Personal Finance Quiz Questions! Test
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What do you know about personal finance? Would you like to put your knowledge to the test? Personal finance is a term that covers budgeting your money as well as savings and investing. It involves banking, insurance, mortgages, investment, retirement preparation, and tax and estate organizing. The term often refers to the all-inclusive industry that provides financial services. Try this quiz and see how much you know about personal finance.
- 1.
Which statement is true of most millionaires?
- A.
Most millionaires are celebrities or professional athletes.
- B.
Most millionaires work over 40 hours per week.
- C.
Most millionaires inherit their fortune or win the lottery.
- D.
Most millionaires drive new Cadillacs instead of used Fords.
Correct Answer
B. Most millionaires work over 40 hours per week.Explanation
ARate this question:
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- 2.
College graduates earn about 65 percent more than high school graduates earn.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
College graduates earn about 65 percent more than high school graduates because higher education provides individuals with specialized knowledge and skills that are in high demand in the job market. College graduates often have access to better job opportunities and higher-paying positions compared to those with only a high school education. Additionally, college graduates tend to have higher earning potential over their lifetime due to their increased qualifications and ability to adapt to changing industries and technologies.Rate this question:
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- 3.
Because of scarcity:
- A.
We can only get free lunches on Tuesdays.
- B.
Only parents can get free lunches.
- C.
Lunches go on sale occasionally.
- D.
There is no such thing as a free lunch.
Correct Answer
D. There is no such thing as a free lunch.Explanation
The answer "There is no such thing as a free lunch" is correct because the given statements imply that lunches are not always free. The first statement states that free lunches are only available on Tuesdays, indicating that they are not available every day. The second statement specifies that only parents can get free lunches, suggesting that it is not accessible to everyone. The third statement mentions that lunches go on sale occasionally, indicating that they are not always free. Therefore, the answer suggests that the concept of a completely free lunch does not exist.Rate this question:
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- 4.
What is opportunity cost?
- A.
The next best alternative that isn’t chosen.
- B.
The price of a natural resource.
- C.
Goods used to produce other goods and services.
- D.
Funding for human capital.
Correct Answer
A. The next best alternative that isn’t chosen.Explanation
Opportunity cost refers to the value of the next best alternative that is forgone when making a decision. It represents the trade-off between different choices and highlights what is sacrificed in order to pursue a particular option. In this context, the correct answer explains that opportunity cost is the next best alternative that is not chosen. This implies that when a decision is made, there are alternative options available, and the chosen option incurs an opportunity cost in terms of what is given up.Rate this question:
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- 5.
Which approach to handling your money will improve your financial well-being most over a lifetime?
- A.
Making impulse purchases.
- B.
Dropping out of school to work and make money.
- C.
Saving money early in life, and making responsible financial decisions with the money you don’t save.
- D.
Using credit to buy things you can’t afford to pay for.
Correct Answer
C. Saving money early in life, and making responsible financial decisions with the money you don’t save.Explanation
Saving money early in life and making responsible financial decisions with the money you don't save is the correct answer. This approach allows individuals to build a financial cushion and develop good money management habits. By saving money, individuals can have funds for emergencies, investments, and future goals. Making responsible financial decisions ensures that the money saved is used wisely and effectively. This approach promotes long-term financial well-being by providing financial security and the ability to achieve financial goals.Rate this question:
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- 6.
According to the U.S. Bureau of Labor Statistics, the fastest-growing jobs will require an associate’s degree or higher.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The explanation for the given correct answer is that the U.S. Bureau of Labor Statistics has stated that the fastest-growing jobs in the future will require at least an associate's degree or higher. This means that individuals who have completed a higher level of education, such as an associate's degree or beyond, will have better job prospects and opportunities for growth in their careers.Rate this question:
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- 7.
What is net pay?
- A.
Net pay is savings plus deductions.
- B.
Net pay is gross pay minus deductions.
- C.
Net pay is gross pay minus savings.
- D.
Net pay is savings plus expenses.
Correct Answer
B. Net pay is gross pay minus deductions.Explanation
Net pay refers to the amount of money an individual receives after deductions have been subtracted from their gross pay. Gross pay is the total amount of money earned before any deductions are taken out. Deductions can include taxes, insurance premiums, retirement contributions, and other withholdings. Therefore, the correct answer is "Net pay is gross pay minus deductions."Rate this question:
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- 8.
Jane Smith earns $10 per hour and works 25 hours per week. Her deductions per week, including federal income taxes, state income taxes, and Social Security taxes total $50. What is Jane’s net pay for the week?
- A.
