W!SE Financial Literacy
The denominations of coins in the United States are:
$.01, $.05, $.10, $.25, $.50, and $1.00 Reason:The denominations of coins in the United States are $.01 (penny), $.05 (nickel), $.10 (dime), $.25 (quarter), $.50 (half-dollar) and $1.00 (dollar). Higher denominations of legal tender are in paper currency. At times, the US Mint does issue special coins of additional denominations.
You have a checking account balance of $100 and you deposit a personal $200 check from your brother in your checking account. When will you be able to withdraw $150 in cash?
3 to 7 days later, depending on your bank's check clearance policy Reason:Checks deposited into checking accounts need to be on deposit for several days before the money can be withdrawn as cash because the check needs to clear.
Patty is selling her car through a newspaper advertisement. When she finds a buyer, she wants a form of payment which is guaranteed to be good. Which form of payment should she avoid?
A check. Reason:A certified check is a check for which the bank guarantees payment. It is stamped by the bank as certified and becomes an obligation of the bank, and the funds to cover it are immediately withdrawn from the depositor's account.
The most liquid type of investment is:
A money market account reason:The most liquid type of savings is a statement savings account. You can withdraw money from it quickly and easily at any time without penalty. Stocks, bonds, and real estate have less liquidity than statement savings accounts because these investments must first be sold before they can be converted to cash. Typically, the greater the liquidity and flexibility, the lower the interest rate paid. The cost of this flexibility and liquidity is a lower interest rate than is paid on certificates of deposit and other investments.
Which statement best describes the relationship between a person's educational level and that person's potential earning power?
A person with a professional degree is likely to earn at least four times as much per year as a person who did not complete high school Reason:There is a direct relationship between educational level and potential earning power. A person with a professional degree, for example, is likely to earn at least four times as much per year as a person who never completed high school.
What is meant by an uncollateralized loan?
A personal loan without assets to cover the loan amount. Reason: Collateral? is a tangible asset that is used to secure a loan. In the case of a mortgage, the actual house or apartment serves as the collateral for that loan. The same is true of a car loan. If the person who takes the loan, defaults on that loan, the bank or other lending agency has the right to keep the collateral. Therefore, an ?uncollateralized loan? is one that does not have an asset to support the loan.
A type of electronic funds transfer (EFT) is:
An ATM transaction Reason: According to the Electronic Funds Transfer Act, Electronic funds transfers (EFTs) are any transfers of funds, other than a transaction originated by check, draft, or other paper instrument, initiated through electronic terminal, telephone, or computer, to authorize a financial institution to debit or credit an account. EFT's can be used to carry out many financial transactions, for example, to pay utility bills, make installment loan payments, and transfer funds from a savings account to a checking account or vice versa.
How can you avoid becoming a victim of identity theft?
Avoid giving your Social Security number on a phone call you did not initiate Reason: The purpose of the telephone call was probably to get his personal information so the caller could use it to commit identity theft by charging purchases on Jack's credit card or get additional credit in his name. The caller could get a credit card with Jack's name, Social Security number, and address. If Jack actually won a free DVD, the caller should be willing to send information to Jack. Never give your credit card number, Social Security number, or similar personal information over the telephone unless you have placed the call to someone or a business that you know is legitimate.
When money is not used and goods and services are exchanged for other goods and services, this system is called:
Barter Reason:Bartering means exchanging goods and services with another person and makes it possible to satisfy needs and wants without spending money. Bartering cannot be used for many transactions including the purchase of investments or insurance.
Judi and Phil had a joint VISA credit card while they were married. They are now divorced. Who is responsible for the balanced owed on the VISA card?
Both Judi and Phil Reason : The creditor can collect from Judi or Phil. They are both legally responsible for paying off the joint account.
Money for saving, investing, or spending cannot be from:
Capital losses from the sale of stock Reason:A job-holder receives money in the form of a salary or wage. Sometimes people receive a gift of money gift. Money and other items received from the estate of a person who died is called an inheritance. Money could also come from a capital gain on an investment that is sold. If someone buys a stock at $40 a share and sells it at $25 per share, the $15 per share drop is considered a "capital loss" and therefore is money that no longer exists to be spent
A creditor determines your creditworthiness based on:
Character, collateral, and capacity Reason :When you are applying for credit, the creditor reviews your credit record to determine whether or not to give you credit. The potential creditor wants to know if you pay your bills on time, if you have enough income to pay for the credit you are requesting, and if you have too many other debts that might make it difficult to pay for the credit you are requesting.
