By Quentin Fottrell
April is Nationwide Monetary Literacy Month
April is Nationwide Monetary Literacy Month. To mark the event, MarketWatch will publish a collection of articles on “Monetary Health” to assist readers enhance their fiscal well being and supply recommendation on learn how to save, make investments and spend their cash properly. .
Are you aware the distinction between a inventory and a bond, or a mutual fund and an exchange-traded fund? MarketWatch put collectively a meat-and-potatoes quiz, although that is at all times relative, for our savvy readers. We have caught to some acquainted subjects: taxes, shares, rates of interest, financial savings and inflation. There are 10 questions, with an additional query thrown in for good measure.
You do not know what you do not know till you get the reply incorrect on a monetary literacy quiz. Among the questions are difficult, however we hope they’re enjoyable and, most significantly, readers study one thing new. Monetary literacy helps us plan for the longer term, provides us peace of thoughts, and brings extra understanding and fewer concern in regards to the complicated world of investing and retirement.
Our aim is to boost consciousness of Monetary Literacy Month. If you happen to get 10/10, together with the bonus query, purchase your self (and a good friend) a popsicle. If you happen to did not get all of the questions proper, purchase your self a popsicle anyway. We at MarketWatch intention to democratize and demystify monetary information and make this typically intimidating topic as accessible as doable.
If you happen to discovered this beneficial and/or entertaining, please share it with a good friend.
–Quentin Fottrell
Query 1: What’s the distinction between a tax deduction and a tax credit score?
(a) A tax deduction instantly reduces your earnings taxes. A tax credit score lowers your taxable earnings.
(b) A tax deduction reduces your taxable earnings. A tax credit score instantly reduces earnings taxes.
(c) Each instantly cut back your earnings taxes.
Query 2: How do bond costs transfer when rates of interest rise?
(a) Bond market costs fall as rates of interest rise. Bond costs rise when rates of interest fall.
(b) Bond market costs rise as rates of interest rise. Bond costs fall when rates of interest fall.
(c) Bond market costs fall as rates of interest rise, however bond costs additionally fall when rates of interest fall.
Query 3: What has been the common annual complete return, with dividends reinvested, of the S&P 500 over the previous 30 years?
(a) 9.7%, in accordance with FactSet.
(b) 3%, in accordance with FactSet.
(c) 6.5%, in accordance with FactSet.
Query 4: What’s compound curiosity and the way does it work?
(a) Compound curiosity displays the linear acquire that comes from all reinvested curiosity out of your financial savings and investments, permitting your funding/preliminary deposit to develop in worth no matter how a lot curiosity you pay.
(b) Compound curiosity displays the exponential acquire that comes from all reinvested curiosity out of your financial savings and investments, permitting your preliminary funding/deposit and extra curiosity to develop in worth.
(c) Compound curiosity displays the quantity of curiosity you pay every month on a mortgage and the full quantity of curiosity you could have paid over the lifetime of that mortgage.
Query 5: What’s APR and the way is it totally different from a traditional rate of interest?
(a) The APR is the annual curiosity on a mortgage calculated on the preliminary mortgage, together with extra prices and charges, however not the cumulative curiosity incurred on the mortgage.
(b) APR is the annual curiosity on a mortgage calculated on the preliminary mortgage and curiosity accrued in the course of the first 12 months.
(c) APR is the annual curiosity on a mortgage calculated on the preliminary mortgage, together with extra prices and charges, and curiosity accrued over the lifetime of the mortgage.
Query 6: What share of your earnings must you spend on lease?
(a) Most actual property specialists say you should not spend greater than 20% of your earnings on housing prices, which is taken into account a tipping level for being “cost-burdened.”
(b) Most actual property specialists say you should not spend greater than 50% of your earnings on housing prices, which is taken into account a tipping level for being “cost-burdened.”
(c) Most actual property specialists say you should not spend greater than 30% of your earnings on housing prices, which is taken into account a tipping level for being “cost-burdened.”
Query 7: What’s an ETF?
