The more you know about finances, the better you can manage your money and prepare for your financial future. If you’re like most Americans, you probably didn’t grow up learning about financial literacy in school, but it’s never too late to improve your knowledge. Test your wisdom with these six questions — if you don’t get them all correct, don’t despair because a GOBankingRates survey found that most people missed at least a few questions. The “easiest” question was only answered correctly by about two-thirds of the test takers.
Click through to test your finance knowledge. If you get at least three answers correct, you can consider yourself more financially savvy than the average American. Just don’t brag … too much.
Q: What Are the Three Major Credit Bureaus?
a) Capital One, Bank of America and JPMorgan
b) Deloitte, KPMG and Ernst & Young
c) Fannie Mae, Freddie Mac and Sallie Mae
d) FICO, Moody’s and Fitch
e) TransUnion, Equifax and Experian
f) Visa, MasterCard and American Express
Do you know which companies are responsible for keeping track of your credit history and providing that information to lenders, landlords, employers and others?
Answer: e) TransUnion, Equifax and Experian
The three credit bureaus — TransUnion, Equifax and Experian — are the companies responsible for maintaining your credit history. Over 57 percent of men and 62 percent of women surveyed answered correctly.
Your credit report includes a variety of information, including your name and other identifying information, trade lines like credit cards, mortgages, car loans, other loans, credit inquiries, public records and collections. When you apply for a loan, this information is used to calculate your credit score, which lenders use to decide whether to approve you for a loan and how much interest to charge.
Q: A 401k Refers to a Tax Credit for Retirement. True or False?
A 401k does refer to a section in the tax code related to retirement savings. But, does the section offer a tax credit for retirement? Click to find out.
Answer: b) False
Section 401k of the tax code refers to the rules for employers to establish tax-deferred retirement plans for their employees. These plans allow employees to put pretax dollars into accounts to save for retirement, allowing your money to grow tax-free until you retire. For example, if your salary is $67,000 but you contribute $7,000 to your 401k, you’ll only pay income taxes on $60,000 of income at the time you earn it. The amount you’ll save depends on your marginal tax rate. If the tax break was a tax credit rather than a tax deduction, your tax savings wouldn’t depend on your marginal tax rate. So, if you were among the 48 percent of people who thought the answer was true, you’re not that far off.
Q: Of the Following, What Best Describes What ‘APY’ Is?
a) Adjusted Prices for Inflation
b) Annual Rate Charged for Borrowing or Earned By an Investment
c) Annual Rate of Return Accounting for Compounding Interest
d) Annualized Principal Payment Amounts
e) Annuity Payout Per Year
f) Automated Payment
Think you know what those three important letters stand for? Click to find out if you’re right.
Answer: c) Annual Rate of Return Accounting for Compounding Interest
“APY” is short for annual percentage yield, which is the annual interest rate after including the impact of interest compounding. Interest compounding refers to how interest, once credited to an account or loan balance, accrues additional interest. For example, if interest is added to your bank account each month, the interest paid at the end of January will accrue interest for the remaining 11 months of the year, meaning the APY will be higher than the stated annual interest rate.
If you didn’t get the right answer, you’re not alone: Barely 11 percent of women and 14 percent of men got the right answer.
Learn More: What Is Compound Interest?
Q: Income Does Not Impact Your Credit Score. True or False?
Do you know if your income — or lack thereof — affects your credit score? Find out the answer on the next page.
Answer: a) True
Believe it or not, your income isn’t a part of your credit score. Though your employment information is a part of your credit report, your income, employer, employment history and job title won’t affect your credit score. But, that doesn’t mean lenders won’t consider it when you’re applying for a loan — lenders want to make sure you have the income to repay the loan. For example, when you’re applying for a mortgage, your lender might require two years of W-2s, two years of tax returns and your last two pay stubs.
Less than 43 percent of women and 38 percent of men answered correctly.
Q: What Does a CD Offered by a Bank Stand For?
a) Capital Deferment
b) Certificate of Deposit
c) Collateral Default
d) Collateralized Discount
e) Commodity Dividend
f) Credit Dividend
Though some banks might feel trapped in decades past, they aren’t still handing out compact discs. Think you know what CD stands for in banking lingo? Click to check your answer.
Answer: b) Certificate of Deposit
A certificate of deposit is an account where you promise to leave your money in the account for a certain period of time and the bank offers you a set interest rate. If you take your money out early, you have to pay an early withdrawal penalty, but some banks offer special CDs with minimal or no penalties. Some CDs offer special features, like a Raise Your Rate CD, which allows you to bump up the interest rate on your CD during the term if market interest rates rise. Like other deposit accounts, CDs are covered by FDIC insurance up to the account limits.
About two-thirds of both men and women answered this question correctly — the highest of any of the questions in this quiz.
Q: What’s the Difference Between a Savings Account and a Checking Account? Choose All That Apply.
a) Only Savings Accounts Earn Interest
b) Savings Accounts Can’t Be Used for Automatic Bill Pay
c) Only Checking Accounts Have Overdraft Fees
d) You Can Only Transfer Money From Checking Account to Savings
e) Checking Accounts Are Designed for Regular Use
f) Savings Accounts Are Designed for Investing Longer-Term
Answer: e) and f)
The main difference between checking and savings accounts is that checking accounts are designed for regular use while savings accounts are intended to hold money, such as building up your emergency fund. About 55 percent of respondents knew that savings accounts were designed for regular use, but about 10 percent fewer knew that savings accounts were designed for the long-run.
Click to take another quiz to test your knowledge on how America spends its money.