Money in the United States includes:
Checking account balances on which checks can be drawn Reason:The total amount of money in the United States, termed the money supply, consists of coins, paper currency, checking account balances on which checks can be drawn, savings deposits, and time deposits such as CDs and money market funds. This measure of money, known as M2, is followed by the Federal Reserve as a key indicator of economic well being.
A blank endorsement on a check:
Creates a check that can be cashed by anyone. Reason:A blank endorsement is your signature only and is like cash. Anyone who holds the check can present it for payment at a bank or credit union. Therefore, a blank endorsement should not be used unless you are in the financial institution when you endorse the check. Some banks and credit unions are asking for a picture ID before they will cash a check.
Pat has a savings account and a car loan from a not-for-profit financial institution owned by its members. She is probably a member of what type of financial institution?
Credit union Reason: Credit unions are not-for-profit savings and lending financial institutions. Membership in a credit union is made up of individuals who have something in common, such as a place of employment, membership in a professional organization, or residence in the same geographic area. Loans are made to its members from the savings of other members. Loan costs tend to be lower and savings interest rates higher at credit unions than at other types of financial institutions.
The National Credit Union Administration (NCUA) insures accounts in:
Credit unions. Reason:The National Credit Union Association (NCUA) insures each depositor's accounts up to $100,000 in one credit union. For example, if a customer has a checking account of $1,000 and a savings account of $8,000 in the same credit union, the customer will have total insurance coverage of $9,000.
Claire got a new credit card from American Bank and wants to cancel her USA credit card. The best method is to dispose of her USA credit card is to:
Cut up the card, put parts in different garbage bags, and instruct the credit card company in writing or by phone to close the account Reason : People trying to use other people's credit accounts often go through the garbage to find credit cards and credit account statements, called "dumpster diving." They then use the credit card or account number to buy items using the victim's credit account.
Consumer Credit Counseling Services (CCCS) offer:
Debt repayment plans Reason : There are hundreds of local Consumer Credit Counseling Services (CCCS) across the country that counsel people about how to get out of debt and manage their money. They also work out debt repayment plans with a consumer's creditors in which the consumer gives CCCS part of each paycheck to pay creditors.
What action should a person take who must make a tuition payment at the end of August each year?
Decide how much money will be needed and then place 1/12th of that amount in a separate account each month. Reason: This is an example of ?pay yourself first.? The best way to save in order to make a yearly purchase, in this case a tuition payment, is to immediately deposit a portion of the payment in a form of savings account (so it can earn interest throughout the year) as soon as the person is paid each payroll period.
Purchases made with your debit card are usually:
Deducted immediately from your checking account Reason:Debit card purchases are immediately deducted from your checking account balance while credit card purchases are added to your credit card balance. You have about 20 days after receiving a credit card bill to pay it without being charged interest. Through the use of a credit card, you get use of goods or services before they are paid for.
Which of the following is considered to be open-end credit?
Department store charge cards. Reason:Open-end credit is a revolving live of credit that is offered by banks and other lenders to consumers. There is a limit set on the line of credit and the funds, products or services are accessed using a credit or debit card, check, store charge card or cash advance. Consumers pay interest on the outstanding balance. A car loan is made for a specified amount and a specific length of time and is therefore considered closed-end credit. A mortgage loan is also considered a form of closed-end credit since the house serves as collateral for the loan which is made at a specified interest rate for a specified time period.
When a person is reconciling a checking account and notices that the balance in the checkbook does not match the balance on the statement from the bank, which action is it appropriate for the person to take first?
Determine that checks already written have cleared. Reason:Quite often, the balance reported on a checking account?s bank statement differs from the balance in the person?s checkbook. Reasons for that difference may be due to checks that have been written, and therefore are in the checkbook?s register, but that have not been cleared (returned to the bank for payment). Therefore, first, the person must looked at the bank?s statement and compare it to his/her checkbook register to see that all checks written have cleared.
