Image: YouTube
About This Quiz
Money, money, money ... We all want to get our hands on it, but no one really wants to deal with it. Are you financially savvy? Take our quiz and find out now! (Note: some questions are specific to the US economy and tax system).
Age 25 is too young to be thinking about retirement.
true
false
You certainly shouldn't be *obsessing* about it, but you should start saving as soon as you start earning. You might not be earning much at that age, but you're also less likely to be supporting children, paying a mortgage, etc. Setting aside a little every month will start a good habit and save you a world of worry later.
Advertisement
Why is it important that young people save for retirement?
the power of compounding interest
the deterioration of pensions and guaranteed sources of income in old age
the years after age 60 are the best ones
both #1 and #2
It used to be very common for both employers and employees to pay into a pension fund, which provided a lifelong annuity after retirement. Since the 1970s, individuals have been increasingly responsible for funding their own retirement -- with very mixed results. The best way to deal with this "DIY" approach to retirement savings is to start young, and let the power of compounding work for you.
Advertisement
The best way to ensure you won't lose money by investing is simply to not to invest.
true
false
The "mattress money" argument doesn't take one thing into account: inflation. If you stick your money into a simple savings account with .01 interest, or keep it in a safe at home, you're losing money if inflation is higher than .01 percent (which it almost always is). The inflation rate in mid-2017 was 1.7 percent, for example.
Advertisement
This kind of investment is essentially a loan, sometimes to the government.
bond
When you buy a bond, you're loaning money to an agency, public or private, that will repay you after a fixed period of time. If you don't wish to hold the bond until its maturity, you can sell it, as you would a stock.
certificate of deposit
security
forex
Advertisement
"Securities" is a synonym for what?
stocks
bonds
interest payments
both #1 and #2
Stocks are equity securities, and bonds are debt securities. The name comes from the fact that the investor has an "assurance" that they own part of a company, or a loan -- it's otherwise intangible. If you have something tangible as an investment -- like a house -- you don't need that assurance, you actually have the house.
Advertisement
Paying a broker to manage your money will pay off in higher returns in the long run.
true
false
According to Teresa Ghilarducci, an economist who specializes in retirement issues, most financial managers are salesmen at heart, with little actual financial savvy. Trusting your money to a broker is a sure way to see it eaten up by fees and low returns.
Advertisement
It's possible to time the market, getting in at low points and selling off just before corrections.
true
false
Economists say this is virtually impossible, and you're more likely to lose money -- from bad timing and multiple sales commissions -- than to benefit financially. The key is to set some money as a cash cushion, safe from market fluctuations, and then ride out the hard times.
Advertisement
It's possible to be in the stock market without "playing" the market.
true
Steady, long-term investment in the stock market, through an index fund, is usually the best way to grow your money. Basically, the price of everything goes up over time: milk, bread, housing, laptops. Investing in a wide range of industries is a way to benefit from rising prices (even as you pay them on the other end). This is vastly different from "playing" the market.
false
Advertisement
If you're very familiar with the product a company makes, you can make the right decision about whether to buy their stock.
true
false
It's easy to say, "Everybody likes beer; beer is never going out of style ... so an investment in _____ Brewing Company can't lose!" The fact is, you don't know how much debt that brewing company has taken on or how well the company is run, or what its competitors are planning. Being familiar with a product is not a good reason to buy its stock.
Advertisement
A stock fund that tracks the S&P 500. or similar, is called an ______ fund.
base
index
A low-fee index fund that tracks the S&P 500 is widely considered to be the best vehicle to grow money over a long period of time. An online brokerage is an inexpensive way to invest in this type of fund.
standard
tracker
Advertisement
It's okay not to carry health insurance if you're not sick.
true
false
This is like saying, "I don't need auto insurance because I haven't crashed my car." Insurance, of whatever kind, must be purchased before it's needed. (This is where the debate over pre-existing conditions arises, because some people are born with medical conditions, but that's a longer story than we have space for here).
Advertisement
Skipping your daily Starbucks coffee is a good way to save money for the future.
true
false
Gourmet coffee is a favorite target of personal-finance gurus, but the cost of a coffee every weekday is actually negligible compared to other avoidable expenses. If you save $10,000 by buying a two-year-old car from a private seller rather than a new one from a dealership, you've just funded a decade's worth of cappuccinos.
Advertisement
An account that invests in low-risk stocks and lets you write checks on your account is called a ________.
certification account
grey-stock account
money-market account
A money-market account certainly won't make you a pile of money, but it generally outperforms a passbook savings account. It also offers liquidity, which is convenient.
simple stock account
Advertisement
Organic food might cost more, but the health benefits are worth it.
true
false
Hundreds of studies have borne out the fact that organic food is nutritionally indistinguishable from conventionally-grown. (The ecological benefits are fairly debatable, too, when you look at the broader picture). President Clinton's secretary of agriculture, Dan Glickman, opposed an organic label for this very reason: that consumers would see it as a guarantee that the food they were buying was healthier or safer, which wasn't true. Obviously, Glickman lost that debate.
