Financial Literacy Test – Grab A Pencil & Paper

Jump$tart financial literacy multiple choice test 2006You’ve probably heard that high school seniors aren’t doing too well in their knowledge of personal finance with high school seniors scoring just over 50% of the answers correctly (52.4%) on the latest Jump$tart Financial Literacy test. To be fair, however, you should give yourself the test and see how you do, too. So grab a pencil and paper, sit down and take the same test the students recently took and see how well you score (for those who don’t want to take it with pencil and paper, you can take it on your computer):

1. If you have caused an accident, which type of automobile insurance would cover damage to your own car?

a) Term
b) Collision
c) Comprehensive
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?

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.

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?

a) A little more; about 20% more.
b) A lot more; about 70% more.
c) About 10 times as much.
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?

a) A bond issued by one of the 50 States
b) A U. S. Treasury Bond
c) A U. S. Savings Bond
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?

a) A young single woman with two young children.
b) A young single woman without children.
c) An elderly retired man, with a wife who is also retired.
d) A young married man without children.

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

a) Cash
b) Credit card
c) Debit card
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?

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.

8. 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.

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?

a) If his parents took out an additional mortgage on their house for the loan.
b) If the loan was insured by the Federal Government.
c) If he went to a state college rather than a private college.
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?

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 account interest may not be taxed.
d) Income tax may be charged on the interest if your income is high enough.

11. Inflation can cause difficulty in many ways. Which group would have the greatest problem during periods of high inflation that last several years?

a) Young couples with no children who both work.
b) Young working couples with children.
c) Older, working couples saving for retirement.
d) Older people living on fixed retirement income.

12. Which of the following is true about sales taxes?

a) You don’t have to pay the tax if your income is very low.
b) It makes things more expensive for you to buy.
c) The national sales tax percentage rate is 6%.
d) The federal government will deduct it from your paycheck.

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?

a) Corporate bonds
b) A bank savings account
c) Locked in her closet at home
d) Stocks

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?

a) A twenty-five year corporate bond
b) A house financed with a fixed-rate mortgage
c) A 10-year bond issued by a corporation
d) A certificate of deposit at a bank

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?

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.

16. 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 report.
c) Your credit record can be checked once a year for free.
d) You cannot see your credit record.

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?

a) Federal income tax, social security and Medicare contributions
b) Federal income tax, sales tax, and social security contribution
c) Social security and Medicare contributions
d) Federal income tax, property tax, and Medicare and social security contributions

18. Retirement income paid by a company is called:

a) Rents and profits
b) Social Security
c) 401k
d) Pension

19. 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?

a) Stocks
b) Savings account
c) Invested in a down payment on the house
d) Checking account

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.

a) 1 month
b) 2 months
c) 3 months
d) 4 months

21. Many young people receive health insurance benefits through their parents. Which of the following statements is true about health insurance coverage?

a) Young people don’t need health insurance because they are so healthy.
b) You continue to be covered by your parents’ insurance as long as you live at home, regardless of your age.
c) You are covered by your parents’ insurance until you marry, regardless of your age.
d) If your parents become unemployed, your insurance coverage may stop, regardless of your age.

22. 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 money.
c) Dave will make more because he is more social.
d) Dave will make more because Mike is likely to be laid off.

23. 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?

a) nothing
b) $50
c) $500
d) $1000

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

a) You can get cash anywhere in the world with no fee.
b) You must have a bank account to have an ATM Card.
c) You can generally get cash 24 hours-a-day.
d) You can generally obtain information concerning your bank balance at an ATM machine.

25. 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?

a) Mark’s company may consider moving to a lower-tax state, threatening Mark’s job.
b) He is likely to get a large raise to offset the effect of higher taxes.
c) Higher business taxes will cause more businesses to move into Mark’s state, raising wages.
d) Higher business taxes can’t have any effect on Mark’s job.

26. 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?

a) A U.S. Govt. savings bond
b) A savings account
c) A checking account
d) Stocks

27. 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?

a) It will charge Karen twice the finance charge rate it charges older cardholders.
b) It will start Karen out with a small line of credit to see how she handles the account.
c) It will make Karen’s parents pledge their home to repay Karen’s credit card debt.
d) It will require Karen to have both parents co-sign for the card.