New coins and currency make their way into the general economy, consumers and businesses, through the distribution system of the:
Federal Reserve System Reason:The U.S. Federal Mint , which is an operating bureau of the Department of the Treasury, makes new coins. The U.S. Bureau of Engraving and Printing prints new currency. The coins and currency are sent to the Federal Reserve Banks, which distribute it as needed. Most new coins and currency replace damaged or worn out coins and currency being taken out of circulation.
Travelers checks, often used for vacations:
Function as cash and are easily replaced if lost Reason:Traveler's checks are documents that function as cash, can be replaced if lost or stolen, and are generally accepted throughout the world. For these reasons, they are often used on vacations and other trips. The purchaser signs a traveler's check immediately after purchasing it and again when paying for a purchase with it.
Debbie was behind on her stereo installment credit contract payments. As a result, the creditor seized and sold the stereo. The sale price did not cover all of the loan balance, the creditor got a court to order her employer to withhold part of her wages. This court order is called:
Garnishment Reason : A garnishment is a court order requiring an employer to pay part of an employee's wages to the creditor. If the employer doesn't comply with the garnishment, the court may declare the employer to be held in contempt of court. A wage assignment is a contract clause in which the debtor agrees in the original contract to let the creditor ask his/her employer to withhold part of his/her wages and pay them to the creditor if the creditor shows that the employee has defaulted on a credit contract. Because a wage assignment is not a court order, an employer does not have to agree to it.
Banks use savings account deposits to:
Give loans to consumers and businesses Reason:The basic functions of banks and credit unions are to be an intermediary between savers and borrowers. Banks and credit unions pay interest on customers' savings accounts and hold customers' money through checking accounts and then lend most of that money to other consumers and businesses for a fee (interest)
The common name for U.S. currency is:
Green backs Reason:The background color of all United States currency (bills) is primarily green.
Identify the background color of a U.S. $5.00 bill.
Identify the background color of a U.S. $5.00 bill. Reason: The background color of all United States paper currency (bills) is green.
To make sure you will always remember your automated teller machine (ATM) card personal identification number (PIN), you should write the PIN and keep it:
In a secure place at home Reason:You should never write any PIN on something that might be stolen. Write your PIN down and keep it in a secure place in your home.
John has a college student loan that he has to repay after he graduates. He will make his monthly payments over ten years. He has the following kind of loan:
Installment Reason : An installment loan is one that you pay back in monthly payments for one or more years. John's loan is a ten-year loan. If a loan is paid back in one payment, it is called a non-installment loan.
A cash card generally:
Is purchased with a specific amount of money that can be used to pay for goods or services Reason:Consumers purchase cash cards for a specific amount of money. The amount paid is stored in the card's memory, and the card can be used to pay for goods or services specific to a particular store or action until the amount stored, or "loaded" on the card, has been spent. Some retail chain stores sell cash cards which can be used to pay for their products. Cash cards are either disposable or re-loadable. Disposable cash cards cannot be replenished (loaded again). With re-loadable cash cards, the consumer can return to the merchant and pay to have the balance on the card replenished.
Jane opened her credit card bill and was surprised by the amount she owed. She cannot pay the full amount of the bill this month. The lowest dollar amount Jane is required to pay by the credit card company is the:
Minimum payment Reason : The minimum payment is a percentage of the unpaid balance and is set by the credit card company. The minimum payment must be paid each month to avoid negative information from being sent to the credit bureau.
Which of the following does the Federal Reserve uses to regulate the nation's money supply?
Monetary Policy Reason: Uses it to regulate the nation's money supply.
Which documents should be stored in a safe-deposit box?
Mortgage loan papers Reason:The purpose of having a safe deposit box is to have a fireproof, secure place to store valuables and irreplaceable items including legal documents such as a birth certificate and precious jewelry.
A person has three credit cards with very large outstanding balances and is unable to make payments on any of them. Which action should the person take?
Notify the credit card companies in order to negotiate a new payment plan. Reason : When experiencing financial difficulties, the first action to take is to notify creditors, in this case the three credit card companies. Quite often the company will assist in negotiating new terms.
Dawn graduated from high school and wants to get a credit card. How can Dawn establish credit-worthiness?
Opening a checking account, making regular deposits, and avoiding penalties for insufficient funds Reason : To establish credit-worthiness, Dawn must have credit and use it responsibly. Creditors will only give new debtors small amounts of credit because creditors cannot tell whether the applicant is likely to use the credit responsibly. Having a checking account in good standing helps you to establish a record of being responsible.
