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Financial Literacy Answer Key

The Department of Corporations wants every Californian to be Financially Literate.

Questions 1 through 30 (Quizzes 01 – 03) are taken from the 2006 Jump$tart.org Financial Literacy quiz for high school seniors. Correct answers and parentage of seniors that answered correctly are marked with an asterisk (*).

Questions 31-40 are taken from different resorces aroung the web and will be cited with the URL of the source.

Quiz 01 Questions and Answer
  1. If you have caused an accident, which type of automobile insurance would cover damage to your own car?
    • 1.1% a) Term
    • * 50.5% b) Collision
    • 9.7% c) Comprehensive
    • 38.7% d) Liability
  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?
    • 9.8% a) Matt will pay less because people who travel overseas are better risks.
    • 23.9% b) They will both pay the same because they have almost identical financial backgrounds.
    • *52.7% c) Eric will pay less because the car is collateral for the loan.
    • 13.6% d) They will both pay the same because the rate is set by law.
  3. If you went to college and earned a 4-year degree, how much more money could you expect to earn than if you only had a high school diploma? 23.5% a) A little more; about 20% more.
    • *63.9% b) A lot more; about 70% more.
    • 10.5% c) About 10 times as much.
    • 2.1% d) No more; I would make about the same either way.
  4. Many savings programs are protected by the Federal government against loss. Which of the following is not?
    • *28.6% a)A bond issued by one of the 50 States
    • 12.4% b)A U. S. Treasury Bond
    • 9.7% c)A U. S. Savings Bond
    • 49.3% d)A certificate of deposit at the bank
  5. If each of the following persons had the same amount of take home pay, who would need the greatest amount of life insurance?
    • *61.3% a) A young single woman with two young children.
    • 4.4% b) A young single woman without children.
    • 30.0% c)An elderly retired man, with a wife who is also retired.
    • 4.2% d) A young married man without children.
  6. Which of the following instruments is NOT typically associated with spending?
    • 1.5% a)Cash
    • 2.4% b)Credit card
    • 2.6% c)Debit card
    • *93.5% d)Certificate of deposit
  7. 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?
    • 8.8% a) Vera, who always pays off her credit card bill in full shortly after she receives it.
    • *70.6% b) Jessica, who only pays the minimum amount each month.
    • 14.4% c) Megan, who pays at least the minimum amount each month and more, when she has the money.
    • 6.3% d) Erin, who generally pays off her credit card in full but, occasionally,will pay the minimum when she is short of cash.
  8. Which of the following statements is true?
    • 10.0% a) Your bad loan payment record with one bank will not be considered if you apply to another bank for a loan.
    • 11.6% b) If you missed a payment more than 2 years ago, it cannot be considered in a loan decision.
    • *70.9% 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.
    • 7.5% d) People have so many loans it is very unlikely that one bank will know your history with another bank.
  9. Doug must borrow $12,000 to complete his college education. Which of the following would NOT be likely to reduce the finance charge rate?
    • 32.9% a) If his parents took out an additional mortgage on their house for the loan.
    • 17.6% b) If the loan was insured by the Federal Government.
    • *30.4% c) If he went to a state college rather than a private college.
    • 19.1% d) If his parents cosigned the loan.
  10. 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?
    • 13.5% a) Sales tax may be charged on the interest that you earn.
    • 13.0% b) You cannot earn interest until you pass your 18th birthday.
    • 50.9% c) Earnings from savings account interest may not be taxed.
    • *22.7% d) Income tax may be charged on the interest if your income is high enough.
Quiz 02 Questions and Answer
  1. Inflation can cause difficulty in many ways. Which group would have the greatest problem during periods of high inflation that last several years?
    • 8.7% a) Young couples with no children who both work.
    • 33.9% b) Young working couples with children.
    • 13.3% c) Older, working couples saving for retirement.
    • *44.1% d) Older people living on fixed retirement income.
  2. 12. Which of the following is true about sales taxes?
    • 5.9% a) You don't have to pay the tax if your income is very low.
    • *49.6% b) It makes things more expensive for you to buy.
    • 29.5% c) The national sales tax percentage rate is 6%.
    • 15% d) The federal government will deduct it from your paycheck.
  3. 13. 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 safest place for her college money?
    • 10.4% a) Corporate bonds
    • *80.4% b) A bank savings account
    • 5.3% c) Locked in her closet at home
    • 3.9% d) Stocks
  4. 14. 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?
    • 22.0% a) A twenty-five year corporate bond
    • *44.6% b) A house financed with a fixed-rate mortgage
    • 17.3% c) A 10-year bond issued by a corporation
    • 16.1% d) A certificate of deposit at a bank
  5. 15. 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?
    • 6.6% a) When some clothes you like go on sale.
    • 31.5% b)When the interest on the loan is greater than the interest you get on your savings.
    • *57.8% c) When you need to buy a car to get a much better paying job.
    • 4.2% d) When you really need a week vacation.
  6. 16. Which of the following statements best describes your right to check your credit history for accuracy?
