Test Your Financial Literacy
A solid financial education is essential for achieving milestone goals such as homeownership or retirement. Do you know how your financial literacy stacks up? Are you willing to put it to the test?
Take our financial literacy quiz to test your knowledge of personal finance terminology and concepts.
Question 1: Suppose you owe $4,000 on a credit card with an annual percentage rate (APR) of 15%. If you make minimum payments each month of $40, how long will it take to eliminate the debt?
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Question 2: What is a fair amount to pay up front for credit or housing counseling?
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Question 3: What part of an investment is guaranteed by a federal agency?
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Question 4: With interest rates low, why not save cash in a safe deposit box?
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Question 5: Why shouldn’t everyone who is eligible get a reverse mortgage?
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Question 6: Is it a good idea to use a cash advance offer from a credit card to pay off higher interest debt?
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Question 7: Debt settlement firms claim they can erase 40% to 50% of a consumer’s debt. Is this usually the best financial deal for getting out of debt? Why or why not?
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Question 8: When buying stocks or mutual funds, would it be most effective to find the best performing stocks or best rated funds from the previous year and invest there?
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Question 9: Is interest rate the same as annual percentage rate?
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Question 10: Is the credit score the most important measurement of financial health?
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Question 1: Suppose you owe $4,000 on a credit card with an annual percentage rate (APR) of 15%. If you make minimum payments each month of $40, how long will it take to eliminate the debt?
Answer 1: You won’t be able to eliminate the debt. The compounding interest exceeds the payment amounts.
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Question 2: What is a fair amount to pay up front for credit or housing counseling?
Answer 2: There should never be up front cost for financial assistance.
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Question 3: What part of an investment is guaranteed by a federal agency?
Answer 3: No part of any investment is guaranteed unless it is an account or CD at a bank or credit union.
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Question 4: With interest rates low, why not save cash in a safe deposit box?
Answer 4: Inflation will erase the value of the cash.
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Question 5: Why shouldn’t everyone who is eligible get a reverse mortgage?
Answer 5: The interest and fees associated with a reverse mortgage make it a very expensive way to borrow money.
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Question 6: Is it a good idea to use a cash advance offer from a credit card to pay off higher interest debt?
Answer 6: It can be a good idea, but it usually isn’t. The cash advance fees often run 5% or more, and the teaser interest rate usually only lasts a few months. Unless the rate is much lower and lasts until the debt will be paid off, it probably isn’t a good idea.
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Question 7: Debt settlement firms claim they can erase 40% to 50% of a consumer’s debt. Is this usually the best financial deal for getting out of debt? Why or why not?
Answer 7: Some people do save money with debt settlement, although the fees and taxes due on forgiven amounts take away much of the savings. Also, many creditors will refuse to settle and the resulting judgments can actually cost more than just paying off the debt.
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Question 8: When buying stocks or mutual funds, would it be most effective to find the best performing stocks or best rated funds from the previous year and invest there?
Answer 8: Many consumers do this, but as advisors always say, “past performance is not an indicator of future performance.” It may be just as smart to purchase the poor performers since they are likely cheaper and have more room more growth. The rule is, there is no rule.
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Question 9: Is interest rate the same as annual percentage rate?
Answer 9: No. When you apply for a credit card with an interest rate of 9.9%, it is likely that your first statement will indicate that your annual percentage rate or the “real” interest rate is higher. Consumers will also see APY and other terms for interest earned or paid, but APR is the rate that describes real interest cost.
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Question 10: Is the credit score the most important measurement of financial health?
Answer 10: No. A credit score describes how well you manage credit. You could have a perfect credit score and be completely broke and deep in debt. Credit scores are important, but you measure your financial health by your net worth, or a statement of how much you own minus how much you owe.
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