Foolproof Financial Literacy Quiz

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Foolproof Financial Literacy Quiz - Quiz

Knowing your financial position and manipulating it to your favor is something wise. When it comes to credit, ignorance can be expensive! A person may take up too much credit and find that they cannot sustain their life. Take this quick test to see how financially literate you are and get to learn more about the economy you are living in.


Questions and Answers
  • 1. 

    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.

    Correct Answer
    C. Eric will pay less because the car is collateral for the loan.
    Explanation
    Eric will pay less because the car is collateral for the loan. When a loan is secured by collateral, such as a car, it reduces the risk for the lender. In case of default, the lender can repossess the car and sell it to recover their money. This lower risk allows the lender to offer a lower finance charge or interest rate. In contrast, Matt's loan for a vacation does not have any collateral, making it a riskier loan for the lender, resulting in a higher finance charge.

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  • 2. 

    Which of the following instruments is NOT typically associated with spending?

    • A.

      Cash

    • B.

      Credit Card

    • C.

      Debit Card

    • D.

      Certificate of Deposit

    Correct Answer
    D. Certificate of Deposit
    Explanation
    A Certificate of Deposit (CD) is a financial instrument that is typically associated with saving rather than spending. When an individual purchases a CD, they are essentially lending money to a bank or financial institution for a fixed period of time in exchange for a higher interest rate. The funds are locked away and cannot be easily accessed or spent until the maturity date of the CD. Therefore, unlike cash, credit cards, and debit cards, which are all commonly used for spending, a Certificate of Deposit is not typically associated with immediate or regular spending activities.

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  • 3. 

    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.

    Correct Answer
    B. Jessica, who only pays the minimum amount each month.
    Explanation
    Jessica, who only pays the minimum amount each month, is likely to pay the greatest dollar amount in finance charges per year. This is because by only paying the minimum amount, she carries a balance on her credit card from month to month. This balance accrues interest, resulting in finance charges. Since Jessica consistently pays only the minimum amount, the balance and the corresponding finance charges continue to accumulate over time, leading to a higher overall dollar amount in finance charges per year compared to the other credit card users.

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  • 4. 

    Which of the following statements is true?

    • A.

      Your bad loan payment record with one bank will not be considered if you apply to another bank for a loan.

    • B.

      If you missed a payment more than 2 years ago, it cannot be considered in a loan decision.

    • C.

      Banks and other lenders share the credit history of their borrowers with each other and are likely to know of any loan payments that you have missed.

    • D.

      People have so many loans it is very unlikely that one bank will know your history with another bank.

    Correct Answer
    C. Banks and other lenders share the credit history of their borrowers with each other and are likely to know of any loan payments that you have missed.
    Explanation
    Banks and other lenders have a system in place where they share the credit history of borrowers with each other. This means that if you have missed any loan payments, it is highly likely that other banks will be aware of it. Therefore, your bad loan payment record with one bank will not be overlooked if you apply to another bank for a loan. This statement highlights the importance of maintaining a good credit history as it can affect your chances of getting a loan from any bank or lender.

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  • 5. 

    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 accounts interest may not be taxed.

    • D.

      Income tax may be charged on the interest if your income is high enough.

    Correct Answer
    D. Income tax may be charged on the interest if your income is high enough.
    Explanation
    The correct answer states that income tax may be charged on the interest if your income is high enough. This means that if you earn a certain amount of income from the interest on your savings account, you may be required to pay income tax on that amount. This is because interest earned is considered a form of income, and income tax is applied based on your overall income level. The other options are incorrect as they either refer to sales tax, age restrictions, or the taxability of savings account interest.

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  • 6. 

    Under which of the following circumstances would it be financially beneficial to you to borrow money to buy something now and repay it with future income?

    • A.

      When some clothes you like go on sale.

    • B.

      When the interest on the loan is greater than the interest you get on your savings.

    • C.

      When you need to buy a car to get a much better paying job.

    • D.

      When you really need a week vacation.

    Correct Answer
    C. When you need to buy a car to get a much better paying job.
    Explanation
    Borrowing money to buy a car that will lead to a much better paying job can be financially beneficial because the increased income from the better job can help repay the loan. In this scenario, the investment in the car can be seen as an investment in one's career and future earning potential. The potential increase in income can outweigh the cost of borrowing, making it a financially advantageous decision.

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  • 7. 

    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 record.

    • C.

      Your credit record can be checked once a year for free.

    • D.

      You cannot see your credit record.

    Correct Answer
    C. Your credit record can be checked once a year for free.
    Explanation
    Individuals have the right to check their credit history for accuracy once a year for free. This is mandated by the Fair Credit Reporting Act (FCRA), which allows individuals to request a free copy of their credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once every 12 months. This helps individuals monitor their credit, detect any errors or fraudulent activity, and take necessary steps to address them.

