Do You Understand Finance ?
April Is Financial Literacy Month - Can You Answer These Questions?
April is Financial Literacy Month; how well do you understand the basics of money management? Take this quiz from CredAbility to see if you are making the best use of your money.
1. Which of the following best defines your net worth?
A. How much money you have in your wallet.
B. How much money you have minus how much money you owe.
C. The total value of your assets minus your liabilities. (Correct)
D. How much money is left from your paycheck after you pay your monthly bills.
2. What percentage of my income should I spend on my monthly mortgage payment?
A. Whatever the bank says you qualify for.
B. No more than 25% of your gross pay or 35% of your take-home pay. (Correct)
C. No more than half of your paycheck
D. Whatever you are comfortable with.
3. Social Security taxes have been reduced for 2011. How should you redirect this extra money?
A. Go out to dinner once a month.
B. Use your extra income to buy lottery tickets.
C. Build an emergency fund or pay down credit card debt. (Correct)
D. Stash the money in a mattress for a rainy day.
4. You owe $5,000 on a credit card that has an interest rate of 18% and a minimum payment of 2% of the balance. If you don’t purchase another thing and make only minimum payments, how long will it take you to pay off the balance?
A. 8 years, 6 months.
B. 17 years, 9 months.
C. 25 years, 7 months.
D. 39 years, 4 months. (Correct – And during that time, you will pay $13,396 in interest, essentially paying 3 times for everything you bought.)
5. You recently lost your job. Which expenses should you eliminate immediately?
B. Medical insurance premiums.
C. Monthly credit card payments.
D. Dining at restaurants. (Correct)
6. If you save $100 a month from ages 25-40 or save $250 a month from ages 40-60, and both accounts pay interest of 7%, which will have a larger balance when you are 60?
A. Saving $100 a month from age 25-40. (Correct - Saving $100 a month from age 25-60 will result in a balance of $190,254; You will have contributed just $42,000. Saving $250 from age 40-60 will cost you $60,000 and will result in a balance of $133,918.)
B. Saving $250 a month from 40-60.
C. Both accounts will have about the same balance.
7. How long can negative information stay on your credit report?
A. Negative information is not included on your report.
B. 3 years.
C. 7 years. (Correct. Typically, accurate negative information will stay on your report for 7 years. A bankruptcy can stay on your report for 7 or 10 years.)
8. If a thief takes your credit card and uses it, how much could you be responsible to pay?
A. Nothing, if you report the card stolen before any charges are made.
B. Up to $50 if charges are made before you report the loss.
C. All charges made before you report the card stolen.
D. Both A and B. (Correct. In the event that your credit card is stolen in the U.S., federal law limits your liability to $50 regardless of the amount charged on the card by the unauthorized user; however, some card issuers guarantee zero liability if the unauthorized usage is reported immediately.)
9. If you take out a $150,000 mortgage for 30 years at 5%, your payment will be about $805 per month. If you pay $100 extra each month, how many years/months faster will you pay off your mortgage?
A. 2 years, 6 months.
B. 4 years.
C. 6 years, 5 months. (Correct. You will also save more than $34,000 in interest over the life of the loan.)
D. 8 years, 2 months.