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FINANCIAL LITERACY EXAM

PFL – Personal Financial Literacy Event

INSTRUCTIONS: This is a timed, comprehensive exam for the occupational area identified above. Do not open this booklet until instructed to do so by the testing monitor.

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This comprehensive exam was developed by Working in Support of Education (w!se) exclusively for DECA’s 2014-2015 Competitive Events Program. Items represent a variety of instructional areas and standards. A descriptive test key, including question sources and answer rationale, has been provided to the DECA chartered association advisor.

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Competency-BasedCompetitive Events

*Written Exam*for State/Province Use

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FINANCIAL LITERACY EXAM 1

1. A financially literate person willA. only buy brand name products.B. never borrow money under any circumstance.C. keep all savings in a checking account.D. know the difference between needs and wants.

2. Which statement describes the relationship between values and financial decisions?A. Values are influenced by family, friends, and experiences but have no effect on financial

decisions.B. A value is a fundamental belief, it has no effect on a person’s financial decisions.C. Values are influenced by family, friends, and experiences and they affect a person’s financial

decisions.D. Financial decisions are not determined by values, they are determined only by the amount of

income one has.

3. What are important components of a financial goal?A. General, safe, sound.B. Research-based, active, short-term.C. Specific, measurable, realistic.D. Inspirational, feasible, universal.

4. Which of the following provides income to individuals during their retirement years after age 62?A. The Social Security System.B. The Federal Reserve System.C. Medicare.D. Commercial banks.

5. A person wants to have enough money so she can pay for her two year old daughter’s college education that will be in about sixteen years. What kind of a goal does she need?

A. A short term goal.B. An intermediate term goal.C. A long term goal.D. A business goal.

6. If a person is a victim of identity theft, it is important toA. immediately call major credit bureaus to request a “fraud alert” be put on her file. B. leave each bank and credit card account open as proof of unauthorized transactions.C. consolidate her outstanding balances due on loans and credit cards.D. wait for the police to complete their investigation.

7. An identity thief usually wants toA. use personal information for his own gain.B. take over a person’s position at a company.C. physically harm a specific person.D. change his personal profile.

8. A famous actress is promoting a skin product for $120 a jar. This product, being sold online, is extremely popular. The success is most likely due to the

A. daily use of skin products.B. skin product being made in the United States. C. high consumer interest in skin products. D. advertisements featuring the actress using the skin product.


9. What is the role of the Consumer Financial Protection Bureau?A. To monitor the sales of stocks and bonds to consumers.B. To set the interest rate charged to consumers.C. To regulate financial products and services used by consumers. D. To oversee the printing of money for consumers.

10. Of the following, which is the most important question to ask a financial planner before using her as an advisor?

A. Does she guarantee a profit each year?B. Does she offer discounts on services provided?C. How many customers does she work with?D. Is she licensed or certified in the field?

11. Which of the following families would be affected the most by a 10 year period of high inflation?A. A couple in their 20's who both work.B. A couple in their 30's with two children.C. A couple in their 50's saving for retirement.D. A couple in their 60's living on fixed retirement income.

12. What aspect of owning a business does a person, based on research, find most rewarding? A. The prestige. B. Having fixed hours each day. C. Being one’s own boss. D. The profitability.

13. A factor that increases the number of job opportunities is theA. rise in demand for goods and services within an industry.B. number of unemployed individuals older than 20 years of age.C. increase in real estate prices.D. increase in the cost of living.

14. The most important factor that helps determine the amount of money a person will earn is theA. person’s record of volunteering.B. person’s appearance.C. skills the person possesses. D. size of the person’s family.

15. Mandatory payroll deductions from an employee’s gross wage in each pay period are mainly for A. capital gains.B. life insurance.C. dividends.D. taxes.

16. Three of the following are steps a person should take to be prepared for investing and making money grow. Which step should not be included?

A. Save toward an emergency fund equal to 6 months of income.B. Learn more about investing and potential investments.C. Find a team of trusted financial advisors and mentors.D. Review credit reports each year.

17. A true statement about a stored-value card or a debit card is that aA. stored-value card is not issued in the name of the holder.B. stored-value card is linked to a person’s checking account.C. debit card has a specific dollar amount available for use.D. debit card will decrease in value over time if not used.


