April is financial literacy month, which makes it a good month to test yours. Take this 10-question quiz, developed by Mechel Glass, vice president of Community Outreach for CredAbility, to help you determine if you’re making the best use of your money. Select the best answer to each of the questions:
1. Social Security taxes increased by 2 percent in January 2013, causing a drop in take-home pay for most people. What is the best way to offset this loss of income?
A. Pay off credit card debt, thereby increasing your discretionary income
B. Reduce monthly expenses by the amount of the tax increase
C. Increase your income through a second job or increased overtime pay
D. All of the above
2. A person’s credit score is based on five factors, each accounting for a certain percentage of your score. Which category below accounts for 30 percent of your score?
A. Amount of debt you owe
B. Length of credit history
C. Your payment history
D. Various types of credit (credit card, auto loans, etc.)
3. Each year, identity theft is the No. 1 consumer complaint filed with the Federal Trade Commission. Of the following actions that will put your identity at risk; which is the worst?
A. Telling people on Facebook that you will be on vacation and out of the country for a week
B. Not shredding bank documents with your personal information
C. Giving your Social Security number to an unsolicited caller
D. Failing to put a freeze on your credit report.
4. Under IRS guidelines, what is the maximum amount you can contribute to your 401(k) in 2013?
A. Up to 20 percent of your gross income
B. Up to $1,000 each month
C. Up to $17,500 for the year
D. There is no limit
5. You have checked your free credit report at www.annualcreditreport.com and have found an error. How can you correct the error?
A. Let a creditor know when you apply for a new loan
B. Contact one of the three credit bureaus directly
C. Continue to make all of your payments on time; the error will be removed after one year
D. You must contact an attorney
6. A reverse mortgage can help a person 62 years and older retain ownership of their home, as long as the homeowner continues to make which of the following payments?
A. All medical payments. If not, a hospital or doctor can file a claim against the home.
B. Property taxes and homeowner’s insurance
C. Income taxes
D. There is no payment. The reverse mortgage covers all expenses as part of the agreement with your lender.
7. The Federal Reserve has extended its pledge to keep interest rates low until the unemployment rate drops to 6.5 percent. How do low interest rates affect consumers?
A. It keeps borrowing costs low, making it a good time to buy a home
B. It keeps interest rates on savings account and certificates of deposits low, making it difficult to earn money in these accounts.
C. It has little impact on borrowing or savings; competition determines interest rates.
D. A and B
8. Which of the following best defines your net worth?
A. The amount of money in your savings and retirement accounts
B. The total value of your assets minus your liabilities
C. The amount you save every year after you pay all of your bills
D. The value of your house, car and other valuables
9. In general, how long does a negative financial event, such as a bankruptcy, stay on your credit report?
A. 1 year
B. 3 years
C. 7 years
10. How much should you have in an emergency savings account?
B. 3 months of living expenses
C. 6 months of living expenses
D. Enough money to cover one month’s household income
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1. (D) – You will need to either pay down your debt, reduce monthly expenses or increase your income, or use a combination of these actions to make up for a two percent loss in pay.
2. (A) – The amount of debt you owe accounts for 30 percent of your credit score. Your history of paying down your debt is the most important factor in your credit score, and it accounts for 35 percent.
3. (C) – Protecting your Social Security number is the most important way to stop thieves from stealing your identity.
4. (C) – Under IRS guidelines, you can save up to $17,500 in your 401k if you are under 50 years old; $23,000 if you are over 50.
5. (B) – Write a letter and provide evidence of the error to one of the three credit bureaus. This will begin the process of removing an error from your credit report and may have an impact on your credit score.
6. (B) – A reverse mortgage eliminates the monthly mortgage payment, but the homeowner must still pay the property taxes and maintain homeowner’s insurance.
7. (D) – Low interest rates make it a good time to borrow money, but difficult to earn money on bank savings accounts.
8. (B) – Your net worth is the total value of your assets (including the market value of your home) minus your liabilities (including what you owe on your mortgage).
9. (C) – Typically, accurate negative information will stay on your report for 7 years. A bankruptcy can stay on your report for 7 or 10 years.
10. (C) – Even if you have to start small, set a goal to set aside 6 months of living expenses in an account. This can make facing a financial crisis much less stressful and give you time to figure out the next steps to take. The fastest way to get there is to use things like your tax refund, raises or overtime to get a jump start on your emergency fund.