Financial Literacy Exam

What was the median household income according to the 2015 U.S. Census?

$56,000

People who work hard, live below their means, and start saving early will likely become what?

Millionaires

Walter Bagehot thought that it was whose job to hold the gold so that all the smaller banks did not have to?

Bank of England (central bank)

If your investments are too conservative (safe), you will earn a much smaller return on investment (ROI), and therefore adopting a more aggressive long-term investment strategy that is comprised mostly of __________ is the key to growing wealth.

Stocks

Ideally, you should save what percentage of your salary each year for retirement, regardless of how much you earn?

10%

What term describes when customers simultaneously come to a fractional-reserve banking system financial institution and demand their paper money be converted to its metal equivalent?

Bank run

By one estimate, John Law's French bank had about how many times as much paper bank notes in circulation as its gold and silver reserves making it a precursor to the banking system that is normal today?

Four

In order to pay for the Nine-Year's War, King William's administration borrowed huge sums of money and used what to pay the loans back with interest?

Taxes

What term describes the amount of funds that a bank holds in reserve to ensure that it is able to meet liabilities in case of sudden withdrawals and is also a tool used by the central bank to increase or decrease the money supply in the economy?

Reserve requirements

What 17th century English innovation was a receipt for deposits of gold from the public, was as good as gold money, and rapidly became a generally accepted new currency?

Representative money bank notes

Americans who aspire to become wealthy may be surprised that they do not need what?

All answers are correct

In 1692, John Law observed how the English government was paid for by long-term debt and paper money and he marveled at what stimulating effects of paper money?

All answers are correct

Genghis Khan's grandson took measures to insure the authenticity of his currency and what was the punishment if anyone forged it or would not accept it as payment?

Death

Victorian banker-journalist Walter Bagehot examined the difference in the appearance of bank solidity and the reality that Victorian banks kept going bankrupt and he concluded that the cause of these multiple bank crises were due to what?

Lending money to people who cannot pay it back

John Law thought that the crucial thing was to get money moving around the economy and to use it to stimulate trade and what?

Business

Which new invention, backed by the authority of the state, did Kublai Khan implement in 1260?

Paper money

What is the biggest factor that determines whether you can save $1 million for retirement on an average salary?

The age when you started investing

When the deeply indebted King of France, Louis XIV, died in 1715, John Law advised the new child King's regent that what is "not the value FOR which good are exchanged, but the value BY which they are exchanged?"

Money

In America today, whose role is it to guarantee the profitability of banks and be "the lender of last resort" in a time of crisis?

The Federal Reserve

In 1694, the English government borrowed 1.2 million pounds at a rate of 8% and in return the lenders were allowed to incorporate themselves into what new company?

Bank of England

What type of modern day banking system functions by requiring banks to only hold a fraction of the money their customers' deposit as reserves which allows them to use the rest of it to make loans and thereby essentially create new money?

Fractional-reserve banking system

What type of job would most likely enable achievement of millionaire status?

All answers are correct

In 1689, the English King William's administration had to solve the problem of how to pay for what against King Louis XIV of France?

War

In modern day banking, the less equity (money) the bank needs to keep as a margin of safety, the more money it could lend, and, therefore the more the bank can __________.

Profit

Eight out of ten millionaires reach that milestone through what vehicle?

401(k)

What would be the result if you had invested the $60,000 you would have spent on a luxury car for 30 years with a 7% annual rate of return instead?

It would be worth about $490,000

One of the biggest mistakes made is not understanding the threat associated with _________ which prevents you from growing your money.

Debt

John Law's ideas led him to the idea of a new national French bank that took in gold and silver from the public and lent it back out in what form?

Fiat money bank notes

Walter Bagehot wrote that "the main source of profitableness of established banking is the smallness" of what?

Requisite (required) capital

If a person earning the median household income invests $5,500 per year ($458 per month) from age 37 to 67 (30 years) with an 8% return, what would be the grand total at retirement?

$622,000

According to Walter Bagehot, gold was essential in order to guarantee __________, but small banks do not want gold taking up valuable space on their balance sheet and they believe that the government (central bank) should store the gold to guarantee __________.

Currency

Today, every nation-state uses a version of John Law's system of what and has a central bank that issues paper money, manipulates the supply of credit in the interest of commerce (trade), uses fractional-reserve banking, and features joint-stock companies that pay dividends.

Insurance ?

If a person earning the median household income invests $5,500 per year ($458 per month) from age 27 to 67 (40 years) with an 2% return, what would be the grand total at retirement?

$332,000

What doctrine is seen by some as the seed to the too-big-to-fail doctrine, socialized financial risk, and the Federal Deposit Insurance Corporation (FDIC) which protects peoples' bank deposits up to $250,000?

Lender of last resort

According to Walter Bagehot, gold was the only form of money and all other forms of currency in the system were merely different kinds of__________ which was indispensable to a functional economy but was not really money because it was not gold, which underpinned the value of everything else.

Credit

If a person earning the median household income invests $5,500 per year ($458 per month) from age 27 to 67 (40 years) with an 8% return, what would be the grand total at retirement?

$1.4 million

Walter Bagehot believed that smaller banks should take deposits, make loans, and issue paper money and if they got into trouble the central bank would do what?

Oversee the monetary system ?