18. A person starts working for a new employer. She had to complete a form with her name, address, Social Security number, marital status, and the number of exemptions she is claiming. This form is called a

A. form W-2.B. form W-4.C. job application.D. employee time sheet.

19. A man’s take-home pay is $2,000 a month. He must pay $800 for rent and $200 for groceries each month. He budgets and does not spend more than $250 per month on transportation, $25 for clothing, $125 for restaurants and $400 for miscellaneous expenses. How long will it take him to accumulate savings of $600?

A. 1 month.B. 2 months.C. 3 months.D. 4 months.

20. An individual wants to start investing an additional $50 a month. Usually, the easiest way to adjust a monthly budget to meet this goal is to reduce

A. spending for car insurance.B. rent payments.C. credit card purchases.D. federal income tax payments.

21. A person who acts on behalf of a person who died and had a will is called theA. guardian.B. beneficiary.C. executor.D. trustee.

22. How can a person lower her liabilities?A. Meet with a financial advisor.B. Add investments to her portfolio.C. Buy a life insurance policy.D. Use her assets to pay her debts.

23. A cash flow statement is important because it A. Tells a business owner how much profit or loss the business has each year.B. Tells the owner how much cash the business has during specific time periods.C. Projects the monthly expenses for the business.D. Gives the business owner a list of the company’s assets.

24. Which of the following is generally a variable expense?A. Rent.B. Car loan payment.C. Clothing.D. Health insurance.

25. When preparing a budget, a person needs to first know hisA. gross income.B. net income.C. liquid assets.D. total assets.


26. A late fee on a person’s monthly bill results in aA. higher balance due.B. lower balance due.C. lower Annual Percentage Rate (APR).D. higher credit score.

27. When a person determines his net worth, it helps him to A. know his current financial position.B. determine his insurance needs.C. identify alternative investments.D. prepare a statement of profit or loss.

28. Which transaction for getting cash would result in an unnecessary fee?A. Withdrawing money at the bank ATM where she has an account. B. Cashing a check at a check cashing store.C. Asking a relative to cash a check.D. Withdrawing money from her credit union emergency account.

29. A person is selling his motorcycle. The buyer wants to pay with a personal check. The seller should know that the buyer’s check

A. can only be cashed at the bank that issued the check.B. is as good as cash.C. has to be for at least $500.D. can be cancelled by the buyer.

30. A person who runs her own T-shirt company is a/anA. partner.B. entrepreneur.C. employee.D. executive.

31. Which of the following is correct concerning the $90 in interest that a person earned on a bank savings account?

A. Savings account interest earned is tax free.B. Income tax may be charged on the interest earned.C. Property tax may be charged on the interest earned.D. Only joint savings accounts earn interest.

32. What is an advantage of using the internet to buy goods and services?A. Being able to make a purchase from home.B. The security of personal information.C. Being able to carefully examine the item.D. Taxes are never charged.

33. Consumer protection laws forbid gift cards to expire for at leastA. one year.B. two years.C. four years.D. five years.

34. What should a young person do first before sharing an apartment with a roommate?A. Discuss the decision with family members before signing a lease.B. Reach agreement on expenses to be shared along with how they are divided.C. Have at least eight months of rent saved in a bank account.D. Develop a joint financial plan.


35. When a person is filing for Chapter 13 bankruptcy, which of the following is true?A. Alimony and child support payments end.B. A repayment plan with creditors is created.C. The bankruptcy is not listed on a person’s credit report.D. Lenders do not have to be paid.

36. A good strategy to get help for paying college tuition without increasing debt is to apply for aA. bank loan.B. scholarship.C. payday loan.D. credit card advance.

37. Yolanda has three credit cards and she owes $2,000 on each of them. The interest rates on the cards are – Card A is 7%, Card B is 9% and Card C is 8%. After paying the minimum amount due, Yolanda has $1,000 to pay some more of her debt. Which cards should she pay if she wants to minimize future interest payments?

A. $500 to card B and $500 to card C.B. $500 to card B and $500 to card A.C. $500 to card A and $500 to card C.D. $333 to card A and $333 to card B and $334 to card C.

38. What information is included on a credit report?A. The person’s driver’s license number.B. Details in a person’s will.C. Number of requests from different creditors. D. Health history.

39. What can a person do to start building a credit history?A. Get a credit card and pay bills on time.B. Pay for electricity bills with cash.C. Avoid parking tickets for three years.D. Take advantage of discounts offered by local stores.

40. If a person plans to charge $500 on a credit card to be paid back over five months, which credit card would be the best choice?