Advertisement
Buying underpriced stock on the intuition that it's business is likely to pick up in the future is called _____ investing.
contrary
lifestyle
counter-cycle
value
This is sometimes summarized as "buying snowshoes in July and sun hats in January." It's also the type of investing practiced by the legendary Warren Buffett and Charlie Munger. However, it takes a lot of time and research to do this well, so you're better off investing with Berkshire Hathaway (Buffett and Munger's fund) than trying to do this yourself.
Advertisement
In a 2014 survey, 47 percent of survey takers said they wouldn't be able to cover an emergency expense of $_____.
$400
Amazingly, just a $400 unexpected expense would require many people to borrow money. And emergencies do happen, which is one reason finance experts suggest you keep a cushion of three months to a year of living expenses available. How long depends on your individual circumstances, including how long you think it would take you to find a job if you were laid off.
$1000
$1500
$2500
Advertisement
What is the best time period for a household budget to cover?
weekly
monthly
Some expenses are annual, true -- like a vacation trip or property taxes. But since many expenses are monthly, it's best to divide annual expenses by 12 and add them into a monthly budget, a practice called prorating. This tends to give you a manageable picture of your finances and reminds you that irregular expenses are ones for which you need to save money monthly, and not put them off until the last minute.
annually
a six-month period
Advertisement
Which expense does NOT belong in your budget?
haircuts and clothing
vet care for your pet
vacation travel
all of these belong
FInancial guru Suze Orman points out that most people underestimate their living expenses by only adding up the essentials: rent or mortgage, groceries, utilities, then maybe "entertainment," and they're done. But when you're making your budget, you should include infrequent expenses: road trips, car repairs, donations to charity, vet bills, your eye exams and glasses ... everything. Having this extremely clear picture of your finances can be difficult at first, but you won't be blindsided by unexpected bills.
Advertisement
There are circumstances in which renting is better for your finances than owning a home.
true
The real-estate and mortgage industries have been very successful at spreading the message that "renting is throwing away money," but it's not that simple. Mortgage interest can triple the price of a home by the time you've finished paying it off. It can also put you on the hook for expensive repairs, leave you vulnerable to downturns in the real-estate market, and so on. If you don't need a lot of space, or you're sure yoy don't want to live in one place a long time, and you don't want to own pets, then renting probably makes better sense.
false
Advertisement
An investment that goes up when the stock market is down is called a _______ investment.
countercyclical
Gold is one such countercyclical investment. Its price is usually stagnant when the market is booming, then spikes in hard times. We saw this in the IPO-crazy 1990s and the mid-2000s recession.
floater
surprise
unicorn
Advertisement
Socially-responsible investment funds are a good way to make sure your investments reflect your values.
true
false
it depends
Before you invest in such a fund, take a close look at its definition of "socially responsible." Some might refuse to invest in companies that make alcohol or cigarettes, which you might not find objectionable. Also, check out its fee schedule -- there's nothing ethical about eating away a client's money by charging high fees.
Advertisement
Which of these is most important when choosing a credit card?
a grace period for late payments
cash-back deals
low interest rates
none of these are particularly useful
All of these are incentives to get you to use your credit card, and -- banks hope -- not pay off the balance every month. If you have sufficient money to pay off a card balance every month, a cash-back deal can be to your advantage -- but don't get careless and miss the payment deadline, as late fees can be steep.
Advertisement
Which of these is it unwise to economize on?
gasoline
health care
A cheap car will get you places as well as an expensive one, and it doesn't need premium gasoline to do so. There's plenty of opportunity to cut a grocery bill without sacrificing taste. But when it comes to your health, don't shop around, even if your insurance co-pays might be higher to see the right specialist. Without good health, everything else falls apart pretty quickly.
groceries
a car
Advertisement
Which of these is a cryptocurrency?
Bitcoin
Bitcoin is an extraordinary innovation that finally allowed people to pay for things online without giving a stranger their credit-card information. It was the brainchild of "Satoshi Nakamoto," who, to this day, has not been identified.
drachmas
the U.S. dollar
a promissory note
Advertisement
Why are banks able to pay interest?
it's just an incentive for you to invest with them
they use your money to make investments of their own
Banks use the money you deposit to make loans and similar investments at a profit. They return a fraction of that profit to you as interest. Because the interest on passbook savings accounts or checking accounts is guaranteed, it's lower than investments in which you take a risk (like stocks).
money just gets more valuable over time
no one really knows
Advertisement
Which of these is a reason to not buy a car from a private seller?
you can't get a warranty
the car might be riddled with repair issues
the seller might be a serial killer
none of these are actually good reasons
Buying a secondhand car from its owner is one of the biggest single things you can do to save money. If you're concerned about repair issues, ask to have a mechanic look it over, or bring along a mechanically-savvy friend. In fact, bring a friend anyway, and meet in a public place. Although most crimes associated with Craigslist have been linked to the personals ads and people offering, ahem, "adult services," it never hurts to be careful.