Margaret wants to store a valuable coin collection and important papers. Generally, consumers should
Rent a safe deposit box for their valuables Reason:Bank customers can rent safe deposit boxes from the bank. They are metal boxes kept in the bank vault where customers often keep valuable papers, financial records, jewelry, and collections.
Safe-deposit boxes are:
Safe and can be accessed only by the owner of the box. Reason:Safe-deposit boxes are metal boxes in a bank's vault. Taking two keys, one owned by the bank and one by the customer, to open the safe-deposit box provides more safety for the customer. Only the owner can access the box. The bank customer pays a small annual rental fee to the bank for use of the safe-deposit box.
The primary sources of income for most people between the ages of 20 and 35 who are not living on a pension or social security are:
Salaries, wages, and tips Reason:The primary sources of income for most people between the ages of 20 and 35 are salaries, wages, and tips from their employment, also known as earned income. Earned income is also the primary source of income for most other age groups. Very few people have sufficient unearned income - dividends, interest, rents, or profits - to live on without holding a job or running a business.
Frankie's savings account has earned a lot of interest. He wants to know if he must pay taxes on the interest earned. What would the IRS tell him?
Savings account interest is taxable. Reason: Savings account interest is taxable. If Jerry's total earnings, including savings account interest, are high enough that he must pay income tax on them, the savings account interest is added to his other income and it is all taxed at the same rate.
Which financial product can you buy for $25, is safe, and will be worth $50 at a future date?
Series EE savings bond Reason: Series EE savings bonds, which are issued and backed by the U.S. Treasury, are purchased for one-half of their face value. These bonds earn interest monthly, and a $50 Series EE bond, which is purchased for $25, is guaranteed to reach face value within 17 years, and may reach face value sooner.
Consumer finance companies, which are often advertised on TV, are also known as:
Small loan companies. Reason:Consumer finance companies specialize in making small loans to individuals or businesses. They primarily make loans to people who cannot qualify for credit elsewhere because of a poor credit history, low income, or minimal assets. For these reasons, interest rates are usually higher than loans from a bank or credit union.
Collateral is:
Something of value that secures a loan to protect the lender Reason: Collateral is required for a secured loan to protect the lender. If the debtor defaults on a loan, the creditor (lender) can seize and sell the collateral to pay off the secured loan. Collateral may be the item purchased with the loan, such as a vehicle, or in a cash loan, it may be some item that can be sold to pay off the loan.
When a borrower fails to repay a loan and there is a co-signer on the loan, the most likely result will be
The co-signer will be held responsible for the repayment of the entire loan plus fees or penalties. Reason : If the borrower does not pay the debt, the co-signer has the obligation to pay it.
A credit card finance charge is
The dollar amount it costs to use credit Reason:The finance charge is the cost of credit in dollars. It is calculated on a credit card's unpaid balance. A finance charge, the cost of having the debt a longer time, is added to the outstanding credit card balance.
Employees prefer direct deposits because:
The money is generally deposited in their checking account sooner than it would be if they had to deposit it in person. Reason: Instead of a negotiable check, the wage earner receives a pay stub which lists the amount that was directly deposited and the amounts withheld for taxes, health insurance, etc. Through direct deposit, earnings are transferred electronically into the recipient's bank account. Direct deposit is more convenient, safer, and usually faster than receiving and manually depositing a paycheck.
The financial institution where Ms. Sanchez has her checking account will continue to pay out money for the checks she writes as long as:
There is enough money in Ms. Sanchezs account to cover the amount of the checks. Reason:The financial institution is not obligated to honor a check if it is written for more money than the current checking account balance. The customer will be charged an insufficient funds penalty for each check not covered by a sufficient balance in the account.
Which of the following is a disadvantage of using of using phone cards, debit cards, electronic transfers, and ATM cards?
They expose consumers to greater likelihood of identity theft. Reason: The growing number of transactions that can be carried out without cash increases convenience for consumers who have credit cards, phone cards, debit cards, etc., but also exposes consumers to greater likelihood of fraud and/or identity theft.
When James received his paycheck, he planned to cash it at a check cashing store. You advise him to cash it at his own bank if possible. Why?
They typically charge high fees Reason: Check-cashing stores usually charge high fees to cash checks and sometimes encourage consumers to take out high interest rate payday loans.