CreditCard

Annual Percentage

Rate for Purchases

Minimum Finance Charges

Annual Fees

Transaction Fees for

Cash Advances

Late Payment

Fees

1 19% $50 No annual fees

3% with a minimum fee

of $5$25

2 23% None $12 per year


of $10$30

3 16% $1 $10 per year


of $5$20

A. Credit Card 1.B. Credit Card 2.C. Credit Card 3.D. Not enough information.


41. A person’s credit card is stolen. The thief illegally charges a total of $1,000 on the card after the card owner notified the issuer of the card that her card was missing. What is the maximum amount that the card owner can be forced to pay according to Federal law?

A. Nothing.B. $50.C. $500.D. $1000.

42. Which of the following statements is true?A. Banks and other lenders can access the credit history of a borrower and are likely to know of

any loan payments that were missed.B. People have so many loans and it is unlikely that one bank will share a person’s history with

another bank.C. A person’s bad loan payment record with one bank will not be considered if applying to

another bank for a loan.D. If a payment was missed more than 2 years ago, it cannot be considered in a loan decision.

43. Which of the following is not a credit bureau from which a person can obtain a credit report?A. Experian.B. Equifax.C. Santander.D. TransUnion.

44. Generally, which action negatively impacts a person’s credit score the most?A. A credit card account is not used.B. A capital loss on the sale of stocks.C. Non-payment on credit card bills for 5 months in a row.D. The approval for a 20-year fixed-rate mortgage loan.

45. Not making payments or carrying an excessive amount of debt can remain on a person’s credit report for up to

A. three years.B. seven years.C. fifteen years.D. the life of the person.

46. Which of the following statements about credit cards is true?A. They are very convenient for many types of purchases.B. They usually provide free financing for large purchases.C. The monthly statement helps a person keep track of how much money is being saved.D. A person has no limit on how much he buys when using his credit card.

47. A person fails to pay a creditor the money she owes. The creditor gets a court order requiring her employer to take money out of his salary. This type of collection is known as

A. a premium.B. a foreclosure.C. predatory.D. garnishment.

48. The dollar amount of the credit limit on a credit card isA. set by law and the same for all borrowers. B. the minimum amount of credit charges allowed.C. a fixed amount that cannot be changed.D. Related to the person’s income level and credit score.


49. What is a disadvantage of using a credit card?A. Credit cards permit the purchase of goods and services in an emergency.B. Credit cards are inconvenient and inefficient way to buy goods and services.C. The use of credit cards lowers a person’s credit score.D. The interest rate on credit cards can be higher than other credit sources.

50. What happens when a person uses a credit card?A. Each purchase is recorded as part of a person’s credit history.B. A person is spending the company’s money and taking out a loan with interest if not paid in

full by the due date.C. When a person uses the card, funds are withdrawn from that person’s account with the

company.D. A credit reporting agency raises and lowers the person’s credit score based on monthly

spending.

51. Which interest rate is a lender legally required to provide to borrowers?A. The prime rate.B. The annual percentage rate.C. The national rate.D. The discount rate.

52. A person’s credit score can affect theA. Person’s acceptance to college.B. cost of renting a car.C. person’s ability to make purchases online.D. interest rate on a loan.

53. A person can increase her credit score if she has aA. Past –due, unpaid balance from many different lenders.B. record of borrowing money to pay her daily living expenses.C. record of successfully managing several types of credit. D. co-signer on her credit card account.

54. Which of the following would likely be the least expensive loan?A. A personal loan from a payday lender.B. A loan that uses the $1,000 balance in a savings account for collateral.C. A store loan to buy a computer.D. Buying a stove using a credit card that the person will repay in one year.

55. A person applied for a credit card and was denied. The most likely reason for the credit card company not approving the credit card application is that the person

A. has a history of late student loan payments. B. had a very low grade-point average in college.C. does not own a home.D. does not have diversified investments.

56. A finance charge is defined as theA. time period during which a person needs to pay the amount due.B. amount of money that a person borrows.C. amount of cost a person pays to use credit. D. amount that a cardholder will be paid.


57. As a result of a person’s poor credit rating, a lender mayA. refuse to give a reason for denying a loan.B. ask for medical information.C. require additional education.D. ask for a co-signer.