    • 14.7% a) All credit records are the property of the U.S. Government and access is only available to the FBI and Lenders.
    • 28.9% b) You can only check your record for free if you are turned down for credit based on a credit report.
    • *50.1% c) Your credit record can be checked once a year for free.
    • 6.3% d) You cannot see your credit record.
  7. 17. 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?
    • *53.0% a) Federal income tax, social security and Medicare contributions
    • 17.2% b) Federal income tax, sales tax, and social security contribution
    • 9.5% c) Social security and Medicare contributions
    • 20.2% d) Federal income tax, property tax, and Medicare and social security contributions
  8. 18. Retirement income paid by a company is called:
    • 3.6% a) Rents and profits
    • 25.9% b) Social Security
    • 32.9% c) 401k
    • *37.7% d) Pension
  9. 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?
    • 35.6% a) Stocks
    • 13.1% b) Savings account
    • *42.7% c) Invested in a down payment on the house
    • 8.6% d) Checking account
  10. 20. Justin just found a job with a take-home pay of $2,000 per month. He must pay $800 for rent and $200 for groceries each month. He also spends $200 per month on transportation. If he budgets $100 each month for clothing, $150 for restaurants and $250 for everything else, how long will it take him to accumulate savings of $900.
    • 5.9% a) 1 month
    • 14.0% b) 2 months
    • *66.3% c) 3 months
    • 13.8% d) 4 months
Quiz 03 Questions and Answer
  1. Many young people receive health insurance benefits through their parents. Which of the following statements is true about health insurance coverage?
    • 5.8% a) Young people don't need health insurance because they are so healthy.
    • 33.0% b) You continue to be covered by your parents' insurance as long as you live at home, regardless of your age.
    • 20.9% c) You are covered by your parents' insurance until you marry, regardless of your age.
    • *40.3% d) If your parents become unemployed, your insurance coverage may stop, regardless of your age.
  2. 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?
    • *71.8% a) Mike will make more money because he is more valuable to his company.
    • 11.6% b) Mike and Dave will continue to make the same money.
    • 10.9% c) Dave will make more because he is more social.
    • 5.7% d) Dave will make more because Mike is likely to be laid off.
  3. If your credit card is stolen and the thief runs up a total debt of $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?
    • 55.8% a) nothing
    • *15.1% b) $50
    • 17.2% c) $500
    • 11.9% d) $1000
  4. Which of the following statements is NOT correct about most ATM (Automated Teller Machine) cards?
    • *66.8% a) You can get cash anywhere in the world with no fee.
    • 12.3% b) You must have a bank account to have an ATM Card.
    • 9.9% c) You can generally get cash 24 hours-a-day.
    • 11.0% d) You can generally obtain information concerning your bank balance at an ATM machine.
  5. Mark has a good job on the production line of a factory in his home town. During the past year or two, the state in which Mark lives has been raising taxes on its businesses to the point where they are much higher than in neighboring states. What effect is this likely to have on Mark’s job?
    • *59.0% a) Mark’s company may consider moving to a lower-tax state, threatening Mark’s job.
    • 15.3% b) He is likely to get a large raise to offset the effect of higher taxes.
    • 17.1% c) Higher business taxes will cause more businesses to move into Mark’s state, raising wages.
    • 8.6% d) Higher business taxes can’t have any effect on Mark’s job.
  6. 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?
    • 44.8% a) A U.S. Govt. savings bond
    • 34.8% b) A savings account
    • 6.3% c) A checking account
    • *14.2% d) Stocks
  7. 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?
    • 13.6% a) It will charge Karen twice the finance charge rate it charges older cardholders.
    • *55.3% b) It will start Karen out with a small line of credit to see how she handles the account.
    • 10.5% c) It will make Karen's parents pledge their home to repay Karen's credit card debt.
    • 20.7% d) It will require Karen to have both parents co-sign for the card.
  8. Maria worked her way through college earning $20,000 per year. After graduation, her first job pays $40,000. The total dollar amount Maria will have to pay in Federal Income taxes in her new job will:
    • 11.0% a) Stay the same as when she was in college.
    • 10.7% b) Be lower than when she was in college.
    • *42.1% c) Double, at least, from when she was in college.
    • 36.2% d) Go up a little from when she was in college.
  9. Which of the following best describes the primary sources of income for most people age 20-35?
    • 8.0% a) Profits from business
    • 7.2% b) Rents
    • 7.0% c) Dividends and interest
    • *77.8% d) Salaries, wages, tips
  10. If you are behind on your debt payments and go to a responsible credit counseling service such as the Consumer Credit Counseling Services, what help can they give you?
    • *67.1% a) They can work with those who loaned you money to set up a payment schedule that you can meet.
    • 11.8% b) They can force those who loaned you money to forgive all your debts.
    • 11.9% c) They can cancel and cut up all of your credit cards without your permission.
    • 9.2% d) They can get the federal government to apply your income taxes to pay off your debts.
Quiz 04 Questions and Answer
  1. A credit report is:
    1. A list of your financial assets and liabilities
    2. Your monthly credit card statement
    3. A loan and bill payment history
    4. Your credit line with your financial institution

