Interest and Financial Competency

What is interest?

• The price we pay to borrow money

• Money we earn from investments

• A type of savings account

• A fee for late payment

Answer explanation

Interest is the price we pay to borrow money, making it the correct choice among the options provided.

How can we avoid paying interest on a credit card?

• By paying the minimum amount due

• By paying off our card in full every month

• By transferring the balance to another card

• By closing the credit card account

Answer explanation

Paying off our card in full every month avoids paying interest by not carrying a balance from one month to the next.

What factors influence the interest rate we pay?

• Credit score and credit history

• The brand of the credit card

• The color of the credit card

• The type of purchase

Answer explanation

The factors that influence the interest rate we pay are credit score and credit history, making the correct choice Credit score and credit history.

Why do we pay interest?

• Because it's a government tax

• To increase the bank's profits

• For the ability to spend money immediately

• As a penalty for borrowing money

Answer explanation

Paying interest allows us to borrow money and spend it immediately, providing us with the ability to make purchases or investments before having the full amount saved up.

What is one way to reduce the amount of interest you pay?

• Borrow more money

• Pay back the loan over a longer period

• Have a lower credit score

• Pay back the loan more quickly

Answer explanation

Paying back the loan more quickly reduces the amount of interest paid by decreasing the time the loan is outstanding, resulting in less interest accruing.

What can you do to avoid debt?

• Create a budget

• Ignore your bills

• Borrow money frequently

• Spend more than you make

Answer explanation

Creating a budget helps track income and expenses, allowing you to manage finances effectively and avoid accumulating debt.

What is an income?

• The tax we spend on products

• The money we receive regularly, usually through work

• The money we spend regularly

• The interest we earn from savings

Answer explanation

An income is the money we receive regularly, usually through work. It is the payment for services rendered or products sold.

Why is it important to completely pay off your credit card every month?

• To avoid interest charges

• To increase the credit limit

• To earn reward points

• To get cash back bonuses

Answer explanation

Paying off the credit card every month is important to avoid interest charges, which can accumulate and lead to debt.

How does the interest rate affect the total price you pay over time?

• It has no effect

• It decreases the total price over time

• The higher the interest rate, the more you pay

• The higher the interest rate, the less you pay

Answer explanation

The higher the interest rate, the more you pay over time due to increased interest charges accumulating on the principal amount borrowed.

Why is it helpful to open a credit card?

• To build a credit history

• To avoid paying bills

• To spend unlimited amounts of money

• To borrow books from the library

Answer explanation

Opening a credit card is helpful to build a credit history, which is essential for future financial opportunities.