28. 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:

a) Stay the same as when she was in college.
b) Be lower than when she was in college.
c) Double, at least, from when she was in college.
d) Go up a little from when she was in college.

29. Which of the following best describes the primary sources of income for most people age 20-35?

a) Profits from business
b) Rents
c) Dividends and interest
d) Salaries, wages, tips

30. 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?

a) They can work with those who loaned you money to set up a payment schedule that you can meet.
b) They can force those who loaned you money to forgive all your debts.
c) They can cancel and cut up all of your credit cards without your permission.
d) They can get the federal government to apply your income taxes to payoff your debts.

So, how did you do? You can check the answers with what percentage the student’s got correct at the Jump$tart Site

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18 Responses to Financial Literacy Test – Grab A Pencil & Paper

  1. davis says:

    You know, it was more difficult than I thought it would be. I assumed I would breeze through it, but I ended up missing a few. I bet most adults wouldn’t do much better than the students did.

  2. Nick says:

    I missed a couple, too, but it looks like I got all the common sense ones correct.

    “12. Which of the following is true about sales taxes?

    a) You don’t have to pay the tax if your income is very low.”

    If that were the case, you’d see a bunch of rich people roaming around Best Buy walking hand-in-hand with poor people they pay to make their purchases for them. Hmm, maybe that’s not such a bad idea after all…

  3. jodi_m says:

    I did pretty well, but I still had to take a few educated guesses. I find it very interesting that nearly half of the students think they will make over $40,000 right out of college. Unless you are a doctor or a lawyer, I know very few professions that will start out that high (at least where I live).

  4. L Cox says:

    Hmm.. missed 4. One misread question, two that I didn’t know, and one (number 22) with perhaps a more jaundiced outlook on how companies value employees. Interesting how many students thought that over an 18 year period savings bonds would do better than stocks.

  5. Max says:

    One less respect point for Nate. He should have whipped up some radio buttons and a submit button for this quiz. Pencil? Paper? Come on …


  6. Nate says:

    File > Print


  7. Marissa says:

    Missed 6…not bad, I’d say….considering I’m a foreigner that has never lived in the US!

  8. Paul says:

    I missed 4, as well.. definitely tougher than I expected. I would have only missed 2, had I not misunderstood and changed my answers to a couple of questions. :-}

  9. Cap says:

    missed 5. argh. had to sorta educated guess a few too, which turned out to be right but eh. hmm, they’re tougher than expected too.

    yeah, whip up some form & submit button, dammit. I really did grabbed a pen & paper. heh. I bet more people would take the test though.

  10. tanya says:

    Ahhh…can some one please give me the answers I can’t access the page!

  11. mahanda says:

    missed four, did not know most of this in high school course that was a million years ago)

  12. Gigi says:

    I missed a few, but I think some of the questions were poorly written. The wording was awkward and I had to read some questions a few times to figure out what they wanted, and then some of the answers were iffy. Oh well, it was fun though.

  13. bob says:

    I got 6 wrong, It was tougher than I thought it would be. As for the kids in high school who took it, I think it would be a guarantee that the overall results would be below 70%. Why? I went to high school and the words savings, bonds, stocks, credit card debt, money, etc etc etc were never mentioned, words like photosynthesis, gravity, common denominator and gym were more like it. Graduated college as well and never came across any kind of class teaching about an amortization schedule, municipal bonds, stock options, short selling, compounded interest, the rule of 72, the difference between adjusted and fixed mortgages, what 12b-1 fees were and how to avoid them etc etc etc….Instead they offered classes on art history, sociology, physical education and music….

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  16. Cindy says:

    I’m a high school student whose going to be taking the Financial Literacy tomorrow, matter of fact. My Economics teacher said if we fail the test, we fail the class. I made my mom do some of the practice tests and she did exactly the same I did. If there are some who adults can’t do well on it, couldn’t they just make the test a bit easier?

  17. JMBIndy says:

    I’m a little late on this one, but I have to admit that I was surprised that I did as well as I did. Missed 5 total. Very interesting test, though.

  18. Brennan says:

    I got them all right!!! I am a High School Sophomore and I am taking a Financial Planning class and this test has helped me to prepare for FBLA competition.

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