Financial Literacy Trivia Quiz

Paying bills on time is essential for maintaining and improving a credit score. Timely payment of credit cards, loans, and other financial obligations constitutes the largest factor influencing a credit score, reflecting an individual's financial responsibility and reliability. Regular, on-time payments demonstrate to lenders that the borrower is low risk, which can lead to more favorable borrowing terms, such as lower interest rates and higher credit limits. Conversely, late payments negatively affect credit scores and can lead to penalties, higher interest rates, and decreased credit availability.

Auto insurance is legally required for car owners in most jurisdictions. This mandatory insurance covers liabilities in the event of accidents—specifically the damage caused to other vehicles or injuries to other people. The requirement ensures that all drivers can cover the costs associated with damages or injuries they may cause while driving, thus protecting other road users and reducing the financial risk associated with accidents.

Compound interest is the term used to describe earning interest on interest. This happens when the interest that accumulates on an investment is reinvested, rather than paid out, so in the next period, the investor earns interest on a larger balance. Over time, compound interest can significantly increase the value of an investment, making it a powerful element in the growth of savings and investments. It rewards savers and investors by exponentially increasing the return on invested funds.

A dividend is a share of profits paid out to shareholders of a corporation. When a company earns a profit, it can choose to reinvest the profit in the business (called retained earnings), or it can distribute some or all of the profit to its shareholders in the form of dividends. This payment rewards shareholders for their investment and trust in the company, providing an income stream in addition to any capital gains from the increase in the stock’s price.

A checking account is specifically designed for frequent access such as depositing or withdrawing money and is typically equipped with check writing capabilities and a debit card. Unlike savings or fixed deposit accounts, which are intended for long-term saving and earn interest, checking accounts provide convenience for daily financial transactions, making them ideal for managing day-to-day expenses.

The primary benefit of a budget is to track spending. It allows individuals to see where their money goes each month, which helps in identifying unnecessary expenses and optimizing financial habits. By monitoring income and expenses, a budget helps avoid overspending and ensures that financial resources are used wisely. This tracking leads to better financial decision-making and can help achieve specific financial goals, such as saving for a house or paying off debt.

Individuals can start contributing to an Individual Retirement Account (IRA) at any age, provided they have earned income. This includes money from working, which can be from wages, salaries, commissions, tips, or bonuses. The key criterion for contributing to an IRA is having taxable compensation, not the age of the individual, which allows even young workers to begin saving for retirement as soon as they start earning.

APR stands for Annual Percentage Rate. It represents the annual cost of borrowing money, including interest and other fees, expressed as a percentage. APR provides a comprehensive view of the total cost of a loan or credit product, allowing consumers to compare different lenders and credit options. It includes not just the interest rate but also any additional fees and costs associated with the borrowing, making it a more accurate reflection of the loan's true cost compared to the interest rate alone.

Your payment history is a primary factor in determining your credit score. This component of your credit score evaluates whether you have paid your past credit accounts on time. It includes payments on credit cards, mortgages, loans, and other credit lines. Payment history accounts for a significant portion of your credit score because it directly reflects your reliability and consistency in fulfilling financial obligations. Late payments, defaults, and bankruptcies have a negative impact, while consistent, on-time payments improve your credit score. Lenders use this information to assess the risk of lending money or extending credit to you.

A common feature of many 401(k) plans is employer matching contributions. This feature involves the employer contributing a certain amount to the employee’s 401(k) plan based on the employee's own contributions, often up to a certain percentage of their salary. This matching is essentially free money, enhancing the employee’s savings for retirement. It incentivizes employees to contribute more to their 401(k) plans to fully benefit from the employer's match, thereby increasing their retirement savings.