I've excerpted and adapted the following personal finance
quiz from the non-profit JumpStart Coalition for Personal Financial Literacy.
Please take this quiz, which has been administered to some of our nation's high
school seniors, without using any resources or references and without doing any
further preparation:
Part II of the quiz tests concepts and is more difficult and tests the key concepts you need to know to make the best personal finance choices.
1. If you have caused an accident, which type of automobile
insurance would cover damage to your own car?
a) Term
b) Collision
c) Comprehensive
d) Liability
2. Matt and Eric are
young men. Each has a good credit
history. They work at the same company
and make approximately the same salary.
Matt has borrowed $6,000 to take a foreign vacation. Eric has borrowed $6,000 to buy a car. Who is likely to pay the lowest finance
charge?
a) Matt will pay less because people who travel overseas are
better risks.
b) They will both pay the same because they have almost
identical financial backgrounds.
c) Eric will pay less because the car is collateral for the
loan.
d) They will both pay the same because the rate is set by
law.
3. Many savings
programs are protected by the Federal government against loss. Which of the
following is not?
a) A bond issued by one of the 50 States
b) A U.
S. Treasury Bond
c) A U.
S. Savings Bond
d) A certificate of deposit at the bank
4. If each of the
following persons had the same amount of take home pay, who would need the
greatest amount of life insurance?
a) A young single woman with two young children.
b) A young single woman without children.
c) An elderly retired man, with a wife who is also retired.
d) A young married man without children.
5. Which of the following credit card users is likely to pay
the GREATEST dollar amount in finance charges per year, if they all charge the
same amount per year on their cards?
a) Vera, who always pays off her credit card bill in full
shortly after she receives it.
b) Jessica, who only pays the minimum amount each month.
c) Megan, who pays at least the minimum amount each month
and more, when she has the money.
d) Erin, who generally pays off her credit card in full but,
occasionally, will pay the minimum when she is short of cash.
6. If you had a
savings account at a bank, which of the following would be correct concerning
the interest that you would earn on this account?
a) Sales tax may be
charged on the interest that you earn.
b) You cannot earn
interest until you pass your 18th birthday.
c) Earnings from
savings account interest may not be taxed.
d) Income tax may be charged on the interest if your income
is high enough.
7. Inflation can cause difficulty in many ways. Which group would have the greatest problem
during periods of high inflation that last several years?
a) Young couples with no children who both work.
b) Young working couples with children.
c) Older, working couples saving for retirement.
d) Older people living on fixed retirement income.
8. Lindsay has saved
$12,000 for her college expenses by working part-time. Her plan is to start college next year and
she needs all of the money she saved.
Which of the following is the best place for her college money?
a) Corporate bonds
b) A bank savings account
c) A money market fund
d) Stocks
9. Which of the following types of investment would best
protect the purchasing power of a family's savings in the event of a sudden
increase in inflation?
a) A twenty-five year corporate bond
b) A house financed with a fixed-rate mortgage
c) A 10-year bond issued by a corporation
d) A certificate of deposit at a bank
10. Which of the
following statements best describes your right to check your credit history for
accuracy?
a) All credit records are the property of the U.S.
Government and access is only available to the FBI and lenders.
b) You can only check your record for free if you are turned
down for credit based on a credit report.
c) Your credit record can be checked once a year for free.
d) You cannot see your credit record.
11. Your take home pay from your job is less than the total
amount you earn. Which of the following
best describes what is taken out of your total pay?
a) Federal income tax, social security and Medicare
contributions
b) Federal income tax, state sales tax, and social security
contribution
c) Social security and Medicare contributions
d) Federal income tax, property tax, and social security
contributions
12. Retirement income paid by a company is called:
a) Rents and profits
b) Social Security
c) 401k
d) Pension
13. Many people put aside money to take care of unexpected
expenses. If John and Jenny have money
put aside for emergencies, in which of the following forms would it be of LEAST
benefit to them if they needed it right away?
a) Stocks
b) Savings account
c) Invested in a down payment on the house
d) Checking account
14. Kelly and Pete just had a baby. They received money as
baby gifts and want to put it away for the baby's education. Which of the
following tends to have the highest growth over periods of time as long as 18
years?
a) A U.S. Govt. savings bond
b) A savings account
c) Corporate bonds
d) Stocks
15. Karen has just applied for a credit card. She is an 18-year-old high school graduate
with few valuable possessions and no credit history. If Karen is granted a credit card, which of
the following is the most likely way that the credit card company will reduce
its risk?
a) It will charge Karen twice the finance charge rate it
charges older cardholders.
b) It will start Karen out with a small line of credit to
see how she handles the account.
c) It will make Karen's parents pledge their home to repay
Karen's credit card debt.
d) It will require Karen to have both parents co-sign for
the card.
Quiz Answers
1. b) Collision
is the portion of your policy that pays for damage to your car.
2. c) Eric will
pay less because his lender can go after his car as collateral for the loan
whereas Matt's lender has nothing to recover once Matt spends the borrowed
money on the vacation.
3. a) A bond
issued by one of the 50 states. That's not to say that state bonds are unsafe
but they do lack federal government backing. CDs from a bank (choice "d") are
backed by the federal government through the FDIC insurance program.
4. a) The young
single parent with two young children would need the most life insurance. (It's
possible that the young married man without children would need some life
insurance if his spouse is dependent upon his income and would want his income
replaced in the event of his passing.)
5. b) The
person who is only paying the minimum amount on their credit card bill each
month will be carrying the most debt month-to-month and therefore incurring the
greatest interest charges.
6. d) Interest
on a bank savings account is taxable (for income tax purposes).
7. d) If your
income is fixed, continued large increases in the cost of living erode the
purchasing power of your money.
8. c) Money
market funds, which are offered by mutual fund companies, and not banks,
typically offer higher rates than bank savings accounts and a high level of
safety. Bonds and stocks, while offering higher potential are too risky for
such a short time period as they can fall in value.
9. b) Housing
values generally keep up with increases in the cost of living. Bonds and CDs
have fixed interest rates and would not protect purchasing power due to sudden
inflation.
10. c) You are
entitled to receive a free copy of your credit record once annually from each
of the credit reporting agencies.
11. a) Federal
income taxes and Social Security and Medicare contributions are deducted from
paychecks (if your state has an income tax that may be deducted too).
12. d) Pension
income is paid by a company to their employees who are retired and have worked
enough years to earn a pension benefit.
13. c) Down
payment money would be the slowest to access (unless you had a home equity line
of credit already established and could simply tap into it when needed). While
stocks can be sold any day the financial markets are open, they would not be a
good place to keep emergency money because the price might be down when you needed
to sell.
14. d) Stocks
have the best long-term returns, by far, easily beating bonds and savings
accounts (by about double - 10 percent versus about 5 percent or less).
15. b) It's easy
to get a credit card. Karen will be granted a relatively small line of credit
until the credit card company can see that won't default on repaying any
borrowings on the card.
Scoring and Evaluating Your Quiz Results
The average
score for high school seniors on the preceding quiz was just 52 percent, which
isn't too hot when you consider this is a multiple choice quiz and simply
through random selection of answers, you should get at least 25 percent
correct! These questions are testing pretty basic personal finance concepts and
you should, as an adult, be getting 100 percent correct. If not, don't despair,
my books (and other recommended resources) can help you close the gaps in your
knowledge. The lower your score, the more room you've got for improvement.