Basic Financial Literacy Paychecks, Taxes, and Banking

Alabama Financial Literacy Test 1. The total money one gets to “take home” from a paycheck after taxes and deductions are taken out is known as what? a. Gross pay b. Federal income tax c. State income tax d. Net pay 2. Which of the following is the form employers use to determine how much tax to deduct from a paycheck? a. W-2 b. W-4 c. I-9 d. W-9 3. Which of the following is the form an employer provides to an employee to inform them of how much money was deducted from paychecks in a given year? a. W-4 b. I-9 c. W-2 d. W-9 4. Which of the following statements best describes gross pay? a. Amount of money one receives from insurance after an illness or accident b. Amount of money one receives from their job before taxes or other deductions are taken out c. Amount of money one receives from their job after taxes or other deductions are taken out d. Amount of money one earns from their job by overtime, bonuses, and reimbursements 5. Which of the following will be paid for as part of the escrow funds included in a mortgage loan? a. Car insurance b. Principal on home loan c. Property tax d. Home warranty 6. When seeking to open a bank account, which of the following is needed? a. Blank checks b. Government-issued identification c. Recommendation letter d. School transcript 7. When one is seeking to purchase a product at a store, what additional cost must be paid in addition to the listed price of the product? a. Insurance b. Interest c. Purchasing fee d. Sales tax 8. Which of the following best describes the concept of APR? a. Summary of all credit card transactions in one month b. The maximum amount one can charge on their credit card c. The fee charged if a credit card payment is late d. The credit card interest rate, calculated on a yearly basis 9. A certificate of deposit (CD) differs from a traditional savings account in what way? a. CDs are a riskier investment b. CDs include the purchase of stocks c. CDs have a low interest rate d. CDs must remain untouched for a fixed period of time 10. All of the following are advantages of bundling insurance EXCEPT what? a. Convenience b. Increases insurance options c. Less complicated d. Potential saving of money 11. Which of the following investments is characterized by the following traits:  Insured by the FDIC or NCUA  Lowest interest rate of all investments  Number of withdrawals per month may be limited a. b. c. d. Money market Traditional savings account Exchange-traded fund (ETF) Certificate of deposit (CD) 12. What is the term used to describe interest earned on interest gained? a. Compound interest b. Simple interest c. Principal d. Capital 13. Which of the following is a financial institution that handles money, including keeping it safe for saving or commercial purposes? a. Payday lender b. Bank c. Check cashing service d. Pawn shop 14. Using the simple interest formula I =prt , calculate the interest earned on $150 after one year at a 6% return rate. a. $90.00 b. $0.09 c. $9.00 d. $4.00 Alabama Financial Literacy Test 15. When one receives a product or service now, but pays for it later, it is known as what? a. Credit b. Debit c. Deduction d. Interest 16. All the following are examples of installment loans EXCEPT: a. Credit card b. Car loan c. Mortgage d. Student loan 17. Which of the following purchasing cards removes funds from one’s checking account almost instantly after one makes a purchase? a. Credit card b. Debit card c. Payroll card d. Withdrawal card 18. When choosing between using a bank or a credit union, which of the following is an advantage that credit unions generally have in comparison to banks? a. Advanced online banking technology b. Greater variety in services offered c. Owned by members, who may vote and elect board of directors d. More branches/locations 19. Which of the following types of mortgage loan helps individuals who may have a low credit score, little cash available for a down payment, and could be a first-time home buyer? a. Adjustable-rate loan b. Fixed-rate loan c. Government-insured loan d. Jumbo loan 20. When the federal government raises interest rates, which of the following is generally impacted positively for a consumer? a. Credit card payment b. Real estate investment c. Savings account d. Stock investment 21. Which of the following types of insurance provides income to people who depend on a wage earner after the wage earner dies? a. Automobile insurance b. Disability insurance c. Health insurance d. Life insurance 22. Which of the following types of insurance assists in covering medical expenses associated with short-term illness and accidents? a. Disability insurance b. Health insurance c. Life insurance d. Retirement insurance 23. Which of the following types of insurance helps pay for stays in a nursing home? a. Disability insurance b. Life insurance c. Long-term care insurance d. Retirement insurance 24. The purpose of an umbrella insurance policy is best summarized as what? a. Cover costs associated with heavy rain b. Groups all insurance policies into one discounted price c. Protect the holder against liability costs beyond what is covered by other insurance d. Uses one insurance policy to cover each member of a family 25. Which of the following practices does not lead to a higher car insurance rate? a. Crash one’s car b. Participate in a defensive driving course c. Purchase a newer model car d. Receive a speeding ticket 26. Which of the following is the term for a person who relies on someone else