(a) ETFs, or exchange-traded funds, are baskets of investments (shares, bonds, or commodities) that buyers should buy in the course of the buying and selling day like shares.
(b) ETFs, or exchange-traded funds, are baskets of investments (shares, bonds, or commodities) that buyers can solely purchase on the finish of the buying and selling day.
(c) ETFs, or exchange-traded funds, are baskets of investments (shares, bonds, or commodities) that buyers can solely purchase throughout or on the finish of the buying and selling day.
Query 8: What’s the distinction between a inventory and a bond?
(a) A share is a short lived funding in an organization, whereas an organization points a bond to reward shareholders.
(b) A share is a share within the possession of an organization, whereas an organization points a bond to finance a mortgage.
(c) A inventory is a share within the possession of an organization, whereas an organization points a bond to finance the inventory.
Query 9: If you happen to had been born in 1960 or later, at what age are you able to obtain your full Social Safety within the US? Bonus query: At what age are you able to obtain your most Social Safety profit?
(a) Full retirement age within the US is 65 for these born in 1960 and later. Though you can begin gathering your Social Safety retirement advantages as early as age 62, your advantages are completely diminished. Your Social Safety advantages max out at age 70. By delaying till age 70, your profit is 76% increased than in the event you had utilized on the earliest doable age (62).
(b) Full retirement age within the US is 65 for these born in 1960 and later. Though you can begin gathering your Social Safety retirement advantages as early as age 62, your advantages are completely diminished. Your Social Safety advantages max out at age 67. By delaying till age 67, your profit is 76% increased than in the event you had utilized on the earliest doable age (62).
(c) Full retirement age within the US is 67 for these born in 1960 and later. Though you can begin gathering your Social Safety retirement advantages as early as age 62, your advantages are completely diminished by a small share every month till you attain age 67. Your Social Safety advantages max out at age 70. By delaying till age 70, your profit will likely be 76. % increased than in the event you had claimed on the earliest doable age (62).
Query 10: What’s the Federal Reserve’s desired inflation fee?
(a) 2%
(b) 3%
(c) 2.5%
Bonus query! What is taken into account a great credit score rating?
(a) 560
(b) 680
(c) 800
Reply 1:
(b) A tax deduction reduces your taxable earnings. A tax credit score instantly reduces earnings taxes.
Reply 2:
(a) Bond market costs fall as rates of interest rise. Bond costs rise when rates of interest fall.
Reply 3:
(a) 9.7%, in accordance with FactSet.
Reply 4:
(b) Compound curiosity displays the exponential acquire that comes from all of the reinvested curiosity out of your financial savings and investments, permitting your preliminary funding/deposit and the extra curiosity to develop in worth.
Reply 5:
(c) APR is the annual curiosity on a mortgage calculated on the preliminary mortgage, together with extra prices and charges, and curiosity accrued over the lifetime of the mortgage.
Reply 6:
(c) Most actual property specialists say you should not spend greater than 30% of your earnings on housing, which is taken into account a tipping level for being “cost-burdened.”
Reply 7:
(a) ETFs are change traded funds. These are baskets of investments (shares, bonds or commodities) that buyers should buy or promote all through the buying and selling day.
Reply 8:
(b) A share is a share within the possession of an organization, whereas an organization points a bond to finance a mortgage.
Reply 9:
(c) Full retirement age within the US is 67 for these born in 1960 and later. Though you can begin gathering your Social Safety retirement advantages as early as age 62, your advantages are completely diminished. Your Social Safety advantages max out at age 70. By delaying till age 70, your profit is 76% increased than in the event you had utilized on the earliest doable age (62).
Reply 10:
(a) 2%
Bonus Query Answered!
(b) 680. Though credit score scores differ by mannequin, in accordance with Experian, credit score scores between 580 and 669 are thought of “truthful,” scores between 670 and 739 are thought of “good”; 740 to 799 are thought of “superb”; and scores of 800 and above are thought of “glorious.”
-Quentin Fottrell
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04-08-23 1106ET
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