Building Wealth Quiz

What is the first step in the roadmap to building wealth according to the document?

• Buying a new car

• Controlling credit card debt

• Investing in stocks

• Starting a business

Answer explanation

The first step in building wealth is controlling credit card debt. This is crucial as high-interest debt can hinder financial growth, making it essential to manage before pursuing investments or starting a business.

What is the main focus of the document?

• Building wealth through spending

• Building wealth through saving and investing

• Building wealth through borrowing

• Building wealth through gambling

Answer explanation

The document emphasizes building wealth through saving and investing, highlighting the importance of prudent financial management rather than spending, borrowing, or gambling.

What is the benefit of understanding your income and financial obligations?

• It helps you spend more

• It empowers you to build a budget

• It allows you to ignore debts

• It encourages luxury purchases

Answer explanation

Understanding your income and financial obligations empowers you to build a budget, allowing you to manage your expenses effectively and prioritize savings, rather than overspending or ignoring debts.

What is the website mentioned for additional tips on building wealth?

• Finance.gov

• Investor.gov

• Wealth.gov

• Money.gov

Answer explanation

The correct website for additional tips on building wealth is Investor.gov, which provides resources and guidance for investors looking to enhance their financial knowledge and strategies.

What might an employer do with your 401(k) contributions?

• Ignore them

• Match them up to a certain amount

• Reduce them

• Spend them

Answer explanation

An employer may match your 401(k) contributions up to a certain amount, which is a common practice to encourage employee savings. This means they will contribute additional funds to your retirement account based on your contributions.

What is the role of time in the wealth-building formula?

• It decreases wealth

• It has no effect

• It increases the potential for wealth

• It reduces savings

Answer explanation

Time plays a crucial role in wealth-building as it allows investments to grow through compounding. The longer the time frame, the greater the potential for wealth accumulation, making 'It increases the potential for wealth' the correct choice.

What is the purpose of a target date fund?

• To increase short-term profits

• To automatically adjust investments as you approach retirement

• To invest only in bonds

• To focus on high-risk stocks

Answer explanation

The purpose of a target date fund is to automatically adjust investments as you approach retirement, gradually shifting from higher-risk assets to more stable ones to align with your retirement timeline.

What should you be cautious of when using investment apps?

• They always guarantee profits

• They may encourage trading beyond your comfort level

• They only offer simple investment options

• They are free of any fees

Answer explanation

Investment apps can lead to overtrading, pushing users to take risks beyond their comfort level. It's important to stay within your financial limits and not be swayed by app features that promote frequent trading.

What should you avoid to prevent falling for scams?

• Investing in long-term assets

• Avoiding FOMO

• Consulting a tax advisor

• Trading frequently

Answer explanation

Avoiding FOMO (Fear of Missing Out) helps you make rational decisions rather than impulsive ones driven by hype, which is crucial in preventing scams. Staying informed and cautious is key.

What is a potential downside of short-term trading?

• Lower profits

• Higher taxation

• Guaranteed returns

• No risk

Answer explanation

Short-term trading often leads to higher taxation because profits are typically taxed as ordinary income rather than at lower capital gains rates. This can significantly reduce overall returns compared to long-term investments.