Quiz created: 1999-02-07
Revised: 2004-02-06

Financial Affairs for College Students

Instructions: Answer the multiple choice questions, guessing if necessary, then click on the "Process Questions" button to see your score. The program will not reveal which questions you got wrong, only how many points you have. Go back and change your answers until you get them all right. (The message box will rejoice at that point and the page will change color in delight.)

Points to note: (1) Questions with only one possible answer are one point each. (2) Questions with one or more possible answers (represented by check boxes) give a point for each correct answer, but also subtract a point for each wrong answer! (3) The program will not attempt to score your efforts at all if you have not tried at least half of the questions. (4) This practice quiz is for your own use only. No record of your progress is kept or reported to anyone.

Introduction: The Jump$tart Coalition for Personal Financial Literacy seeks to introduce some financial literacy information into high schools. In a national survey in 1999, the Coalition discovered that many questions about daily financial situations were not correctly answered by more than half of the high school seniors examined.

In a new survey in 2002, scores were worse.

The first four questions in this quiz are among those with the highest error rates. Questions five and higher are ones I added.

A link is provided at the end to get you to the Jump$tart home page; if you find the questions here anything but trivial, you would probably profit by a visit to them.

1. If your credit card is stolen and the thief runs up a total of $1,000, you will be responsible for the following amount after notifying the credit card issuer:
2. Paul and Sarah just had a baby. They received money as baby gifts and want to put it away for the baby's education. Which of the following is likely to have the highest growth rate over the next 18 years?
3. If you go to college and earn a four-year degree, how much more money can you expect to earn that if you have only a high school diploma?
No more. I would make about the same either way. 
A little bit more, about 20% more. 
A lot more, about 75% more. 
About 10 times as much. 
No Answer
4. If you had a savings account at a bank, which of the following would be correct concerning the interest that you would earn on this account?
Savings account interest is not subject to income tax. 
Income tax may be charged on the interest if your income is high enough. 
Sales tax may be charged on the interest that you earn. 
You cannot earn interest until you pass your 21st birthday. 
No Answer
5. Jeff just got his first credit card bill, which lists $69 in purchases, with a minimum payment due of $10. He has decided to pay the $10 and leave the rest to pay next time. If he has no additional purchases, how much will he need to pay next time to pay it off entirely?
$59 
$10 
$59, plus whatever interest is listed on the next bill 
$59, plus whatever interest is listed on the next bill, plus additional interest that will accumulate between the time the bill was issued and the time the credit card company gets his check 
No Answer
6. Jeff has paid $10 of the $69 that was the total of his last credit card bill. He knows that he will need to pay interest on the remaining $59 that he is carrying over. He now charges $35 in textbooks on the same card. Does he automatically pay interest on the $35 too?
Normally, yes  Not usually, no.  No Answer
7. Katie, who has just graduated from college, has a job with an employer who has a 403b or 401k plan whereby money can be deducted from her check each month before the income tax is calculated. This reduces the income tax she must pay now, but it also reduces her income, since she can't withdraw the money till she is nearly 60, and will have to pay tax then both on the money and on any interest it has earned. On the other hand, it can be deposited in a variety of different ways while it is in the 403b or 401k fund.

Assuming that she doesn't actually need all of her check each month, is it a good idea to put part of her money in the fund?

Yes, since the deferred tax means she earns interest on the money she would otherwise pay in taxes, which creates an ever greater "loan from the government" on which she is earning interest. 
Yes, but only because it keeps her from spending the money, since the tax she pays at the end is the same amount she would pay if she did not put the money in the fund, merely delayed 
No, since participants in 401k and 403b plans are barred from participating in Social Security. 
No, since participants in 401k and 403b plans are not permitted to have other savings accounts. 
No, since 401k and 403b plans must be invested in stocks, which could drop before she is 60. 
No Answer
8. Amy has received notice that a major life insurance company is offering a very cheap rate for students, made cheaper yet by a further 70% discount while the student is in school, including graduate school. Amy is a senior and is planning to marry John the day after graduation, but she also plans to enter a graduate program with a normal time to a Ph.D. of about seven years. Assuming she can afford the cheap premium, does it make sense to buy some life insurance even though she is still a college student?
No, since life insurance gets cheaper as you get older and have less life ahead of you. 
Yes, since life insurance gets more expensive as you get older, and so this is the cheapest price she will probably ever have, and the extra discount for students will be a double advantage for her, since she will stay in school longer than the average student they are basing the rate on. 
No, since she has no children yet, and only one's children can be listed as beneficiaries of an insurance policy. 
No. If the premium is cheap, there is bound to be a catch. 
No Answer
9. Dave is worried because of all his parents' debt. They owe a lot of money on each of four different credit cards, plus a mortgage on their house, payments to the dealer where they bought their car, and time payments on both a computer and a television set. Dave's dad tells him that they are considering debt consolidation. What does that mean?
Borrowing money at a lower rate to pay off all the loans, producing a single debt at a lower rate of interest 
Declaring bankruptcy 
Turning over the bills to a collection agency 
Applying for different credit cards that can be used to pay the first ones 
Applying to join the federal Financial Self-Sufficiency Credit Association (FSSCA)  
No Answer
10. Candice has a credit card balance of $1000, which will be subject to 18% interest. If she pays the stated "minimum payment" on the bill each month, how long will it take to pay it off, and how much will she end up paying in interest?
Three months, $180 in interest
Ten months, $180 in interest
153 months (12 years and 9 months), $1,115 in interest
It can never actually be paid off, and if she lived forever, the interest would theoretically go to infinity.
No Answer
      Points out of 10:

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Link directly to the Jump$tart Coalition for Personal Financial Literacy home page.

Link to Net Credit education page.
(Net Credit is a commercial loan firm, but the page suggested here ends with a number of links to useful sites devoted to financial education for students, including Jump$tart and Federal Reserve Education. This link was suggested by a user of this quiz.)

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This consummately cool, pedagogically compelling, self-correcting,
multiple-choice quiz was produced automatically from
a text file of questions using D.K. Jordan's
Think Again Quiz Maker
of October 31, 1998.