58. A lender will look at a person’s credit report before approving a loan in order to determine if the person

A. has dependents.B. has a history of saving monthly.C. is saving money regularly.D. is responsible.

59. What is the name of the credit score that is checked when a person applies for a home mortgage loan?

A. FICO Score.B. DEA Score.C. PAC Score.D. REAL Score.

60. Credit card companies earn more money from interest payments if a personA. repays the balance over a short period of time.B. repays the balance in full immediately. C. does not repay the balance due. D. repays the balance over a long period of time.

61. The advantage of making a large down payment for a car is that theA. insurance on the car will be cheaper.B. price of the car will be reduced.C. monthly payments will be lower.D. repair warranty will be for a longer period of time.

62. If a person has a 20-year variable interest-rate mortgage, the monthly mortgage payment is likely toA. remain the same for the entire period of the loan.B. change several times during the period of the loan.C. increase 1% each year for the life of the loan.D. decrease 1% each year for the life of the loan.

63. Which action is an indication that a person is having financial problems?A. Having to borrow money to buy a new truck.B. Applying for a loan to go to community college.C. Applying for a mortgage to buy a vacation home.D. Having to borrow money each month to pay for living expenses.

64. Which Act is known for addressing unfair credit industry practices such as increasing interest rates without notifying the consumer?

A. The Truth in Lending Act.B. The Consumer Credit Protection Act.C. The Equal Credit Opportunity Act.D. The Credit Card Act.

65. Health insurance premiums are higher for a person whoA. takes vitamins every day.B. is on a diet that excludes gluten.C. regularly sees a doctor.D. smokes.


66. Before an auto insurance company makes a payment on a claim, the owner of the policy must pay the

A. expenses.B. deductible.C. interest.D. coverage.

67. A 40-year-old person with a history of serious illness in his family wants to protect himself against the high cost of having someone help him in the event he is so sick that he cannot help himself. The insurance policy that will pay for this kind of assistance is

A. life insurance.B. long-term care insurance.C. liability insurance.D. homeowners insurance.

68. When a person buys disability insurance, he is protected againstA. losing his full-time job for any reason.B. financial loss from medical expenses due to an injury.C. higher health care costs due to a depression or recession.D. loss of income if unable to work due to an injury or long-term illness.

69. Before purchasing an extended warranty on an extremely expensive item, a person shouldA. ask the salesman for his expert opinion on buying the product.B. conduct research to determine if the benefits outweigh the cost.C. make a decision based on his best instinct.D. take the advice of friends who own the same product.

70. A person, who moved into an unfurnished apartment that her uncle owns, had a fire one month later. Her damaged furniture is covered if she has

A. liability insurance.B. comprehensive insurance.C. renters insurance.D. general insurance.

71. What is most likely to lower the cost of a car insurance policy?A. Being a new driver less than 25 years old.B. Completing a safe driving course.C. Purchasing a new car.D. Having a good health history.

72. If each of the following people had the same amount of take home pay, who would need the greatest amount of life insurance?

A. A 30-year-old male with no children.B. A single male with one young child.C. A retired male who lives alone.D. A 50-year-old single male with no children.

73. If a person has caused an accident, which type of automobile insurance would cover the cost of repairing the damage to his car?

A. Comprehensive.B. Liability.C. Term.D. Collision.


74. Describe the relationship between insurance and risk.A. Risk is the fee paid to the insurer to be covered by the insurance company.B. There is no relationship between insurance and risk because they are independent of each

other.C. Risk is an arrangement between an individual and an insurer to prevent the individual from

having an accident. D. Insurance is an arrangement with an individual and an insurer to protect the individual against

risk.

75. What is the disadvantage of managing risk through avoidance? A. the person has to perform additional activities.B. the person eliminates the need for insurance.C. the person gives up the possibility of potential benefits.D. the person lowers potential liabilities.

76. What might happen if a person does not have health insurance as an adult?A. She will have to pay a fine and pay for all of her health care.B. She will have to ask her employer to pay her medical expenses.C. She will have to ask the doctor to provide medical care at no cost.D. She can do nothing and can ignore medical bills.

77. The time value of money implies that a dollar received today is worth A. less than a dollar received tomorrow.B. more than a dollar received tomorrow.C. the same as a dollar received tomorrow.D. twice the value of a dollar received tomorrow.

78. Interest earned on principal and on previously earned interest is calledA. rate of return.B. compounding.C. inflation.D. liquidity.