    Answer 31: c. A credit report is a loan and bill payment history.

    It is kept by a credit bureau and used by financial institutions and other potential creditors to determine how likely it is that you will repay a future debt. Information in your credit report can affect your ability to get a job, a loan, a credit card or insurance. (Source: Federal Trade Commission; www.ftc.gov)

  2. In terms of credit, what does APR stand for?
    1. Annual Percentage Rate
    2. Annual Penalty Rate
    3. Annual Payment Rate
    4. Annual Payoff Rate

    Answer 32: a. It stands for Annual Percentage Rate.

    The APR is a measure of the cost of credit, expressed as a yearly interest rate. Usually, the lower the APR is, the better for you. (Source: Federal Trade Commission; www.ftc.gov)

  3. Who insures your stocks in the stock market?
    1. The Federal Deposit Insurance Corporation
    2. The Securities and Exchange Commission
    3. The U.S. Department of the Treasury
    4. No one

    Answer 33: d. No one.

    Your investments in the stock market are not insured. Know the risks before investing in the stock market. (Source: Department of Financial Institutions, State of Wisconsin; http://www.wdfi.org)

  4. What is the “Rule of 72”?
    1. The “Rule of 72” tells you when you will be able to receive social security.
    2. The “Rule of 72” is a sales technique that is used to get you to buy more than you need.
    3. The “Rule of 72” tells you how long it will take to double your money.
    4. The “Rule of 72” only applies to people that earn over 72,000.00 a year.

