Make us your home page
Instagram

What's your personal finance IQ?

ANSWERS

1. (b) After your payment history (35 percent), the second largest factor used to determine your credit score is the amount you owe. According to FICO, it counts for 30 percent. This isn't simply the total amount you owe, but weighs several related issues; among them: what's owed on specific types of accounts; the number of accounts with balances; and the proportion of your total available credit that's used. Check here for more details: http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx .

2. (b) This is a myth. That said, there is nothing wrong with using a target-date mutual fund as the only investment if an investor decides, based on risk tolerance and time frame until retirement, that one fund fits his or her needs, says John Ameriks, head of Vanguard Investment Counseling & Research. In some cases, however, investors may choose to own shares in a target-date fund in addition to stock in the company for which they work. He adds company stock should be limited to a modest percentage of the overall portfolio. Secondly, using a target-date fund as a core holding and adding additional stocks for a more aggressive portfolio, or bonds to be more conservative, can provide adequate diversification, Ameriks says.

3. (a) Truth. Credit card reforms enacted in 2010 added various consumer protections. Rates on existing balances, can't be raised unless the account is at least 60 days past due. If payments are made on time for six consecutive months, the original rate must be restored.

4. (b) The biggest difference is when you pay taxes. All or part of traditional IRA contributions are tax deductible depending on your circumstances, and you pay taxes when you make withdrawals from the account. Roth IRA contributions are not tax deductible, but upon withdrawal the earnings and principal are tax free if you've followed all the rules. The mix of investments you may choose are generally the same for both accounts.

5. (c) Annual Percentage Rate. It is the cost of a loan over a year's time, typically including interest, insurance and origination fees (also called points). It's used for home and car loans, and credit cards.

6. (c) A money-market account is an interest-bearing savings account offered through a bank and is insured by the FDIC. A money-market fund is short for money-market mutual fund, which invests in short-term debt such as Treasury bills or short term corporate bonds. Although their yields are now at historical lows, money-market funds generally offer a slightly higher return than money-market accounts.

7. (b) Myth. You need to take an active role in managing your account. An automatic enrollment plan likely starts you at a low level of contributions, often 3 percent of your income. That may not even be enough to capture your company's match, which means you're leaving free money on the table. In addition, the investments your money is placed in may not correspond to your personal retirement goals.

8. (b) Myth. There are three credit reporting agencies. They are Equifax, Experian and TransUnion. Federal law requires that they allow you to see your report at least once a year for free. The reports aren't identical so you should look at all three. It's best to look at one every four months to monitor your credit throughout the year. Get the free reports at https://www.annualcreditreport.com or call 1-877-322-8228.

9. (b) Myth. There's a difference between a tax credit and a tax deduction. A tax deduction reduces the amount of your income that is taxable; such as the deductions parents take for dependent children. A tax credit is different in that the amount is deducted directly from the taxes you owe. So the first-time home buyer tax credit that was enacted to stimulate the economy directly reduced the tax bill of those purchasers by up to a maximum of $8,000.

10. (e) The Wilshire 5000 with more than 5,000 companies is considered the broadest measure of the U.S. stock market, tracking nearly all actively traded U.S. stocks. Although the Dow may be the most cited index and the most watched by Main Street investors, it includes just 30 companies. The S&P 500 is mostly large companies and is used frequently by fund managers and other institutional investors. The Nasdaq composite index tracks stocks on that exchange. The Russell 2000 tracks 2,000 small companies.

11. (b) Myth. Despite its name, comprehensive coverage refers only to a portion of an auto insurance policy that covers damage to the policyholder's car not caused by a collision, such as weather, theft or vandalism.



Even the most financially savvy individuals encounter and sometimes let personal finance myths influence how they manage their money. Some of these misconceptions are rooted in faulty information right from the start. Still others might have been valid at one point, but have only since become outdated. Try this short quiz to test your knowledge of some essential facts about sound money management. (Answers below):

1 After my payment history, the largest single factor that determines my credit score is:

(a) The length of my credit history (b) Amount of debt I owe (c) The number of credit cards I have (d) The number of credit applications I've made within the last year

2 If I own a target-date mutual fund in my 401(k), which minimizes my risk of stock market losses as I approach retirement, I shouldn't invest in other mutual funds. That's because a target-date fund is designed to be an all-in-one investment.