79. Which of the following is a true statement about savings or investing?A. Savings is money set aside to grow for short-term goals.B. Investing is putting money to work without risk for long-term goals.C. Savings cannot be accessed easily for emergencies.D. Investments are the same as cash for immediate emergencies.

80. What do financial advisors recommend be saved from income each pay period?A. 40% or more each pay period.B. As much as possible each pay period.C. As little as possible each pay period.D. It only matters if a person is older than age 40.

81. A person has $100 in a savings account that earns 2% interest a year. If no additional deposits are made after two years, how much would be in the savings account?

A. More than $102.B. Exactly $102.C. Less than $102.D. Depends on the person’s age.


82. Imagine that the interest rate on a savings account is 4% a year and inflation is 6% a year. After one year, what is true about the money in the account?

A. It would buy more than it does today.B. It would buy the same as it does today.C. It would buy less than it does today.D. It cannot be determined.

83. What is the annual interest rate most banks are paying on savings accounts in 2015?A. Less than 3%.B. Changes weekly.C. More than 3%.D. Zero interest.

84. Many people put aside money to take care of unexpected expenses or emergencies. Which of the following would help a person the least if money is needed immediately?

A. A house.B. Checking account.C. Stocks.D. Money market account.

85. According to the "Rule of 72", if the interest rate earned is 6%, money will double in value inA. 4 years.B. 6 years.C. 12 years.D. 16 years.

86. Why are banks and credit unions safe places to keep savings?A. They pay interest on most accounts.B. Their deposits are insured.C. They do background checks to ensure no employee has a criminal record.D. They are monitored by their local government officials.

87. All of the following organizations accept deposits for savings except A. commercial banks.B. savings institutions.C. real estate firms.D. credit unions.

88. Why is dollar-cost averaging generally an effective investment technique?A. Investors pay lower taxes on capital gains.B. Investors are protected against financial loss.C. An investor buys more shares when the market is high and fewer shares when the market is

low.D. An investor buys fewer shares when the market is high and more shares when it is low.

89. A person wants to save for her retirement. The type of retirement account she selected allows her to make withdrawals after age 59½ tax free. What type of retirement account did she choose?

A. Traditional IRA.B. Roth IRA.C. 401(k).D. 405(k).


90. Which is true about investing in stocks?A. Investors may lose the entire amount invested.B. Investor risk is very low.C. Investment gains cannot exceed a person’s annual salary.D. Investments do not decrease in value overnight.

91. Even though municipal bonds tend to have low yields, for which reason can buying municipal bonds be a good financial decision?

A. The local projects they support generally have high profit potential.B. The interest they pay is generally exempt from federal taxes.C. They are traded often by investment brokers.D. They can always be sold at a profit.

92. A sporting goods company was founded in 1915. It is a nationally recognized public company with a consistent record of quality products, reasonable prices, good management, great customer service, dividend payments, and a long record of profits. The stock of this company is known as

A. growth stock.B. blue chip stock.C. speculative stock.D. income stock.

93. When interest rates increase, bond prices usuallyA. increase.B. decrease.C. stay the same.D. fluctuate.

94. When a person transfers money from one retirement plan to another it is called aA. changeover.B. cashover.C. rollover.D. turnover.

95. Debt obligations issued and backed by the full faith and credit of the U.S. federal government are known as

A. corporate bonds.B. promissory notes.C. municipal bonds.D. treasury bonds.

96. A person is thinking about investing in corporate bonds. She is a little worried because this would be a long-term investment and she thinks it is possible that the interest that she will earn in the future will not buy as much as it would today. What risk factor is this person worried about?

A. Inflation risk.B. Credit risk.C. Business failure risk.D. Market risk.

97. An investing strategy to reduce risk among investments is known asA. interest.B. dividends.C. diversification.D. gains.


98. Which of the following investments generally has the highest risk?A. Speculative stocks.B. Treasury notes.C. Mutual funds.D. Corporate bonds.

99. Generally, the advantage of buying stock mutual funds is that theA. investment is guaranteed to earn capital gains.B. funds are always tax-free for investors in the United States.C. fund managers work on producing capital gains for investors.D. Federal Reserve System (Fed) protects the investment.

100. A married couple has college education accounts for their four children. Which of the following accounts should have the highest percentage of risk-free investments?

A. The account for Mike, who is 15.B. The account for Jenna, who is 12. C. The accounts for Matt and Eric, who are 8 years old twins.D. The accounts for all children should have the same investments.

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