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WorksheetsFinancial Literacy Exam
Total questions: 75
Worksheet time: 45mins
In order to get spending under control, a person should first
seek help on investing from a financial planner.
consult a credit counseling service.
create a budget of current income and expenses.
subscribe to financial newsletters and magazines.
Comparison shopping for a car is necessary because
each dealer sells cars with different colors.
lenders want to be sure consumers get the best price.
the price for the car can vary a great deal.
it is a requirement to qualify for car insurance.
Financial planners generally stress the importance of starting to save and invest early because
a person can stop saving at age 40.
of the power of compounding and appreciation.
there are fewer bills to pay when a person is young.
a person will not need insurance.
An important feature of a good financial goal is that the goal
has a specific time frame.
is appropriate for the person’s age.
can last throughout the person’s life.
will take at least ten years for the person to achieve.
Purchasing power decreases and it costs more money to buy goods when there is
a bear market.
inflation.
deflation.
a bull market.
What strategy can help a person achieve her goal to buy a house?
Using credit cards to pay for expenses.
Paying for large purchases in cash.
Following a budget that allows for savings.
Applying for more credit cards to increase her credit score.
A college student has to live on a tight budget. Before making a decision to buy the newest cell phone, which question should he ask himself first?
Is the new cell phone cheaper than the one being used?
Is the new cell phone on sale?
Is the new cell phone a need or a want?
Will my friends like the new cellphone?
Which of the following quotes is sound financial advice?
“He who hesitates is lost.”
“A penny saved is a penny earned.”
“Don’t put off today what can be done tomorrow.”
“The window of opportunity may only open once.”
Fixed expenses include
food.
vacations.
entertainment.
rent.
Mandatory deductions from a person’s paycheck include
federal withholding tax and FICA.
school taxes and contributions to a retirement account.
regressive taxes and employee automatic savings.
property taxes and employee benefits.
When should a person begin contributing to a retirement plan?
Before deciding to start a family.
As young as possible.
At age 50.
Upon collecting Social Security.
Which of the following is the source of income for most people aged 20-35?
Dividends.
Wages/salary.
Rent.
Mortgage payments.
The U.S. government agency responsible for the collection and enforcement of federal taxes is known as
Federal Reserve System (Fed).
Securities and Exchange Commission (SEC).
U.S. Internal Revenue Service (IRS).
Consumer Financial Protection Bureau (CFPB).
When a person has a balanced budget that includes savings then
net income = discretionary income.
total expenses = savings.
total income = total expenses – savings.
total expenses + savings = total income.
Why do financial advisors recommend that a person save at least 10% of each paycheck?
To have more money for wants not needs.
To build wealth.
To be able to pay bills on time.
To be able to support worthwhile charities.
The “time value of money” means that
money paid out today has less value than if the money is paid out in the future.
money received today is worth more than the same amount of money received in the future.
the more time a person has to save, the lower the return on the money.
the longer money is held, the less likely it will be spent.
When a person receives a book store gift card, she can use it to
buy a book at any store.
buy a book from that store.
pay for her rent.
make a deposit into her savings account.
A person who dies will have his assets distributed as he wanted as long as he has
a will.
a doctor.
an accountant.
a financial plan.
A person has assets worth $15,000 and loans totaling $5,000. Her net worth is
$ 5,000.
$10,000.
$15,000.
$20,000.
Don and Bill work together in the finance department of the same company and earn the same salary. Bill spends his free time taking work-related classes to improve his computer skills. Don spends his free time socializing with friends or watching TV. After five years, what is most likely to be true?
Don will make more because he is more physically fit.
Don will make more because Bill is likely to become over qualified.
Bill will likely make more money because he is more valuable to his company.
Don and Bill will continue to make the same amount of money.
Which of the following is an example of a long-term debt?
A student loan.
A debit card purchase.
A term life insurance policy.
A stock portfolio.
A person earned a salary of $70,000 last year. Additionally, he had $1,000 in interest income and $2,000 in dividend income. His total income for this year is
$70,000.
$71,000.
$72,000.
$73,000.
An example of an opportunity cost is
buying a dress at a sale price instead of paying the original price.
using coupons when food shopping.
buying concert tickets instead of buying a textbook for a course.
using a credit card when making a large purchase.
A person strongly feels that going into debt is wrong. This is an example of the influence of
values on decisions.
age and stage in life.
marketing and advertising.
general economic conditions.
Which of the following describes what happens during a depression?
Businesses produce more goods and services.
Very few individuals are having financial problems.
Unemployment is extremely high.
More individuals are buying homes.
When the amount of income on a budget is greater than the amount actually spent on expenses, the person has a
surplus.
deficit.
balanced plan.
new liability.
When interest is computed once on a dollar amount (the principal), it is
simple interest.
principal interest.
the APY.
compound interest.
A person decided to have six months of income in an emergency savings account. Is this a good decision?
No, because he should place the money in a diversified portfolio.
No, because emergency accounts are no longer advisable.
Yes, because the money can be used as a down payment when buying a used car.
Yes, because the money in the emergency account can be used if he loses his job.
Students applying for financial aid to attend college usually need to
complete a Free Application for Federal Student Aid (FAFSA) form.
obtain a transcript.
write an essay.
send a credit report from one of the three credit reporting agencies.
A person choosing a mortgage usually selects a fixed-rate loan because she knows that
the interest rate remains the same for the life of the mortgage.
her income will increase within the next three years.
the interest rates are going down.
her homeowners insurance premiums will be lower.
Why does a bank pay interest to a depositor?
The bank is able to use deposits to earn profits.
It is a requirement of the Federal Deposit Insurance Corporation (FDIC).
It helps the bank invest in the local community.
It is a benefit of having a bank credit card.