Advertisement
What is a 401(k)?
a workplace-based retirement account
The 401(k) is a workplace retirement plan that has largely taken the place of pensions in the US. When you're hired, an HR representative will sign you up for the company's plan, and your savings will be taken automatically from your paycheck.
a type of bond
a type of money manager
a kind of employer
Advertisement
What is a good reason to enroll in your employer's 401(k)?
contributions are tax-deductible
it makes saving automatic
many employers match contributions
all of these
Many employers will match your contribution up to a certain percent; you're free to contribute more, of course. And the fact that the contributions are automatic and monthly makes it easier to save -- you won't miss money that you never saw as part of your biweekly check, the logic goes.
Advertisement
What is a drawback of the 401(k)?
the plans frequently offer high-fund, low-quality fees
employees can opt out
employees can raid them before retirement
all of these
Pensions, the previous model for retirement in the U.S., were automatic -- workers had to be in the plan and couldn't touch the money until retirement (like Social Security, nowadays). 401(k)s are different: It requires a certain amount of foresight and discipline to choose to have money withdrawn from your paycheck and to keep your hands off it when the car needs a new transmission. On the bright side, you do have some control over the funds your employer offers -- lobby HR for an index fund if one isn't offered!
Advertisement
What is "lifestyle creep"?
the tendency for quality of life to decline at midlife
the tendency for things to cost more in retirement
the tendency to spend more as you earn more
a host on the Food Network or Home & Garden Channel always trying to get people to spend money on things they don't need
As your earnings go up, you'll likely want a bigger home, a better cable package, or the new iPhone every year. Then, ironically, you'll think how much more fun life was in your 20s, when you had a cheap apartment and a flip phone, and you had to go to your friend's house to watch the game. The moral: Pay attention to what *really* makes you happy and spend your money there, economizing on other things.
Advertisement
What is "opportunity cost"?
money spent on resumes and clothes that get you a better job
the money paid to agents or brokers who find you better deals on things
the lost opportunity to spend money on something else, once you've spent it on a particular thing
When deciding whether to pay for something, consider the "opportunity" cost. This doesn't just mean another item you could purchase with the same money. It also might be leisure time -- if you have to work overtime for a year to afford a big-ticket item, you've lost hours you could spend sleeping or playing with your kids. As defined by economists, leisure and pleasure are "goods" just like possessions are.
the cost of not shopping around for the best prices
Advertisement
What does "P/E ratio" mean?
profit/eventuality ratio
price/earnings ratio
this isn't really important to know
both #2 and #3
We hate to discourage anyone from learning for learning's sake, but if you're analyzing a company's price-to-earnings ratio, you're getting into territory in which you're more likely to lose money that to earn it. Undoubtedly, you'll meet people who say they pick their own stocks, trade on a weekly or monthly basis, and are "doing really well." Then they drive off in an old Camry. Stick to slow-but-steady course of saving monthly and putting the money in a low-fee index fund, and you'll be much better off.
Advertisement
At what age should you start reallocating money from stocks to bonds?
about 40
about 50
about 60
it depends
Beware of articles that say "by age XX you should have a 60/40 split of stocks and bonds." If you're an overweight smoker, your life expectancy is different than a triathlete's. If your field is prone to downturns and layoffs, your future earnings outlook is different from a tenured college professor's. However, as people age, they do tend to shift money out of stocks toward bonds, which are much less volatile. No one wants to see the bottom fall out of their portfolio at age 82.
Advertisement
How much should an engagement ring cost?
about $1,200
two weeks's income
two months's income
there is no standard
The diamond industry itself worked hard to spread the idea that an engagement ring should cost two months's salary. There is no reason why this should be the case. Nor should a man feel obligated to buy a diamond ring, either -- diamonds were chosen because they were durable enough not to scratch when worn daily, not because they are more valuable than other precious gems.
Advertisement
Which of these is an important strategy in increasing your income?
asset allocation
reading companies's annual reports
salary negotiation
Salary negotiation is not usually considered to be a form of financial management, but it should be. Saving money is great, but there will be more money to save if you're earning more, and the wage you negotiate at your hiring is the basis for any future raises. Sure, negotiation can be unnerving, but keep your cool. if you've gotten to the point where you and a potential employer are talking money, they want you. After all, they have a job to fill. They really don't hold all the cards, no matter how it might feel.
clipping coupons
Advertisement
You Got:
/35
YouTube