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  • 8. 

    If your credit card is stolen and the total debt reaches a $1,000, but you notify the issuer of the card as soon as you discover it is missing, what is the maximum amount that you can be forced to pay according to Federal law?

    • A.

      Nothing

    • B.

      $50

    • C.

      $500

    • D.

      $1,000

    Correct Answer
    B. $50
    Explanation
    According to Federal law, if you notify the issuer of your stolen credit card as soon as you discover it is missing, the maximum amount you can be forced to pay is $50. This is because the law states that the cardholder is only responsible for up to $50 of unauthorized charges made on a stolen credit card. The remaining amount will be covered by the credit card issuer.

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  • 9. 

    Mike and Dave work together in the finance department of the same company and earn the same pay. Mike spends his free time taking work-related classes to improve his computer skills; while Dave spends his free time socializing with friends and working out at a fitness center. After five years, what is likely to be true?

    • A.

      Mike will make more money because he is more valuable to his company.

    • B.

      Mike and Dave will continue to make the same amount of money.

    • C.

      Dave will make more because he is more social.

    • D.

      Dave will make more because Mike is likely to be laid off.

    Correct Answer
    A. Mike will make more money because he is more valuable to his company.
    Explanation
    Mike will make more money because he is more valuable to his company. By taking work-related classes to improve his computer skills, Mike is enhancing his knowledge and abilities, making him more valuable as an employee. This increased value can lead to promotions, salary raises, or other opportunities for financial growth within the company. On the other hand, Dave's socializing and fitness activities may not directly contribute to his professional development or value to the company, therefore, he is less likely to see the same financial benefits as Mike.

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  • 10. 

    Which of the following statements is NOT correct about most ATM (Automated Teller Machine) cards?

    • A.

      You can get cash anywhere in the world for no fee.

    • B.

      You must have a bank account to have an ATM Card.

    • C.

      You can generally withdraw cash 24 hours a day.

    • D.

      You can generally obtain information concerning your bank balance at an ATM machine.

    Correct Answer
    A. You can get cash anywhere in the world for no fee.
    Explanation
    Most ATM cards do not allow you to get cash anywhere in the world for no fee. While ATM cards do provide convenience for withdrawing cash, they often have limitations and fees when used internationally. These fees can include foreign transaction fees, currency conversion fees, and ATM withdrawal fees. Therefore, the statement that you can get cash anywhere in the world for no fee is not correct about most ATM cards.

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  • 11. 

    Barbara 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 Barbara 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 make Barbara’s parents pledge their home to repay Barbara's credit card debt.

    • B.

      It will require Barbara to have both parents co-sign for the card.

    • C.

      It will charge Barbara twice the finance charge rate it charges older cardholders.

    • D.

      It will start Barbara out with a small line of credit to see how she handles the account.

    Correct Answer
    D. It will start Barbara out with a small line of credit to see how she handles the account.
    Explanation
    The credit card company is likely to start Barbara out with a small line of credit to see how she handles the account because she is an 18-year-old with no credit history and few valuable possessions. This allows the credit card company to minimize its risk by limiting the amount of credit extended to Barbara initially. By monitoring her spending and repayment habits, the company can assess her creditworthiness and determine if she is a responsible borrower before granting her a higher line of credit.

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  • 12. 

    When are you entitled to receive a free credit report?

    • A.

      Never, it is proprietary information of the credit bureaus.

    • B.

      Only when you pay a $39 fee each time.

    • C.

      Only when you have been denied credit.

    • D.

      Once a year for free.

    Correct Answer
    D. Once a year for free.
    Explanation
    Individuals are entitled to receive a free credit report once a year. This is a legal provision under the Fair Credit Reporting Act (FCRA). The purpose of providing free credit reports is to allow individuals to monitor their credit history and identify any errors or discrepancies. It is not proprietary information of the credit bureaus, and there is no fee required to obtain the annual free credit report. It is also not necessary to be denied credit in order to receive a free credit report.

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  • 13. 

    Which type of financial institution is member owned and generally has the lowest overhead with the best interest rates?

    • A.

      Local Bank

    • B.

      National Bank

    • C.

      Credit Union

    • D.

      Savings and Loan Institution

    Correct Answer
    C. Credit Union
    Explanation
    Credit unions are member-owned financial institutions that typically have lower overhead costs compared to other types of financial institutions. This is because credit unions are not-for-profit organizations and their main focus is to serve their members rather than generate profits. As a result, credit unions often offer better interest rates on loans and higher interest rates on savings accounts compared to banks. Therefore, credit unions are generally considered to have the lowest overhead with the best interest rates.