financially? a. Beneficiary b. Dependent c. Insurer d. Policyholder 27. When planning one’s personal budget, a variable expense is what? a. An expense that one does not have to make b. An expense in which there are many options to choose from c. An expense that may change in amount from month to month d. An expense that does not have to be paid immediately 28. The Rule of 72 is used to calculate what? a. The amount of time it will take for an investment to double in value b. The amount of money one should save by retirement c. The amount of taxes owed for every $72 invested d. The amount of credit one needs for a good credit report 29. When one party to a contract does not do what the contract requires, the individual has committed a what of the contract? a. Breach b. Consideration c. Ratification d. Treaty 30. Which of the following is the correct sequence in the formation of a contract? a. Offer, acceptance, agreement, consideration b. Agreement, consideration, offer, acceptance c. Offer, agreement, acceptance, consideration d. Offer, acceptance, consideration, agreement 31. Which of the following positions can confirm signatures to a contract? a. Executive b. Legal signer c. Notary public d. Trustee 32. Sales tax amounts are generally established by which of the following? a. State and local rates b. Federal and state rates c. Federal and local rates d. Business and federal rates 33. If the value of one’s house increases, all the following will most likely rise EXCEPT: a. House insurance b. Escrow payment c. Mortgage principal d. Property tax 34. Federal income tax brackets can be impacted by which of the following? a. Voter registration of taxpayer b. Criminal history of taxpayer c. Marriage status of taxpayer d. Region in which taxpayer resides 35. Which of the following is an advantage of maintaining a good credit score? a. Credit card companies offer more points in their rewards system b. Greater chance of receiving a loan with a low interest rate c. Receive higher interest rates on money in a savings account d. Stocks can be purchased at a lower price 36. Which of the following practices could negatively affect one’s credit score? a. Reaching the spending limit on one’s credit account b. Paying bills on time c. Monitoring one’s credit report d. Protecting against fraud and identity theft 37. The phrase “balancing a checkbook” refers to which practice? a. Deciding if one has enough money to make a large purchase b. Operating a checking account that multiple people use c. Comparing bank statements to withdrawal records (checks, ATM, ETF) to track spending d. Opening a checking account for the first time 38. If one spends more money than they have in their bank account, they are charged a what? a. Debt fee b. Maintenance fee c. Overdraft fee d. Reserve fee 39. When one is inspecting a banking or credit statement and discovers several charges they did not make, the individual is most likely a victim of what? a. High service fees b. Identify theft c. Preemptive payments d. Unethical sales practices 40. Which of the following allows a customer to pay a deposit on an item, and then not receive the item until the balance is paid in full? a. Credit card b. Increment investing c. Layaway plan d. Portion payment 41. Which of the following investments is characterized by the following traits:  Investor loans money to a city, county government, or company  Money is repaid after a certain date, plus interest is paid  Generally considered a safe investment, although not insured by the FDIC a. b. c. d. Bonds Exchange-traded fund (ETF) Savings accounts Mutual funds 42. Rent-to-own agreements can negatively impact consumers because: a. Consumers do not have to pay cash for the item b. Consumers will pay a high interest rate on the item c. Consumers can immediately have access to the item d. Consumers are limited from purchasing similar items 43. Which of the following financial institutions may an individual visit to get money from a check if they do not have a traditional bank account? a. Credit union b. Mortgage company c. Check cashing service d. Payday lender 44. Which of the following financial institutions receives criticism for targeting people in poverty and other vulnerable populations through charging extremely high interest rates? a. Pawn shops b. Check cashing services c. Credit unions d. Payday lenders 45. Banks offer the service of a safety deposit box, which can be used for what? a. Guarantee high interest on money deposits b. Reduce the amount owed on late fees c. Prevent the bank’s money from being burned in a fire d. Protect personal documents from potential loss 46. When eating at a restaurant, one must consider which of the following additional costs to the price of their meal and sales tax? a. Interest fee b. Reservation cost c. Service fee d. Tip 47. When one invests in a commodity, they are investing in a what? a. Bank b. E-commerce c. Natural resource d. Technology 48. When receiving a mortgage loan, if an individual cannot make a large down payment, they will most likely have to pay for what? a. Application fee b. Private mortgage insurance c. Risk assessment d. Tenant tax 49. Which of the following is the typical amount of time in which a borrower must pay off a mortgage loan? a. Five (5) years b. Eight (8) years c. Thirty (30) years d. Fifty (50) years 50. Which of the following investments is characterized by the following traits:  Risky  Ownership in a corporation  Pays dividends  Potential for reward is high a. b. c. d. Stocks Bonds Commodities Real estate