How Does Your Money Knowledge Compare With High School Seniors?
publication date: Jun 19, 2009
Personal Finance Quiz I - The Basics
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?
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
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
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?
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
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.
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.