It is generally better for a person to buy a home that she can afford than to rent an apartment because she will
build equity.
have fixed insurance needs.
have a lower debt to credit ratio.
avoid bankruptcy.
Which of the following would be considered an asset?
Credit card account.
Checking account.
Car loan.
Student loan.
“Paying yourself first” is a strategy to
revise goals.
make impulse purchases.
create a budget.
build savings.
What kind of income can a person earn from savings accounts at a commercial bank?
Wage.
Dividend.
Interest.
Capital gains.
Sally won a $200 cash prize at the school science competition. She wants to save the money for her senior trip in three years. It is best for her to save the money during the three years in a
checking account, because it is easy to withdraw funds.
drawer at home, because it would be safe.
savings account, because it would earn interest.
certificate of deposit (CD), because it generally earns higher interest.
John needs $3,000. He is withdrawing the money today from a $3,000 certificate of deposit (CD) which will reach maturity in six months. It is likely that he will have to
pay the Internal Revenue Service (IRS) a penalty.
pay the bank a penalty for early withdrawal.
pay both the IRS and the bank a penalty.
wait for the CD to mature.
When a check is returned due to insufficient funds, the check is said to have
been postdated.
been voided.
bounced.
cleared.
A form of payment that is guaranteed to be as good as cash is a
personal check.
bank check.
credit card charge.
promissory note.
Deposits in bank savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to
$ 50,000.
$100,000.
$150,000.
$250,000.
Which one of the following statements is the most accurate about the use of ATM cards?
A person can generally get an interest free loan at any bank ATM with no fee.
A person can always charge a purchase using an ATM card.
A person can get cash anywhere in the world using an ATM with no fee.
A person must have a bank account to have an ATM card.
This month Mando’s expenses are greater that his income. What are two actions Mando can take in order to balance his budget?
Mando can (a) expenses and (b) income.
A good habit to start saving money is (a)
Why would you put money into a savings account?
To make frequent withdrawals at ATM’s
To earn interest on your money
The process of setting aside money and putting it to work by having it earn interest or dividends or gain value in the equities market with the idea of having additional funds to use in the future is described as:
savings and investing
making money
setting goals
diversifying
Why is saving money important?
To have funds available for emergencies
To only buy things during sales
To lend money to friends
To spend more on entertainment
amount(s) of money laid away to be used at a later time.
spending
savings
credit
income
What is a general rule of thumb on how much you should save?
5% of your income
10% of your income
20% of your income
30% of your income
Which of the following is a benefit of investing in shares?
Guaranteed returns
High liquidity
Potential for capital growth
No risk
Which of the following is a benefit of investing in managed funds?
No management fees
Professional management
Guaranteed returns
Direct control over investments
What is the main advantage of using a budget?
To increase spending
To track and manage income and expenses
To eliminate all debt
To invest in the share market
What is a key benefit of having a diversified investment portfolio?
Higher risk
Lower potential returns
Reduced risk
Increased fees
What is the term for the regular payment made to shareholders from a company's profits?
Dividend
Capital gain
Interest
Loss
What is inflation?
The decrease in the value of money over time
The increase in the value of money over time
A type of investment strategy
The process of deflating something
What does it mean to "pay yourself first"?
Spend money on leisure activities before paying bills
Set aside a portion of your income for savings before paying your expenses
Give yourself a reward every time you receive money
Pay off all debts before saving any money
A budget can help you reach a final financial goal by
Showing you Total Monthly Income and Total Monthly expenses
Allowing you to see where you can cut back on spending
Giving you tools to Pay Yourself First and save.
All the above
Debts and financial obligations (owe). (a)
Match the following terms with their correct descriptions.
Cosigner
Person who agrees to pay another person's debt if they default
Creditor
Person or institution to whom money is owed
Debtor
Person or entity that owes money
Broker
Person who arranges transactions between a buyer and a seller
(a) a form on which you provide information needed by a lender to make a decision about granting credit.
(b) the percentage cost of credit on a yearly basis.
(c) the privilege of using someone else’s money for a period of time.
An agreement between two parties in which one party lends money or provides goods or services to another party with the understanding that payment will be made at a later date (a)
What may be a penalty for a late credit card bill payment? (Select all that apply)
Interest added to your future payments
The teacher gives you silent lunch
Your credit scores goes down
Extra money added to your checking account
What is the purpose of tracking your spending?
To identify areas where you can cut back
To calculate your net worth
To determine your income tax liability
To compare your spending to your budget
Elijah wants to build a good credit history. What should he do?
open as much credit as possible quickly
use the maximum credit allowed on all his credit cards
pay on time and as much of his balance as possible
all of these
Jim is 23 and has 1 credit card. What would be the best way to improve his credit score? (hint: choose 2 correct answers)
Get 4 more credit cards in the next 3 months
Diversify his credit - get an loan for the car he needs
Make sure he makes his payments in full & on time
Increase his credit utilization rate
When you buy a consumer durable good, such as a new refrigerator, and the person making the sale keeps trying to sell you an extended warranty on the product, what does that tell you?
It is never a good idea to buy an extended warranty.
It is always a good idea to buy an extended warranty.
The store is probably making a big profit on the extended warranty because it costs much more than the estimated costs of repairs.
The salesperson is always looking out for the benefit of the customer.
Where is the payee recognized on a check?
Where is the written amount on a check found?
(a) a form on which you provide information needed by a lender to make a decision about granting credit.
(b) the percentage cost of credit on a yearly basis.
(c) the privilege of using someone else’s money for a period of time.
Match the following terms with their definitions related to credit and finance.
The maximum amount of credit a borrower can use
Credit Limit
A yearly charge for credit card usage
Annual Fee
A measurement of someone's creditworthiness
Credit Score
An initial cash payment for a large purchase
Down Payment