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  • 14. 

    Negative financial information (excluding bankruptcy) can stay on your credit report for:

    • A.

      2 years

    • B.

      5 years

    • C.

      7 years

    • D.

      10 years

    Correct Answer
    C. 7 years
    Explanation
    Negative financial information, such as late payments, collections, and charge-offs, can stay on your credit report for 7 years. This information can have a significant impact on your credit score and make it more difficult to obtain credit in the future. It is important to maintain good financial habits and make timely payments to avoid negative information staying on your credit report for an extended period of time.

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  • 15. 

    In terms of credit, what does APR stand for?

    • A.

      Annual Percentage Rate

    • B.

      Annual Penalty Rate

    • C.

      Annual Payment Rate

    • D.

      Annual Payoff Rate

    Correct Answer
    A. Annual Percentage Rate
    Explanation
    APR stands for Annual Percentage Rate. It is a measure of the cost of credit, expressed as a yearly interest rate. APR takes into account not only the interest rate charged on a loan or credit card, but also any additional fees or charges associated with borrowing. By comparing APRs, consumers can make more informed decisions about which credit options are the most cost-effective for them.

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  • 16. 

    How many days does a creditor have to acknowledge your written complaint about a billing error?

    • A.

      30 days

    • B.

      60 days

    • C.

      90 days

    • D.

      120 days

    Correct Answer
    A. 30 days
    Explanation
    A creditor has 30 days to acknowledge a written complaint about a billing error. This means that once the creditor receives the complaint, they are required to send a response or acknowledgement within 30 days. This allows the creditor sufficient time to review the complaint and initiate any necessary actions to resolve the billing error.

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  • 17. 

    A credit card can increase your interest rate when:

    • A.

      Your payment is late.

    • B.

      You go over your credit limit.

    • C.

      They merge with another company.

    • D.

      All of the above.

    Correct Answer
    D. All of the above.
    Explanation
    The correct answer is "All of the above" because all three scenarios mentioned can lead to an increase in the interest rate on a credit card. If a payment is late or if the credit card holder exceeds their credit limit, it can be seen as a risk by the credit card company, resulting in a higher interest rate. Additionally, if the credit card company merges with another company, it may result in changes to the terms and conditions, including an increase in the interest rate.

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  • 18. 

    If you buy a computer for $2,000 on your credit card (at 24% APR) and makes minimum payments of $60 each month, how long will it take you to pay off the computer?

    • A.

      33 months (2.7 years)

    • B.

      Just under 5 years

    • C.

      7 years 3 months

    • D.

      13 years and 1 month

    Correct Answer
    B. Just under 5 years
    Explanation
    The answer "Just under 5 years" is correct because if you make minimum payments of $60 each month on a $2,000 balance with a 24% APR, it will take approximately 59 months (or just under 5 years) to pay off the computer. This calculation assumes that no additional charges or fees are added to the credit card balance during this time.

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  • 19. 

    When you are charged an “over-the-limit” fee on your credit card, which of the following would happen?

    • A.

      You will be charged a fee every month until you reduce your balance to under the credit card limit.

    • B.

      You will be charged a one-time fee and your credit card will be suspended.

    • C.

      You will be charged a one-time fee and your interest rate will be raised to the highest level.

    • D.

      You will be charged a one-time fee and your credit card limit will be raised.

    Correct Answer
    A. You will be charged a fee every month until you reduce your balance to under the credit card limit.
    Explanation
    When you are charged an "over-the-limit" fee on your credit card, it means that you have exceeded your credit card limit. The correct answer states that you will be charged a fee every month until you reduce your balance to under the credit card limit. This implies that the fee is recurring and will continue to be charged until you bring your balance back within the allowed limit. This is a common practice by credit card companies as a penalty for exceeding the credit limit and serves as an incentive for customers to reduce their balance and avoid further fees.

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  • 20. 

    How does a debit card differ from a credit card?

    • A.

      There is no dispute resolution with a debit card under federal law.

    • B.

      A debit card does not usually appear on your credit report.

    • C.

      You may be responsible for the total amount of all unauthorized transactions on your debit card.

    • D.

      All of the above.

    Correct Answer
    D. All of the above.
    Explanation
    A debit card differs from a credit card in several ways. Firstly, there is no dispute resolution with a debit card under federal law, meaning that if there is an issue with a transaction, it may be more difficult to resolve. Secondly, a debit card does not usually appear on your credit report, as it is not a form of credit. Lastly, if there are any unauthorized transactions on your debit card, you may be responsible for the total amount. Therefore, all of the statements mentioned are correct.

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Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Mar 21, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Feb 22, 2010
    Quiz Created by
    Foolproofteacher
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