Alabama Financial Literacy Test

Front

The total money one gets to “take home” from a paycheck after taxes and deductions are taken out is known as what?

Back

Net pay

Answer explanation

The total money received after all taxes and deductions are subtracted from gross pay is called net pay. It represents the actual amount an employee takes home.

Front

Which of the following is the form employers use to determine how much tax to deduct from a paycheck? W-2, W-4, I-9, W-9

Back

W-4

Answer explanation

The W-4 form is used by employers to determine the amount of federal income tax to withhold from an employee's paycheck, based on the information provided by the employee regarding their tax situation.

Front

Which of the following is the form an employer provides to an employee to inform them of how much money was deducted from paychecks in a given year? W-4, I-9, W-2, W-9

Back

W-2

Answer explanation

The W-2 form is provided by employers to employees to report annual wages and the amount of taxes withheld from paychecks. It summarizes the employee's earnings and deductions for the year.

Front

Which of the following statements best describes gross pay? Amount of money one receives from insurance after an illness or accident, Amount of money one receives from their job before taxes or other deductions are taken out, Amount of money one receives from their job after taxes or other deductions are taken out, Amount of money one earns from their job by overtime, bonuses, and reimbursements

Back

Amount of money one receives from their job before taxes or other deductions are taken out

Answer explanation

Gross pay refers to the total earnings from a job before any taxes or deductions are applied. This makes the second choice the correct description of gross pay.

Front

Which of the following will be paid for as part of the escrow funds included in a mortgage loan? Car insurance, Principal on home loan, Property tax, Home warranty

Back

Property tax

Answer explanation

Property tax is typically included in escrow funds for mortgage loans to ensure timely payment. Car insurance and home warranties are not part of escrow, while the principal is a loan repayment, not an escrow item.

Front

When seeking to open a bank account, which of the following is needed? Blank checks, Government-issued identification, Recommendation letter, School transcript

Back

Government-issued identification

Answer explanation

To open a bank account, you need a government-issued identification to verify your identity. Blank checks, recommendation letters, and school transcripts are not typically required.

Front

When one is seeking to purchase a product at a store, what additional cost must be paid in addition to the listed price of the product?

Back

Sales tax

Answer explanation

When purchasing a product, the listed price is not the final amount due. Sales tax is an additional cost that is typically added to the price, making it the correct answer in this context.

Front

Which of the following best describes the concept of APR? Options: Summary of all credit card transactions in one month, The maximum amount one can charge on their credit card, The fee charged if a credit card payment is late, The credit card interest rate, calculated on a yearly basis

Back

The credit card interest rate, calculated on a yearly basis

Answer explanation

APR stands for Annual Percentage Rate, which represents the yearly interest rate charged on borrowed money, particularly for credit cards. It does not refer to transaction summaries, credit limits, or late fees.

Front

A certificate of deposit (CD) differs from a traditional savings account in what way?

Back

CDs must remain untouched for a fixed period of time

Answer explanation

A certificate of deposit (CD) requires funds to be locked in for a fixed period, unlike a traditional savings account which allows for more flexible access to funds.

Front

All of the following are advantages of bundling insurance EXCEPT what? Convenience, Less complicated, Potential saving of money

Back

Increases insurance options

Answer explanation

Bundling insurance offers convenience, simplifies policies, and can save money. However, it typically limits options, as you are restricted to the products of one provider, making 'increases insurance options' the exception.