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WISE FINANCIAL LITERACY CERTIFICATION TEST PRACTICE QUESTIONS AND ANSWERS
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WISE FINANCIAL LITERACY CERTIFICATION TEST PRACTICE QUESTIONS AND ANSWERS
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Name: Score:45 Multiple choice questions
Term 1 of 45
Exemption (allowance) and how it works
Equifax, transunion, experian
The longer you take to pay back a loan, the more you will pay in interest and principal
overall.
Not allocated for food or shelter
Allowance is used to reduce amount of taxed income
Term 2 of 45
What to do if a person thinks he/she is a victim of identity theft
How long (years) will take to double an investment? Divide by the interest rate to be
earned: 72 divided by 3% interest = 24 years (if you are given the number of years and
need to determine the interest rate needed to double your money, then divide 72 by the
given number of years: 72 divided by 24 years = 3% interest
Making loans to customers who are poor credit risk (low credit scores) and making those
customers pay extremely high interest rates
Contact banks and cancel all credit card/debit cards, review bank accounts to see if
there are recent charges/purchases on accounts, contact all 3 credit bureaus to report
identity stolen, apply for new social security card.
Creditors, people living on fixed income, and people trying to save are hurt the most.
People who owe a significant debt are benefitted
,Term 3 of 45
Why does the U.S. currency have value even though it is not tied to a commodity
There is a belief that money has value and there fore is accepted
The value of money is determined by the weight of coins and bills
Currency is backed by gold reserves which gives it value
The government sets the value of currency based on demand and supply
Term 4 of 45
Collateral (secured vs. unsecured loans)
If unauthorized charges are made with your credit card before you report it lost or
stolen, the maximum amount you can be liable for is $50. If the charges are made after
you report the card lost or stolen, you have no liability. If you don't report card after it is
lost or stolen, you have full liability to pay back charges.
Collateralized loans--the loan is collateralized/secured by the item you bring in order to
get a loan from the pawn shop. You pay interest on the loan and a type of fee
Collateral.secured loans use an item (house, car, appliances, etc...) to guarantee the
loan. An unsecured/uncollateralized loan is a personal loan--secured only by someone's
good credit score
Insurance policies transfers all or some of the financial impact of unexpected events.
Insurance exists to help individuals recover from the financial consequences of these
events by pooling the resources of a large group to pay for the losses of a small group
Term 5 of 45
Who is hurt the most and the least with inflation
Inflation primarily benefits low-income earners and retirees
A credit-to debt ratio is the amount of available credit you have relative to the amount of
debt you carry
Creditors, people living on fixed income, and people trying to save are hurt the most.
People who owe a significant debt are benefitted
Inflation has no impact on individuals' financial situations
,Term 6 of 45
Time value of money
Is calculated by value of money with given amount of interest earned over a period of
time; the longer the time you keep your money invested, the more interest you will earn
A number representing the creditworthiness of a person, and the likelihood that person
will pay his or her debts. Lenders, such as banks and credit card companies, used credit
scores to evaluate the potential risk posed by lending money to consumers
A credit-to debt ratio is the amount of available credit you have relative to the amount of
debt you carry
Collateralized loans--the loan is collateralized/secured by the item you bring in order to
get a loan from the pawn shop. You pay interest on the loan and a type of fee
Term 7 of 45
Characteristics of predatory loans
Term life insurance is an insurance policy that will pay a lump-sum benefit to your family
or another beneficiary of your choice, if you die while the policy is in effect. Is not a
permanent life insurance policy
Member owned co-operative financial institution--advantage is lower interest rates on
loans
Creditors, people living on fixed income, and people trying to save are hurt the most.
People who owe a significant debt are benefitted
Making loans to customers who are poor credit risk (low credit scores) and making those
customers pay extremely high interest rates
Term 8 of 45
Institutions that give loans
Automatically route money from paycheck to savings (before paying bills)
A credit-to debt ratio is the amount of available credit you have relative to the amount of
debt you carry
Wages, rentals, interest, capital, profit, investments, entrepreneurship
Banks, credit unions, pawnshops, finance companies, payday lenders, and tax preparers
, Term 9 of 45
What is a credit union and the advantage of using it
Government regulated entity--advantage is limited access to funds
Private equity firm--advantage is risky investment opportunities
Publicly traded investment firm--advantage is high fees on transactions
Member owned co-operative financial institution--advantage is lower interest rates on
loans
Term 10 of 45
Consequence of paying the minimum payment due on a credit card bill or paying a bill late
If you have a low credit score, it demonstrates you are a poor credit risk, and you will
pay a much higher interest rate on loans
A deductible is the amount that the insured has agreed to pay before the insurer is
obliged to pay anything on a covered claim. The higher the deductible, the lower the
monthly premium (payment)--the lower the deductible, the higher the monthly premium
(payment).
A number representing the creditworthiness of a person, and the likelihood that person
will pay his or her debts. Lenders, such as banks and credit card companies, used credit
scores to evaluate the potential risk posed by lending money to consumers
Impacts credit score if paid late. If you are only paying minimum payment each month
you will take a much longer time to pay off balance--you will greatly increase the total
amount paid back due to APR charged per month
Term 11 of 45
Debt to Credit Ratio
A refund anticipation loan (RAL) is a short-term consumer loan secured by a taxpayer's
expected tax refund
Get good grades, no accidents, good credit, and drive a certain type of car.
A credit-to debt ratio is the amount of available credit you have relative to the amount of
debt you carry
Creditors, people living on fixed income, and people trying to save are hurt the most.
people who owe a significant debt are benefitted
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