the sellers and buyers of goods and services," concluded AARP executive director Horace Deets. "To this extent, older consumers are at a disadvantage in dealing with some of today's business practices."
A Telling Quiz ...
The following 25 questions are drawn from 250 developed by a team of experts for the Consumer Federation of America. The Educational Testing Service then refined those multiple choice queries into five exams containing 50 questions each. The quizzes were administered at five shopping malls at various locations around the country. Demographically, the respondents approximated the U.S. population.
The average test-taker got 54 percent of the questions correct. The queries below are a bit tougher: respondents got them right only 44 percent of the time.
After taking the sample test, check the answers to see how you fared.
21-25 Well above average
16-20 Above average
11-15 Below average
0-10 Well below average
1. If a credit card account has a balance carried over from the previous month, when will interest charges usually begin on a new credit purchase?
(a) On the day of the purchase
(b) One month after the date of purchase
(c) After a two-week grace period
(d) After a two-month grace period
2. Which of the following institutions usually charges the highest rate of interest on an unsecured consumer loan?
(a) An insurance company
(b) A local bank
(c) A finance company
(d) A credit union
3. Credit repair clinics, which offer to clean up credit records for a fee, can provide which of the following services?
(a) Instructing a credit bureau to remove a bad rating
(b) Challenging credit reporting errors and having them corrected
(c) Compelling stores to lower the amount owed to them
(d) Requiring a credit card company to give someone a new card with a small credit limit
4. Which deposit account usually pays the most interest?
(a) Certificate of deposit
(b) Money market account
(c) NOW account
(d) Passbook savings account
5. When a check bounces, who, if anyone, is usually charged a fee?
(a) The check writer only
(b) The person to whom the check is written only
(c) Both the check writer and the person to whom the check is written
(d) Neither the check writer nor the person to whom the check is written
6. If a car is stolen, what type of insurance coverage would pay for its replacement?
(d) Uninsured motorist
7. An insurance agent legally represents
(a) only herself or himself
(b) only the insurance company
(c) only the insured person
(d) both the insured person and the insurance company
8. Which of the following persons probably needs life insurance the most?
(a) An unmarried college student
(b) A worker nearing retirement age
(c) A childless married person with a working spouse
(d) A widowed worker with a three-year-old child
9. The best way to compare whole life insurance policies offered by different insurance companies is to look at the
(a) annual premiums
(b) interest-adjusted cost
(c) face value
(d) dividends paid for the previous ten years
10. A real estate agent's commission is generally what percent of the sales price on a house?
(a) 2 percent
(b) 4 percent
(c) 6 percent
(d) 10 percent
11. A homeowner takes out a $50,000 loan at 10 percent interest, to be paid over 20 years. The total amount paid by the homeowner over the 20-year period will be approximately
12. Mr. and Mrs. O'Brien sign a one-year lease for an apartment at $400 a month but change their minds and never move in. Legally they owe the landlord
13. If a tenant does not fulfill the terms of an apartment lease, a landlord usually has the authority to do which of the following?
(a) Seize the property owned by the tenant
(b) Change the locks on the apartment doors
(c) Move the tenant's furniture out of the apartment
(d) Ask a court to evict the tenant
14. To find the best buy among similar products, a consumer should check the
(a) universal product code
(b) size of the package
(c) item price
(d) unit price
15. The ingredients on food labels are listed
(a) by nutritional importance, from most to least
(b) by weight, from most to least
(d) in any order the manufacturer chooses
16. How many teaspoons of sugar does a typical 12-ounce can of carbonated soft drink