    5. Answer 34: C.

    The “Rule of 72” tells you how long it will take to double your money. To use the “Rule of 72,” divide 72 by the interest rate you=re getting. For example, if you deposit $3,000 into an account with a 2% interest rate, divide 72 by two. The answer B 36 B tells you that you will double your money in 36 years; in 36 years, you will have $6,000. (Source: Department of Financial Institutions, State of Wisconsin; http://www.wdfi.org/ymm/kids/default.asp)

  5. How many days does a creditor have to acknowledge your written complaint about a billing error?
    1. 30 days
    2. 60 days
    3. 90 days
    4. 120 days

    6. Answer 35: a. The creditor has 30 days.

    The creditor must acknowledge your complaint in writing within 30 days after receiving it, unless the problem has already been resolved. The creditor must resolve the dispute within two billing cycles (but not more than 90 days) after receiving your letter. (Source: Federal Trade Commission; www.ftc.gov)

  6. If your credit card was lost or stolen and used to charge items you didn't authorize, you are responsible for what amount?
    1. Up to $50
    2. Up $100
    3. Up to $500
    4. All unauthorized charges

    7. Answer 36: a. You are responsible for up to $50.

    Your maximum liability under federal law for unauthorized use of your credit card is $50. If you report the loss or theft before your credit cards are used, the Fair Credit Billing Act says the card issuer cannot hold you responsible for any unauthorized charges. If a thief uses your cards before you report them missing, the most you will owe for unauthorized charges is $50 per card. If the loss or theft involves your credit card number, but not the card itself, you have no liability for unauthorized use. (Source: Federal Trade Commission; www.ftc.gov)

  7. Negative financial information can stay on your credit report for:
    1. 2 years
    2. 5 years
    3. 7 years
    4. 10 years

    Answer 37: c. 7 years.

    Accurate negative information generally can stay on your report for seven years; bankruptcy information may be reported for 10 years. (Source: Federal Trade Commission; www.ftc.gov)

  8. In financial transactions, a CD is a:
    1. Certificate of Debt
    2. Certificate of Deposit
    3. Citizen's Deposit
    4. Certificate of Collateral

    Answer 38: b. In financial transactions, a CD is a Certificate of Deposit.

    A CD in this case is a type of savings account that earns a fixed interest rate over a specified period of time. (Source: Federal Reserve Bank of Dallas; http://www.dallasfed.org)

  9. What octane gasoline is recommended for most cars by manufacturers?
    1. Regular
    2. Premium
    3. Super Premium
    4. They are all the same.

    10. Answer 39: A.

    In most cases, manufacturers recommend using a regular octane gasoline, and using a higher-octane gasoline than your owner's manual recommends offers absolutely no benefit. Unless your engine is knocking, buying higher-octane gasoline is a waste of money. Premium gas costs 15 to 20 cents more a gallon than regular. That can add up to $100 or more a year in extra costs. Studies indicate that altogether, drivers may be spending hundreds of millions of dollars each year for higher-octane gas than their cars need. (Source: Federal Trade Commission; www.ftc.gov and AAA; www.aaa.com)

    When shopping for food what does "unit price" refer to?
    1. The cost for several items when purchasing in bulk.
    2. Lets you easily see the wholesale price of the item.
    3. Another way of saying the retail price.
    4. Lets you easily compare the cost of any brand and any package size.
  10. Answer 40: d.

    Unit pricing is a tool for comparing prices. While the package price tells you how much you pay for a food item, the unit price tells you the price of each “unit” in a package. A unit can be an ounce, a pound, a quart, a square foot or an individual piece in a package. For example, the unit price shows you the cost of each ounce in a can of soup. The package price just tells you the price of the whole can. Unit pricing helps you compare costs of different brands and various sizes without doing arithmetic. But remember, compare only similar items. (Source: Food Marketing Institute; www.fmi.org)