$350
- B.
$310
- C.
$225
- D.
$200
Correct Answer
D. $200Explanation
Jane Smith earns $10 per hour and works 25 hours per week. Her total earnings for the week would be $10 x 25 = $250. However, her deductions including federal income taxes, state income taxes, and Social Security taxes total $50. Therefore, her net pay for the week would be $250 - $50 = $200.Rate this question:
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- 9.
Which of the following items is not a mandatory deduction from your paycheck?
- A.
Federal income tax
- B.
State income tax
- C.
FICA
- D.
Charity
Correct Answer
D. CharityExplanation
Charity is not a mandatory deduction from your paycheck because it is a voluntary contribution that individuals choose to make. While federal income tax, state income tax, and FICA (which includes Social Security and Medicare taxes) are mandatory deductions required by law, individuals have the option to donate to charity but it is not mandatory.Rate this question:
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- 10.
Why do financial experts recommend that you start saving when you’re young?
- A.
Saving early allows compound interest to work to your advantage, because your interest earns more interest.
- B.
People who save early earn higher interest rates on credit cards.
- C.
Saving is easy when you’re young.
- D.
It’s harder to save when you’re older, because you make less money.
Correct Answer
A. Saving early allows compound interest to work to your advantage, because your interest earns more interest.Explanation
Starting to save when you're young allows compound interest to work in your favor. This is because the interest you earn on your savings can earn additional interest over time. By saving early, you have more time for your savings to grow and accumulate compound interest, leading to greater financial gains in the long run.Rate this question:
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- 11.
Which of the following factors does not affect how much your savings can grow?
- A.
Time
- B.
Weather
- C.
Rate of Return
- D.
Investment Size
Correct Answer
B. WeatherExplanation
The weather does not affect how much your savings can grow. Factors such as time, rate of return, and investment size play a significant role in determining the growth of savings. Time allows for compounding interest to accumulate over a longer period, the rate of return determines the profitability of investments, and the investment size determines the initial amount that can be invested. However, weather conditions have no direct impact on the growth of savings.Rate this question:
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- 12.
Which of the following statements best defines risk?
- A.
Risk is the rule of determining how long it takes money to double at a particular rate of return.
- B.
Risk is shares of ownership in a corporation.
- C.
Risk is a reward that influences choices.
- D.
Risk is the chance that you might not get your money back.
Correct Answer
D. Risk is the chance that you might not get your money back.Explanation
The correct answer defines risk as the chance that you might not get your money back. This definition accurately captures the essence of risk, which is the possibility of losing an investment or not receiving the expected return. It highlights the uncertainty and potential negative outcomes associated with financial decisions, emphasizing the importance of considering and managing risk when making investment choices.Rate this question:
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- 13.
The higher the investment risk, the higher the potential reward.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
This statement is true because in the world of investments, there is generally a direct correlation between risk and reward. Higher risk investments have the potential for higher returns, but they also come with a higher chance of loss. This is because riskier investments often involve more uncertainty and volatility, which can lead to larger gains or losses. On the other hand, lower risk investments tend to have lower potential returns but also come with a lower chance of loss. Therefore, it is generally accepted that higher investment risk is associated with higher potential rewards.Rate this question:
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- 14.
When considering a credit card, what is the interest rate?
- A.
The amount you earn when you use your credit card.
- B.
A deduction from your monthly credit card payment.
- C.
The compensation the lender expects to receive for extending credit to you.
- D.
The spending limit set by the lender.
Correct Answer
C. The compensation the lender expects to receive for extending credit to you.Explanation
The interest rate on a credit card refers to the compensation that the lender expects to receive for extending credit to the cardholder. It is the percentage of the outstanding balance that is charged as interest, typically on a monthly basis. This interest rate is how the lender makes money from the credit card transaction and is an important factor to consider when choosing a credit card.Rate this question:
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- 15.
How does risk influence the interest charged on a loan?
- A.
Low risk loans usually carry high interest rates.
- B.
Risk doesn’t influence the interest rate.
- C.
High risk loans usually carry high interest rates.
- D.
High risk loans usually carry low interest rates.
Correct Answer
C. High risk loans usually carry high interest rates.Explanation
High risk loans usually carry high interest rates because lenders need to compensate for the increased likelihood of default. When lending to borrowers with a higher risk of not repaying the loan, lenders charge higher interest rates to offset the potential loss. This helps to protect their investment and ensure they are adequately compensated for taking on the additional risk. Conversely, low risk loans are considered safer for lenders, so they can offer lower interest rates as there is a lower chance of default.Rate this question:
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- 16.
