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Americans are financial dunces, and we may be getting denser. When the Financial Industry Regulatory Authority (FINRA) asked 27,000 adults to take a five-question financial literacy test, only 37% could answer four or more questions correctly. That’s down from 39% in 2012 and 42% in 2009. The quiz asked people questions about compound interest, inflation, and investing.

Our financial ineptitude has serious consequences. Many survey respondents were spending more than they earned, had little money in savings, and were only making minimum payments on their credit cards. Over time, those behaviors can put someone in a financial downward spiral from which it’s hard to escape.

Even worse, many of us may be unable – or unwilling – to recognize our own bad money habits. If you have a steady job and pay your bills on time, you might think your finances are under control. But if you’re frequently surprised to discover you have almost no money in your bank account or are carrying a balance on your credit card, chances are you’re secretly bad with money. In the long run, your careless ways will catch up with you, as you discover you can’t afford to buy your dream house, send your kids to college, or retire. In a worst-case scenario, a financial shock, like unexpected medical expenses or a job loss, could force an unpleasant reckoning.

The good news is you can avoid those consequences if you change your money ways. The first step to good financial health is assessing your financial fitness today. Take this five-question quiz to find out if you’re a financial whiz or really, really bad with money.

1. Do You Know How Much You Spend Every Month?

A. You have a pretty good idea, but you don’t follow a strict budget.

B. No idea. You’re a free spirit. You’re also broke.

C. Yes, down to the last penny. You have a budget and track all your spending.

D. Probably more than you should. You always seem to end up in the red at the end of the month.

Best Answer: C

Budgeting may not be fun (at least at first), but it’s the best way to track how much money you’re bringing in and how much you spend. Once you start following a budget, you’ll spot any areas where you’re hemorrhaging cash and can begin prioritizing your spending, so you always have enough money to pay rent and the electric bill. You can also figure out how much you can realistically save for retirement and other goals, like a vacation, wedding, or new house.

2. You’re Shopping & Are Tempted by an Expensive Item You Can’t Really Afford. What do You do?

A. Wait. You’ll make a few cutbacks in your budget and set aside what you save. Once you can pay for the item in cash, you’ll pull the trigger.

B. Move on. You don’t really need that designer purse or new gadget, and chances are by tomorrow you’ll have forgotten all about it anyway.

C. Add it to your cart, along with a few other items for good measure. You’re pretty sure credit cards stop working if you don’t use them every day, right?

D. Buy it. You feel a bit guilty, but figure you can cut back on groceries or dinners out to afford the splurge.

Best answer: B

The best-laid budget can be derailed by impulse purchases. When you’re next tempted by a “must-have” purchase, try holding off before you click buy. Often, you’ll decide you don’t need the item after all. If you do realize you can’t live without those new shoes, option A is the responsible choice, since you won’t take on any additional debt or have to make unexpected cutbacks later to afford your splurge.

Impulse spending is a tough habit to break. Tricks like removing your credit cards from your wallet or deleting them from your online profiles can force you to think twice before you make a purchase. Shopping with a list, paying with cash, and steering clear of the mall can also help you curb the urge to shop.

3. Your Monthly Credit Card Statement Just Arrived. What do You do?

A. Make only the minimum payment.

B. Toss the envelope in a pile with the rest of your unopened mail.

C. Glance at it, wonder how you managed to spend so much money, then pay as much of the balance as you can. You’ll pay off the rest next month, when you have some more cash.

D. Review it for any errors or inconsistencies, then pay the balance in full.

Best answer: D

A credit card doesn’t have to be a debt trap, provided you use it responsibly. Check your statement every month to make sure your spending is in line with your budget, and also look for any weird charges, which could be a sign of identity theft. Then, pay off the bill in full. [Editor’s Note: Carrying a balance won’t help your credit score. You can see how your credit card debt and payment history are affecting your credit scores by checking your free credit report summary, updated every 14 days, at Credit.com.]

If you pay only a portion of the balance, you’ll start racking up interest. Before long, that $30 dinner out is costing you $60 or $120. Ignoring the bill entirely is the worst possible move. Not only will you accrue interest, but your bank will also charge you a late fee. Missed payments will show up on your credit report, which will lower your credit score and make it harder to get a loan in the future. If you keep ignoring your bills, your credit card company will eventually offload your debt to a collection agency, which will then start hounding you for the money.

4. Your Car Needs a $1,000 Repair. How Are You Going to Pay for It?

A. Use the money in my emergency fund, obviously. You have six months of living expenses set aside, so it won’t be a problem. And you’ll make sure to replenish your savings afterward.

B. With a loan from the bank of mom and dad.

C. Credit cards, obviously. Unless you’re maxed out. Then maybe you can get one of those payday loans.

D. Use the money you set aside for something else. Guess that Caribbean vacation you were planning to take will have to wait.

Best answer: A

Most financial experts suggest having money set aside to cover unexpected expenses, like broken-down cars and busted water heaters. Anywhere from 6 to 12 month’s of living expenses is a good number to aim for, though even an extra $1,000 in the bank is better than nothing. Having such a financial cushion keeps you out of debt and lets you manage life’s little crises without derailing your other financial goals, like taking that long-awaited vacation. High-interest payday loans or auto title loans are one of the worst ways to cope with a financial emergency, since the interest rapidly accumulates if you don’t repay the debt in full within a relatively short window.

5. Are You Saving for Retirement?

A. Of course. I’m putting at least 10% to 15% of my income into a 401(k) or other retirement account.

B. No, but it’s on my to-do list.

C. Nope. I’m planning to win the lottery.

D. Yes, I’m saving just enough to get my employer’s match. I’ll start saving more once I get a raise.

Best answer: A

It may not be sexy, but steady saving is the path to a secure retirement. While how much you need to save depends on a lot of factors, such as your age and what you want to do when you retire, 10% to 15% of your salary is a good number to aim for. Saving enough to get your employer’s matching contribution is a great start, but you’ll want to ramp up those savings if possible.

Putting off savings is a big mistake, as is counting on a financial windfall. Your retirement savings will compound over time, which means if you start early, you’ll actually have to save less overall to hit your savings goal. The longer you put off saving, the more you’ll have to set aside, since your money will have less time to grow.

This article originally appeared on The Cheat Sheet.  

Image: RomoloTavani

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