Financial Literacy Test
1. What is a budget?
a) A list of all your expenses
b) A tool to manage income and expenses
c) A loan document
d) A savings account
2. What is the main purpose of insurance?
a) To help you save money
b) To protect against financial loss
c) To increase your income
d) To make investments
3. What does "APR" stand for in finance?
a) Annual Percentage Rate
b) Annual Payment Rate
c) Automated Payment Rate
d) Asset Protection Rate
4. What is the difference between a credit card and a debit card?
a) Debit cards allow borrowing money, credit cards do not.
b) Credit cards allow borrowing money, debit cards only access your own funds.
c) Debit cards are accepted everywhere, credit cards are not.
d) There is no difference.
5. Which of the following is a fixed expense?
a) Utility bill
b) Car payment
c) Grocery bill
d) Entertainment
6. Which of the following is an example of a liquid asset?
a) Real estate
b) Car
c) Savings account
d) Bonds
7. What is the purpose of a credit score?
a) To determine your tax rate
b) To assess your ability to pay back debt
c) To track your spending habits
d) To determine your insurance premiums
8. What does it mean to diversify an investment portfolio?
a) To put all your money into one investment
b) To spread your investments across different assets
c) To focus on low-risk investments only
d) To avoid investing in stocks
9. What is an emergency fund?
a) Money saved for retirement
b) Money set aside for large purchases
c) Money saved for unexpected expenses
d) Money saved for vacations
10. What does the term “liability” refer to in personal finance?
a) Any financial asset
b) A financial obligation or debt
c) An increase in income
d) A type of investment
11. Which of the following best describes an "interest rate"?
a) A fee charged to borrow money
b) A tax imposed on investments
c) A government program for financial assistance
d) A type of savings account
12. What is a 401(k) plan?
a) A savings account for emergencies
b) A retirement savings plan offered by employers
c) A government bond investment
d) A loan for buying a home
13. What is the stock market?
a) A place where companies can borrow money
b) A place where stocks and bonds are bought and sold
c) A bank that issues loans
d) A government entity that controls the economy
14. What is the primary function of a bank?
a) To issue currency
b) To store valuable items
c) To provide loans and manage deposits
d) To invest in real estate
15. Which of the following is an example of a non-liquid asset?
a) Cash
b) Real estate
c) Savings account
d) Stocks
16. What is the purpose of a credit report?
a) To track your bank transactions
b) To show your credit score
c) To determine your retirement savings
d) To calculate your monthly budget
17. What is the difference between a traditional IRA and a Roth IRA?
a) Traditional IRAs are tax-free; Roth IRAs are taxable
b) Roth IRAs are tax-free; traditional IRAs are taxable
c) Roth IRAs have lower contribution limits
d) There is no difference
18. What is "compound interest"?
a) Interest earned only on the initial principal
b) Interest earned on the initial principal and the accumulated interest
c) A penalty for late payments
d) Interest earned on savings accounts
19. What is a bond?
a) A share in a company
b) A loan made to a corporation or government
c) A type of insurance
d) A real estate investment
20. What does "inflation" refer to?
a) A rise in the value of money
b) A decrease in the price of goods
c) An increase in the price of goods and services
d) A reduction in economic activity
21. What is a financial goal?
a) A plan to spend money
b) A target to achieve financial security
c) A way to track monthly expenses
d) A loan repayment plan
22. What is the purpose of a will?
a) To avoid paying taxes
b) To distribute assets after death
c) To determine your credit score
d) To manage monthly bills
23. What is the main benefit of saving early for retirement?
a) Higher interest rates
b) Compound growth over time
c) Lower tax rates
d) No risk of losing money
24. What is an asset?
a) A debt you owe
b) A financial obligation
c) Anything of value you own
d) A type of insurance
25. What is a mortgage?
a) A loan for purchasing a car
b) A loan for purchasing real estate
c) A loan for education expenses
d) A type of credit card
26. Which of the following is considered a good financial habit?
a) Spending more than you earn
b) Saving a portion of your income
c) Avoiding any investments
