Are you savvy with money? Take our financial literacy quiz

By Gina Freeman

Reviewed by Kimberly Rotter

Apr 12, 2024

Read time: 2 min

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Financial literacy is an intimidating term, but you probably know more than you think. Test your knowledge now.

1. You’ve received a $1,000 tax refund. What’s the best financial decision you can make?

A. Spend it (YOLO!)

B. Deposit it into savings earning 5% interest

C. Pay off your credit card balance costing 18% interest

D. B or C


2. Which of the following is not a budgeting method?

A. Zero-based

B. 50/30/20

C. Envelope

D. Overdrafting


3. What is the most important factor in credit scoring?

A. How much you owe

B. Payment history

C. Your income

D. Length of credit history


4. Which of the terms below means income before taxes are taken out?

A. Exempt income

B. Gross income

C. Net income

D. Take-home pay


5. You owe the IRS and can’t pay the entire amount. Which is your WORST option?

A. Request an installment agreement (2024 interest rate is 8%)

B. Apply for a personal loan

C. Put your tax bill on a credit card at 20% interest.

D. Take an early withdrawal from your 401(k) retirement


6. Which three factors determine the amount of your loan payment?

A. Loan amount, interest rate, and repayment term

B. Payment due date, loan balance, and repayment term

C. Income, loan amount, and credit rating

D. Prime Rate, loan amount, and income


7. Which tools can help you establish credit?

A. Secured credit card

B. Credit building app

C. Authorized user accounts

D. All of the above


8. What’s the best way to pay down credit card balances?

A. The avalanche method

B. Debt consolidation

C. Increase credit lines

D. A and B


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Check your answers

1. Answer: C. Because the credit card interest charge is so much higher than the savings interest rate your bank offers, you’re ahead of the game if you pay off your credit card first. Then, stop carrying credit card balances and start adding to your savings.

2. Answer: D. Overdrafts happen when there isn’t enough money in your bank account to cover a payment or withdrawal. The other three answers are all ways to budget. The zero-based budgeting method applies every dollar you earn to expenses, savings, or debt repayment The 50/30/20 method is a budgeting plan that allows 50% of your money for needs, 30% for wants, and 20% for savings. The envelope method is a budgeting tactic that requires you to put money into envelopes for different categories of spending.

3. Answer: B. Your payment history makes up 35% of your credit score. The amount you owe and length of history is less important, and income isn’t part of credit scoring at all. Note that credit scoring models don’t count a payment as late until it’s over 30 days past due. 

4. Answer: B. Gross income is your before-tax income and what most lenders use when you apply for a loan. So make sure you don’t short yourself by putting less income on a loan application. 

5. Answer: D. Option A gives you up to seven years to pay at a fairly low interest rate. Option B is also good if you can get a low rate. Paying by credit card involves extra fees plus high interest. Option D is the worst because your withdrawal is taxable and there’s also a 10% penalty. If you’re in a 25% bracket, your withdrawal costs about 35%. 

6. Answer: A. If you know these three things, you can calculate a loan payment. 

7. Answer: D. Secured credit card issuers require you to put up a security deposit. Credit-building apps typically have you make regular payments into a savings account but report it as a loan payment. Authorized user accounts allow you to have a loved one’s payment history listed on your credit report. All of these tactics could help you flesh out your credit report and improve your score.

8. Answer D. Both the avalanche method and debt consolidation could help you pay down credit card balances faster. Don’t consolidate debt, though, if you have an overspending problem.  Answer C (increasing credit lines) just makes it easier to add to your debt, potentially making the problem worse. 

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How many correct answers did you get?

Your score:

  • 7-8 correct—You’re a MONEY GURU: Congratulations! You’ve got a great basic understanding of taxes, savings, budgeting, credit scoring and debt management. That should help you take your next steps toward financial security. 

  • 5-6 correct—You’re a MONEY ACTIVATOR: Great job! You’ve been paying attention, practicing good money management habits, and understand some important financial concepts. You’ve seen positive changes with your money. You can treat yourself with small rewards for your hard work like planning a getaway.  

  • 3-4 correct—You’re a MONEY INITIATOR: Keep going! You’ve absorbed some good information, but you may need to unlearn a few bad habits that are keeping you and your money stuck in a rut. You’ve started thinking about the possibility of enjoying the small joys of life again, like a summer staycation.

  • 0-2 correct—You’re a MONEY NEWBIE: You haven’t been exposed to much financial knowledge yet, but that’s okay. If you are struggling to end up with a positive balance in your checking account at the end of each month, you’re not alone.  You just need the right information to start managing your money well.

Gina Freeman - Author

Gina Freeman has been covering personal finance topics for over 20 years. She loves helping consumers understand tough topics and make confident decisions. Her professional history includes mortgage lending, credit scoring, taxes, and bankruptcy. Gina has a BS in financial management from the University of Nevada.

kim rotter 2022 2

Kimberly is Achieve’s senior editor. She is a financial counselor accredited by the Association for Financial Counseling & Planning Education®, and a mortgage expert for The Motley Fool. She owns and manages a 350-writer content agency.

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