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Financial Literacy — Test Answers

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1
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According to this chart, among people 65 and over, investment income represents the

A
fourth largest source of income.
B
smallest source of income.
C
largest source of income.
D
second largest source of income.
3

Which is an example of an income deduction?

A
retirement savings
B
vacation budget
C
wages lost due to illness
D
an unexpected salary cut
4

What effect would a tax increase have on income?

A
It would not affect gross income.
B
It would increase net income.
C
It would not affect net income.
D
It would reduce gross income.
6

What is a major difference between retail banks and credit unions?

A
Retail banks operate in order to earn profit, while credit unions are nonprofit.
B
Retail banks only have small local branches, while credit unions are nationwide.
C
Retail banks only serve businesses, while credit unions only serve individuals.
D
Retail banks manage a person’s money, while credit unions focus on providing loans.
8

Which activity is done in Step 2 of comparison shopping?

A
Assess the purchase objectively.
B
Compare prices and features.
C
Research a product.
D
Buy a product.
9

Which best describes a way people can use personal loans?

A
to buy a house
B
to buy a car
C
to pay for college
D
to pay for groceries
10

Which is most likely to happen to consumers with good credit? Choose three correct answers.

A
They can be approved for loans.
B
They can receive lower interest rates.
C
They can use credit in emergencies.
D
They are denied an unsecured loan.
E
They are forced into high interest rates.
F
They are denied a mortgage.
11

Insurance is a financial service that allows a

A
company to control finances for a consumer.
B
consumer to share liability with a company.
C
consumer to transfer all risk to a company.
D
company to maximize risk for a consumer.
13

In what way does a 401(k) differ from an individual retirement account (IRA)?

A
A 401(k) is a good long-term investment strategy.
B
A 401(k) can be created by individuals who deposit money.
C
A 401(k) allows consumers to contribute before taxes.
D
A 401(k) is created through an individual’s employer.
14

What is the purpose of comparison shopping?

A
determining whether you truly need a product
B
ensuring you are not buying out of emotion
C
reading reviews to make sure a product is good
D
attempting to find the best deal on a product
15

What is the major difference between a nationwide bank and a community bank?

A
The community bank services only local customers.
B
The nationwide bank has fewer branches.
C
The nationwide bank services only local customers.
D
The community bank offers more services.
17

How is a savings account most useful?

A
for saving for a long time without withdrawing
B
for depositing and withdrawing money frequently
C
for using money for CDs and other investments
D
for using money in the near future but not right away
20

What is a benefit of obtaining a personal loan?

A
getting large amounts of money to use immediately
B
getting money with special repayment terms
C
getting money with favorable interest rates
D
getting small amounts of money to use immediately
21

Why is it risky to invest in a commodity?

A
Commodity stocks cannot be traded after you purchase them.
B
A commodity has little or no value as a long-term investment.
C
The investment will tie up your money for more than one year.
D
The commodity's price might drop significantly very quickly.
22

To change gross income, someone would need to

A
earn more money.
B
reduce deductions.
C
save more per month.
D
increase withholdings.

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