d) Ignoring your credit score
27. What is the purpose of a savings account?
a) To provide an investment for growth
b) To save money for future expenses with low risk
c) To store your emergency fund
d) To pay bills
28. What is the purpose of a credit limit?
a) To determine how much money you can borrow from a bank
b) To set a maximum amount you can charge on your credit card
c) To calculate your income tax
d) To assess your debt-to-income ratio
29. What is the term for money you earn from investments?
a) Income
b) Return
c) Credit
d) Liability
30. Which of the following is an example of a variable expense?
a) Mortgage payment
b) Car payment
c) Utility bills
d) Grocery shopping
31. What is "tax-deferred" income?
a) Income that is taxed before you receive it
b) Income that is taxed after you receive it
c) Income that is not taxed at all
d) Income that is never reported to the IRS
32. What is the risk of investing in stocks?
a) The stock price is guaranteed to increase
b) You may lose part or all of your investment
c) The investment is risk-free
d) You will receive regular, guaranteed income
33. What is a "dividend"?
a) Interest paid on a bond
b) A share of a company’s profits paid to stockholders
c) A fee for using a credit card
d) A type of loan repayment
34. What does it mean to "live below your means"?
a) Spend less than you earn
b) Spend more than you earn
c) Save only a small portion of your income
d) Invest in only high-risk assets
35. What is a payday loan?
a) A long-term loan for buying a home
b) A short-term, high-interest loan
c) A government assistance program
d) A retirement savings account
36. What is a "high-yield savings account"?
a) A savings account with a higher interest rate
b) A savings account with no interest
c) A type of investment account
d) A savings account with no fees
37. What is the difference between gross income and net income?
a) Gross income is the income after taxes, net income is before taxes
b) Gross income is the total income, net income is after deductions
c) Gross income is for employees, net income is for business owners
d) There is no difference
38. What does the term "debt-to-income ratio" refer to?
a) The amount of debt you have relative to your assets
b) The total amount of debt you have compared to your monthly income
c) The interest rate on your loans
d) The amount of money you owe to the bank
39. Which of the following is considered a good strategy for managing debt?
a) Paying off high-interest debt first
b) Ignoring your debts
c) Taking on more loans to cover existing debt
d) Only making minimum payments on loans
40. What is the purpose of a credit card?
a) To borrow money and pay for goods or services
b) To earn a fixed income
c) To deposit money into a bank account
d) To avoid paying taxes
Answers
b) A tool to manage income and expenses
b) To protect against financial loss
a) Annual Percentage Rate
b) Credit cards allow borrowing money, debit cards only access your own funds.
b) Car payment
c) Savings account
b) To assess your ability to pay back debt
b) To spread your investments across different assets
c) Money saved for unexpected expenses
b) A financial obligation or debt
a) A fee charged to borrow money
b) A retirement savings plan offered by employers
b) A place where stocks and bonds are bought and sold
c) To provide loans and manage deposits
b) Real estate
b) To show your credit score
b) Roth IRAs are tax-free; traditional IRAs are taxable
b) Interest earned on the initial principal and the accumulated interest
b) A loan made to a corporation or government
c) An increase in the price of goods and services
b) A target to achieve financial security
b) To distribute assets after death
b) Compound growth over time
c) Anything of value you own
b) A loan for purchasing real estate
b) Saving a portion of your income
b) To save money for future expenses with low risk
b) To set a maximum amount you can charge on your credit card
b) Return
d) Grocery shopping
b) Income that is taxed after you receive it
b) You may lose part or all of your investment
b) A share of a company’s profits paid to stockholders
a) Spend less than you earn
b) A short-term, high-interest loan
a) A savings account with a higher interest rate
b) Gross income is the total income, net income is after deductions
b) The total amount of debt you have compared to your monthly income
a) Paying off high-interest debt first
a) To borrow money and pay for goods or services