Why should you be selective when choosing a credit card?
- A.
You shouldn’t; it’s not important.
- B.
Because you could find a better annual percentage rate (APR) and pay less annual fees.
- C.
Because you want an APR of 40 to 50%.
- D.
Because you want a short grace period.
Correct Answer
B. Because you could find a better annual percentage rate (APR) and pay less annual fees.Explanation
Choosing a credit card requires being selective because it allows you to find a better annual percentage rate (APR) and pay fewer annual fees. By carefully considering different credit card options, you can identify cards with lower interest rates and fees, which can save you money in the long run. Being selective also ensures that you choose a credit card that aligns with your financial needs and goals, providing you with the most favorable terms and benefits.Rate this question:
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- 17.
Collateral is an asset used to back a loan.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Collateral refers to an asset that a borrower pledges to a lender as security for a loan. In the event that the borrower fails to repay the loan, the lender can seize and sell the collateral to recover the amount owed. Therefore, the statement "Collateral is an asset used to back a loan" is true as it accurately describes the purpose and function of collateral in loan agreements.Rate this question:
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- 18.
Usually, only borrowers benefit in a credit transaction.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
In a credit transaction, both borrowers and lenders can benefit. Borrowers benefit by gaining access to funds that they may not have otherwise had, allowing them to make purchases or investments. Lenders benefit by earning interest on the amount of money they lend, which can be a source of income for them. Therefore, it is incorrect to say that only borrowers benefit in a credit transaction.Rate this question:
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- 19.
What does it mean to “pay yourself first?”
- A.
It means you pay variable expenses before you pay fixed expenses.
- B.
It means you pay all of your bills before you put money into savings.
- C.
It means you use a credit card to treat yourself before you pay your bills.
- D.
It means you set aside money for savings before you spend money.
Correct Answer
D. It means you set aside money for savings before you spend money.Explanation
"Pay yourself first" refers to the practice of prioritizing saving money before spending it on other expenses. This means that before paying bills or indulging in discretionary spending, a portion of income is set aside for savings or investments. This approach helps individuals build a financial cushion and establish a habit of saving regularly.Rate this question:
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- 20.
Some credit cards offer a low APR for the first few months and then increase the APR significantly.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Some credit cards do indeed offer a low APR (Annual Percentage Rate) for the initial months and then raise the APR significantly. This strategy is often used as a promotional offer to attract new customers. The low introductory APR can be appealing to individuals looking to make large purchases or transfer balances from other cards. However, it is important for cardholders to carefully read the terms and conditions to understand when and how much the APR will increase after the introductory period ends.Rate this question:
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- 21.
When evaluating your creditworthiness, potential lenders consider your character, collateral, and capacity.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
When evaluating creditworthiness, potential lenders consider three main factors: character, collateral, and capacity. Character refers to the borrower's reputation and history of meeting financial obligations. Collateral refers to assets that can be used as security for the loan. Capacity refers to the borrower's ability to repay the loan based on their income and financial stability. Therefore, the statement "When evaluating your creditworthiness, potential lenders consider your character, collateral, and capacity" is true.Rate this question:
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- 22.
Gross pay is money left for spending or saving after deductions are taken out of your paycheck.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The explanation for the correct answer, which is False, is that gross pay is the total amount of money earned before any deductions are taken out, such as taxes, insurance, or retirement contributions. It represents the full amount of income earned by an individual before any expenses or deductions are subtracted. Therefore, gross pay is not the money left for spending or saving after deductions, but rather the total amount earned before deductions are taken out.Rate this question:
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- 23.
What does it mean to have a positive net worth?
- A.
It means your liabilities are greater than your assets.
- B.
It means your savings are less than your bills.
- C.
It means your assets are greater than your liabilities.
- D.
It means your assets are less than you liabilities.
Correct Answer
C. It means your assets are greater than your liabilities.Explanation
Having a positive net worth means that your assets, which include things like cash, investments, and property, are greater in value than your liabilities, which include debts and obligations. This indicates that you have more value in your possessions and investments than the amount of money you owe to others. It is a measure of financial stability and indicates that you have accumulated wealth and are in a favorable financial position.Rate this question:
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- 24.
Using a debit card to make a purchase is most similar to using a personal check because money is withdrawn directly from your checking account.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Using a debit card to make a purchase is most similar to using a personal check because both methods involve the direct withdrawal of money from your checking account. When you use a debit card, the funds are immediately deducted from your account, just like when you write a personal check. This is different from using a credit card, where you are essentially borrowing money from the credit card company and will need to repay it later.Rate this question:
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