Financial Literacy Test (Chp #5)

What is the primary benefit of a 529 savings plan?

• It allows contributions to grow tax-free.

• It guarantees a fixed interest rate.

• It is only available to parents.

• It requires a minimum contribution of $1,000.

Which of the following statements is true about the 529 prepaid plan?

• A) It can be used for any college in the U.S. without restrictions.

• B) It allows prepayment of tuition at current prices.

• C) It is a type of savings account.

• D) It is only available to in-state residents.

What is the maximum yearly contribution limit for a Coverdell Education Savings Account?

• $1,000

• $2,000

• $5,000

• There is no limit.

If you are saving for a short-term goal, which savings option would be most appropriate?

• Certificate of Deposit (CD)

• Money Market Account

• Savings Account

• Coverdell Education Savings Account

Which of the following savings options typically offers the highest interest rate?

• Savings Account

• Money Market Account

• Certificate of Deposit (CD)

• 529 Savings Plan

What is a key characteristic of a Certificate of Deposit (CD)?

• It allows unlimited access to funds.

• It has a fixed term during which you cannot access your money.

• It has no penalties for early withdrawal.

• It is backed by the U.S. Treasury.

How does compound interest differ from simple interest?

• Compound interest is calculated only on the principal amount.

• Compound interest is calculated on both the principal and accumulated interest.

Which of the following best describes the Rule of 72?

• A) A method to calculate the maximum contribution to a savings account.

• B) A formula to estimate how long it will take for an investment to double.

• C) A guideline for setting savings goals.

• D) A rule for determining interest rates.

The acronym SMART in goal setting stands for Specific, Measurable, Achievable, Realistic, and ______.

• Timely

• Time-bound

• Tangible

• Thoughtful

What is the main purpose of setting specific financial goals?

• To make saving money more complicated.

• To provide clarity and direction in your savings plan.

• To encourage spending rather than saving.

• To limit your financial options.