Financial Literacy Glossary Quiz

Maya, Scarlett, and Grace are discussing their personal finances. Maya believes that an asset is the system of how money is made, regulated and used within a country or region. Scarlett thinks it's the total pay from an employer or other sources of income before taxes or deductions are taken out. Grace, however, argues that an asset is an item or resource with economic value that is owned or controlled by an individual, corporation, association, estate or country. Who is correct?

• D. Maya

• C. Scarlett

• B. Grace

• A. None of them

Answer explanation

Grace is correct. An asset is an item or resource with economic value that is owned or controlled by an individual, corporation, association, estate or country.

What does APR stand for?

• A. Annual percentage rate

• D. Annual profit return

• B. Annual percentage yield

• C. Asset percentage rate

Answer explanation

APR stands for Annual Percentage Rate, which is the annual interest rate charged on a loan or credit card. It is the correct choice because it accurately represents the cost of borrowing money.

Samuel recently started working and wants to manage his salary. What should be the purpose of his checking account?

• A. To earn high interest on his savings

• D. To borrow money for his purchases

• B. To invest his salary in mutual funds

• C. To keep his salary for living expenses and bills

Answer explanation

The purpose of Samuel's checking account is to keep his salary for living expenses and bills.

What is the definition of compound interest?

• B. The addition of interest to the principal and previously earned interest of a loan or deposit

• C. The use of someone else's money, typically involving a fee to do so

• D. The total pay from an employer or other sources of income before taxes or deductions are taken out

• A. Interest calculated periodically on only the loan principal or investment principal and not on previously earned interest

Answer explanation

Compound interest is the addition of interest to the principal and previously earned interest of a loan or deposit. It is the correct choice because it accurately defines compound interest.

What is the definition of a credit card?

• A. A small plastic or metal card issued by a financial institution that allows the holder to borrow money to purchase goods or services from the creditor

• B. A bank account with funds that are typically used for living expenses and other bills

• C. A long-term loan used to buy or refinance real property, such as a home

• D. A tool for investors that pools money from multiple shareholders to invest in a collection of stocks, bonds and money market funds

Answer explanation

A credit card is a small plastic or metal card issued by a financial institution that allows the holder to borrow money to purchase goods or services from the creditor.

What is the definition of net worth?

• D. The overall, ongoing increase in the price of goods and services in an economy over time

• C. The cost of borrowing money

• B. The value of possible alternatives that are given up when a person makes one choice instead of another

• A. The measure of a person's financial condition, equal to assets minus liabilities

Answer explanation

Net worth is the measure of a person's financial condition, calculated by subtracting liabilities from assets. It represents the value of an individual's assets after deducting their debts.

What is the definition of insurance?

• B. An arrangement in which a company or agency protects the purchaser from unexpected financial losses

• C. The use of someone else's money, typically involving a fee to do so

• A. The total pay from an employer or other sources of income before taxes or deductions are taken out

• D. The system of how money is made, regulated and used within a country or region

Answer explanation

Insurance is an arrangement where a company protects the purchaser from financial losses. Choice B correctly defines insurance.

What is the definition of risk management?

• B. The act of risks and devising ways to minimize losses

• D. The cost of borrowing money

• C. The total pay from an employer or other sources of income before taxes or deductions are taken out

• A. A measure of the potential for loss or the uncertainty in the rate of return of an investment

Answer explanation

Risk management is the act of identifying and minimizing losses. Choice B correctly defines risk management.

What is the definition of tax credit?

• B. A dollar-for-dollar reduction in the amount of tax owed

• A. A government fee on income, activities and products that helps to pay for public services

• D. The measure of a person's financial condition, equal to assets minus liabilities

• C. A reduction in the amount of income you pay taxes on

Answer explanation

A tax credit is a dollar-for-dollar reduction in the amount of tax owed. It is the correct choice because it accurately defines tax credit.

Olivia, Abigail, and Liam are discussing their financial goals. Olivia says, 'I believe the purpose of saving money is...'

• D. To borrow money for purchases

• A. To earn high interest on savings

• B. To invest in mutual funds

• C. To set aside money for future spending, emergencies, short-term goals and investing

Answer explanation

The purpose of saving money is to set aside money for future spending, emergencies, short-term goals, and investing. This choice is correct because it encompasses all the necessary reasons for saving money.