(a) Truth (b) Myth

3 Recent changes to credit card regulations mean that the interest rate on an existing credit card balance can't be raised unless payments are 60-days past due

(a) Truth(b) Myth

4 What's the biggest difference between an Individual Retirement Account (IRA) and a Roth IRA?

(a) The investments you can choose from — stocks, bonds or CDs; (b) When you will pay taxes; (c) Where you can open an IRA — a bank or brokerage house

5 When applying for a loan, what does the acronym APR stand for?

(a) Average Principal Return; (b) Average Percentage Rate; (c) Annual Percentage Rate

6 What's the difference between a money-market account and a money-market fund?

(a) There is no difference; (b) One pays interest, the other does not; (c) One is offered by a bank and is insured by the FDIC, the other is not

7 If I've been automatically enrolled in my 401(k) at work I should be on track with my retirement savings.

(a) Truth; (b) Myth

8 Of the three credit reporting agencies, I really need to look at just one report a year to make sure everything's okay.

(a) Truth; (b) Myth

9A tax credit is deducted from a person's taxable income.

(a) Truth; (b) Myth

10 The broadest indicator of how U.S. stocks are performing is:

(a) Dow Jones industrial average; (b) Standard & Poor's 500 index; (c) Nasdaq composite; (d) Russell 2000; (e) Wilshire 5000

11Comprehensive auto insurance coverage means that you can be reimbursed for the cost of any damage to your car caused by a collision.

(a) Truth; (b) Myth

SCORING SYSTEM

0-3: It's never too late to learn. But it's time to get started.

4-5: You show some progress, but how about picking up a few personal finance books or checking out some websites.

6-7: This is not bad, but could be better. With a little work you show promise.

8-9: Very good, you should be on solid financial footing.

10-11: Perfect! You have an exceptional wealth of personal finance knowledge.

What's your personal finance IQ? 04/02/11 [Last modified: Friday, April 1, 2011 8:15pm]
Photo reprints | Article reprints

© 2017 Tampa Bay Times

    

Join the discussion: Click to view comments, add yours

Loading...
  1. Do you want Walmart in your home when you're not?

    Retail

    Delivery workers who drop off Walmart groceries may soon also bring them into your kitchen and unload them into your refrigerator, even if you're not home.

    Delivery workers who drop off Walmart groceries may soon also bring them into your kitchen and unload them into your refrigerator, even if you're not home.
[ALESSANDRA DA PRA   |   Times file photo]

  2. Trumps travel ban to be replaced by restrictions tailored to certain countries

    Nation

    WASHINGTON — President Donald Trump's ban on travelers from six majority-Muslim countries is set to be replaced as soon as this weekend with more targeted restrictions on visits to the United States that would vary by country, the New York Times reports, citing officials familiar with the plans.

    President Donald Trump's ban on travelers from six majority-Muslim countries is set to be replaced as soon as this weekend with more targeted restrictions on visits to the United States that would vary by country, officials familiar with the plans said Friday. The new restrictions, aimed at preventing security threats from entering the United States, could go into effect Sunday after the conclusion of a 90-day policy review undertaken as part of the administration's original travel ban. Though the restrictions would differ for each country, people living in the targeted nations could be prevented from traveling to the United States or could face increased scrutiny as they seek to obtain a visa. [Associated Press]
  3. In dollars: How valuable are Florida's university football programs?

    Business

    The University of Florida football program is valued in a new study at $682 million, making it the most valuable university team in the state but still worth far less than several college programs topping $1 billion. Four years ago, UF's program was valued at just under $600 million.

    The University of Florida football program is valued at  $682 million, making it the most valuable by far in the Sunshine State. Pictured are UF cheerleaders leading the crowd in a Gator cheer on Clearwater Beach last December during the Outback Bowl Beach Day on Clearwater Beach. [SCOTT KEELER   |   Times]
  4. After 22 years, it's last call for beloved Ybor venue New World Brewery

    Music & Concerts

    YBOR CITY — Steve Bird spreads his tools across a patio table. He has awnings to unbolt and paraphernalia to unpry, from the busted Bop City neon by the stage to the Simpsons "El Duffo o Muerte" mural in the courtyard. He'll uproot a fountain and dismantle a roof and attempt to keep his bar intact. The …

    Various decor and memorabilia fill the walls and shelves at New World Brewery in Ybor City.
Long time music venue and hangout New World Brewery in Ybor City will be closing it's doors and moving locations. Patrons enjoy one of the last events before New World Brewery changes its location to Busch Blvd in Tampa.  [Photo Luis Santana | Times]
  5. Florida bought more Pasta Passes from Olive Garden than almost any other state

    Food & Dining

    Floridians would like their bowls of pasta to never, ever end.

    Florida was the No. 2 state with the largest number of Olive Garden Pasta Pass purchases, an unlimited pasta pass for $100. Photo courtesy Olive Garden.