Which of the following statements is usually true about individuals who are financially literate?
They understand the basics of personal finance and money management Reason:Financial literacy is knowledge of facts, concepts, and technological tools that are basic to being smart about money. People who are not financially literate are more likely to fall prey to consumer scams, have excessive consumer debt, and spend their money without a spending plan. Ultimately, they may end up in serious financial trouble.
If a person makes a deposit of $10,000 or more into a bank account, the bank must notify the
US Treasury Department Reason:In order to track large deposits, the federal government requires that deposits of $10,000 or more be reported to the Treasury Department. Some concerns may be that a person might be trying to avoid paying taxes on game winnings or perhaps illegal gains.
Jami lost her debit card. She did not report it missing for 3 months. If an unauthorized person used her debit card, her maximum liability is:
Unlimited liability Reason:According to the Electronic Fund Transfer Act, if a consumer reports the theft or loss of an ATM or debit card to the issuing financial institution within two business days, he/she is liable for not more than $50 of unauthorized purchases. If reported within 60 days, the consumer is liable for up to $500 of unauthorized purchases. If reported after 60 days or not reported, the consumer may be liable for the entire amount of unauthorized purchases.
Scott just got an ATM card to use and must choose a PIN (Personal Identification Number). How should he select a PIN that will give him maximum protection against anyone else being able to find out what the PIN is?
Use a random selection of letters and numbers Reason: A PIN (personal identification number) is a secret code that protects the privacy of your accounts and allows only you to access them. The numbers should not be composed of numbers easily associated with the person choosing the PIN such as birth date, telephone number, or street number address. It should be a random series of numbers and letters that would be hard for unauthorized users to guess. Also, never write your PIN on your ATM or debit card or in your check book because then a thief would you?re your confidential information needed to make purchases or withdraw all the money out of your account.
Predatory lending practices generally include:
Very high interest rates and fees Reason:Predatory lending uses abusive practices in any type of credit but the lenders primarily target applicants for home mortgages, home equity, and home refinancing loans. This practice tends to occur in low-income neighborhoods, particularly those with a large number of elderly or minority homeowners who have a poor credit history, or need cash quickly. These lenders use deceptive advertising and high pressure salespeople and give repayment terms that the borrower cannot afford.
A high school student has begun to investigate the field of finance as a career choice. In deciding about the field, the student should focus on which question first?
Will I find a balance between financial rewards and personal satisfaction from work? Reason:It is important to investigate a career with the idea of not only getting a sense of earning potential, types of positions available and the training necessary to acquire these positions but what are the chances that the individual will enjoy working in this field.
Which statement is FALSE about most ATM (Automated Teller Machine) cards?
You can always get cash anywhere in the world with no fee Reason:You must have a bank account to have an ATM card because the ATM card is used to electronically make deposits into, withdrawals from, or get information concerning your bank balance at an ATM 24 hours a day, seven days a week. If you use an ATM that is not in your bank?s ATM network, you will likely be charged a fee by the network that owns that ATM. In addition, your own bank may add a fee to your monthly statement for using an ATM outside their ATM network.
When a person brings an item to a pawnshop to obtain cash, the transaction is considered
a collateralized loan. Reason: Since pawnshops make loans based on determining the value of collateral (a tangible object such as jewelry, cameras, musical instruments) they receive, the loan is considered a collateralized loan.
One example of a long-term retirement goal is to
deposit at least $100,000 in a retirement account. Reason : Long-term goals are considered those that one needs to plan for as something that is more than five years away. Planning for retirement is considered a long-term goal. One way to accomplish this goal is to start saving money in a retirement account; either through work or through a personal investment program such as an IRA (or both). Money designated for retirement should not be invested in high-risk securities.
When a person declares bankruptcy that fact will appear on the persons credit report
for a 10 year period Reason:Most of the adverse information on a credit report appears for 7 years. After a declared bankruptcy, the limit is 10 years.
To qualify for a Federal Housing Administration (FHA) loan, a person must generally
fulfill income guidelines. The Federal Housing Administration (FHA) insures lenders who make mortgage loans that are riskier than regular bank loans because FHA loans are made to individuals who usually would not qualify for regular low-cost mortgages from banks (usually first-time home buyers with lower income and a weaker credit score). The objective of this federal agency is to encourage home ownership while helping to protect the lenders at the same time.