Financial experts urge people to start investing early in their careers in order to take advantage of __________ which is the concept of earning interest on interest.

Compounding

At what age would you have to start investing if you were to have $1 million by only investing about $442 per month, every month, until the average retirement age of 63 years old?

25

John Law's new system of finance banned the use of gold and silver and was replaced by paper money that was described as what type of currency underpinned by the authority of the central bank and nothing else?

Fiat money

Respectively, what is an example of a very risky type of investment and what is an example of a very safe type of investment?

Cryptocurrency, savings account

What term describes a fractional piece of ownership in a company?

Stock

With just using your what, you can come up with a decent starting point for your asset allocation?

Age

True or false: Savings accounts make great long-term investments because they provide excellent growth.

False

What is the main investing asset(s)?

Stocks and bonds

What term describes a broker's obligation to act in the best interest of an investor?

Fiduciary duty

What term describes a way of personally sharing in the growth of the broader economy?

Investing

What term describes the main way of thinking about risk in terms of how much an investment swings in price?

Volatility

What term describes a strategy of spreading your money around with lots of different types of investments and can reduce the risk to your portfolio and smooth your returns?

Diversification

What term describes financial experts who help you manage your money?

Financial advisors

What do criteria lenders evaluate when deciding whether or not to offer you a student loan?

Your family's assets and income

What are the two types of 529 plans

Savings and pre-paid tuition plans

True or false: Student loans can never be discharged in bankruptcy?

False

What tax-advantaged college saving account can be used to pay for more than 6,000 schools that include public, private, and vocational schools?

529

What is the main point of the FAFSA form?

To collect a wide range of information: personal data, educational data, standardized test scores, family information, academic honors, extracurricular activities, and work experience

What are the main sources of funds for college

All answers are correct

What is a college financial aid form that you should fill out even though it's optional

FAFSA

What are benefits of a 529 plan?

All answers are correct

What should you do if you're having trouble meeting your student loan payments?

Work with your lender to come up with a more manageable payment schedule

What are two types of student loans?

Federal and private loans

What is the main thing you can do to boost your chance of a comfy retirement?

Invest as much as you can during your working years

What does your estate plan include?

All of the above

What is a slid savings rate to aim for with your retirement savings?

15% of your income

What is a federal safety net, funded by the FICA tax, that pays benefits to 1/2 the elderly and disabled?

Social security

When can you claim social security?

At age 62, though you can boost your benefits by waiting until age 70

What type of trust allows the trustor to change beneficiaries and asset allocations?

revocable trust

When should you star saving for retirement?

By the time you get your first job that offers a retirement savings plan.

What term describes the person given the power to manage and administrate a trust?

Trustee

What are two benefits of an IRA and 401(k)s?

Tax deferment and compound interest.

What are the two main sources of retirement income?

Social security and investment accounts

True or false: Closing old cards you don't use anymore can help your credit score.

False

What are some things you shouldn't do because they'll hurt your credit score?

All answers are correct

TransUnion, Equifax, and Experian are all examples of what?

Credit bureaus

FICO, the most well-known type of credit score, stands for what?

Fair Isaac Corporation

What term describes your reputation as a borrower?

Credit

Missing what sort of loan payment is a big deal and is something you should always avoid?

Credit card

What would be a great FICO score range?

800-850

What are you doing when you pay with a credit card?

Borrowing money from the credit card issuer that you will have to repay

Using what responsibly can help you build a good credit history?

Credit cards

What are some things you can do to improve your credit?

All answers are correct

True or false: Receiving $10,000 every month is better than receiving a penny that doubles every day for a month

False

You should keep how many months of living expenses in your emergency savings fund?

3-6 months

What does "good debt" look like?

A loan with a low interest rate that pays for a smart investment

Respectively, how do banks make money and what independent federal agency insures your bank deposits up to $250,000?

Charging interest on loans, Federal Deposit Insurance Corporation (FDIC)

In contrast to simple interest, what term describes earning interest on the interest you've already earned

Compound interest

What term describes interest earned only on the initial amount borrowed?

Simple interest

Student loans, small-business loans, auto loans, and mortgage loans are all types of what?

Debt

What is the key to letting compounding work its magic?

Do not withdraw money you earn and instead let it continue to grow

What is the rule-of-thumb budget?

50% Essentials, 20% goals, 30% flexible

What term describes the process of getting your finances organized?

Financial planning

What do you typically need to trade stocks?

Set up an account with a broker

What are two ways investors can earn returns on stocks?

Dividends and capital (price) gains

Respectively, what term describes an investment that pools investors' money and is run by a professional manager and what term is a collection of securities that copies the performance of well-known indexes and has low fees.

Mutual fund, index fund

True or false: U.S. stocks have never lost money over twenty-year

True

What type of investment typically has a lower risk and lower return than stocks?

Bonds

What term describes a simple way to determine how long an investment will take to double given a fixed annual rate of interest?

Rule of 72

What might a company's reason for going public as an Initial Public Offering (IPO)?

All answers are correct

Respectively what term describes the market when stock prices are rising and what term describes the market when stock prices are declining?

Bull market, bear market

What term describes pieces of ownership in companies?

Stocks, shares, or equities

What two thins tend to make the stock market go up?

Lower interest rates and lower taxes