What’s Your Money IQ?

6a00d8341bfad153ef016766f03a6e970bIt’s that time of year – high school and college graduations. Young women and men are stepping into a new phase of their lives. Unfortunately, financial education is not a mandatory class in most high schools or colleges. But, money plays an important role in all aspects of our lives – career, lifestyle, self-image, marriage, family and health. Let’s test your money IQ.

  1. By law you can request your credit report free every 12 months from:
    A. FreeCreditReport.com
    B. AnnualCreditReport.com
    C. Credit.Com
  2. Most credit scores range from 300 to 850.
    A. True
    B. False
  3. Which of the following statements is true?
    A. A traditional IRA is a joint retirement account and a ROTH IRA is an individual retirement account.
    B. The traditional IRA is offered by your employer. You set up and contribute to a ROTH IRA.
    C. Your ROTH contribution is not tax deductible – it’s taxed in the year of contribution.
  4. If you start investing $10 per week at age 20 with 8% earnings, how much will you have at age 65?
    A. $129,161
    B. $228,563
    C. $503,141
  5. You can contribute to an Individual Retirement Account (IRA) if you don’t work.
    A. True
    B. False
  6. What’s the definition of APR?
    A. Annual payment rate – what you pay annually on a loan.
    B. Annual protection rate – the protection received if you pay your loan on time.
    C. Annual percentage rate – the interest rate for a whole year (includes interest and fees).
  7. How long will it take to pay off a $5,000 credit card balance paying $100 a month at 13% interest?
    A. 5 years
    B. 15 years
    C. 21 years
  8. What information does a credit report provide?
    A. The credit available to you at financial institutions, mortgage companies and other lenders.
    B. Detailed report of your credit history prepared by a credit reporting agency.
    C. Summary of your financial assets and liabilities.
  9. The DOW Jones is a stock market index made up of 65 major stocks.
    A. True
    B. False
  10. Which of the following will not help improve your credit score?
    A. Pay your bill consistently on time.
    B. Keep your account balances below 75% of available credit.
    C. Opening a credit card whenever asked by a retail store.
    D. Checking your credit report and correcting errors.

Answers:

1. B. You can request your credit report free once every 12 months by visiting. Congress mandated this because identity theft is the fastest growing white collar crime in the United States.

2. A. FICO is the most commonly used credit scoring model. Their credit scores range from 300 – 850. The higher your credit score, the lower your risk, and a higher score saves you money because you’re offered better interest rates.

3. C.  Unlike a traditional IRA, your ROTH contribution is not tax deductible – it’s taxed in the year of contribution.  However, the earnings you accumulate in a Roth IRA are not taxed when used for retirement income.

4. B. Investing $10.00 per week at 8% beginning at age 20 will grow to $228,563 at age 65. Waiting until your 30 years old to invest the same amount at the same interest rate will cost you $129,161 in earnings. That’s the magic of compounding interest.

5. B. You must have earned income to contribute to an IRA.  Earned income is defined as wages, commissions, bonuses, tips, self-employment income and fees for professional services.

6. C. Annual percentage rate is the annual rate charged for borrowing. It represents the actual yearly cost of funds over the term of the loan and includes any fees or additional costs.

7. C. It will take 21 years to pay off the $5,000 balance (13% interest) at the estimated minimum payment of $100 per month. And, that’s only if you don’t charge anything else on the credit card. The total interest paid will be $5,176 (more than your initial charges. Determine your credit card repayments online at  www.federalreserve.gov/creditcardcalculator

8. B. Your credit report is your financial report card. It contains information on where you work and live, credit accounts that have been opened in your name, and how you pay your bills. The three major credit-reporting agencies are Equifax, Experian and TransUnion.

9. B. The Dow Jones Industrial Average, more commonly known as the Dow Jones is an index based on 30 large-cap stocks. It’s made of stocks that supposedly represent areas of public interest.

10. C. Every time you open a new credit card account, the store is requesting your credit report. This is considered a hard inquiry. Too many hard inquiries in a short period of time can lower your credit score. This is because creditors may thing you’re having money troubles and are searching for credit. New accounts will lower your average account age, which can reduce your credit score.