Paul Ferraresi

Okay, how are you doing on your financial fitness? I love giving these quizzes to everyone as it allows you to “test” some of your financial knowledge. Take it with a “fun attitude”, no calculators are needed. The answers are at the end, so no cheating. If you scored in the “excellent” range, let’s talk about adding you in as an advisor at our company, Founders Group, Inc. If below “excellent”, keep reading our articles!

The following test was developed by the Institute of Consumer Financial Education (ICFE) to help people gauge the accuracy of their knowledge of current financial affairs and the effectiveness of their taking advantage of opportunities.

Instructions

Write your answers down on a sheet of paper. For the first 15 questions, answer them: True, False, or Don’t Know.

1. The Tax Reform Act of 1986 eliminated the tax advantages of real estate investments.
2. Two earner couples can take a deduction up to $3,000 or 7.5%, whichever is greater.
3. Mutual funds only invest in common stocks.
4. Since interest payments on a mortgage are tax deductible, homeowners should always itemize instead of taking a standard deduction.
5. A tax “deduction” of $1,000 is better than a tax “credit” of $1,000.
6. If an individual is in a 28% federal tax bracket, 28% of their income goes to the federal government.
7. A couple wants to establish an “education account” for their four-year-old child. By using the child’s social security number, it will not be necessary to pay income tax on the investment earnings.
8. An investment that simply “defers” income tax offers no real tax advantage since the tax must be paid eventually.
9. Life insurance is an inflexible contract that offers no investment options, unlike stocks or bonds.
10. If you own a mutual fund, outside of an IRA, there is no way you can avoid being taxed on dividends paid.
11. A wife should usually be the “owner” of her husband’s insurance policy to avoid paying federal estate taxes when she collects on the policy.
12. Joint tenancy is always the best way for a couple to hold title to property.
13. Since annuities are offered by life insurance companies, the primary benefit is insurance.
14. An “insured” municipal bond fund has no investment risk.
15. Interest earned in a life insurance policy is always lower than the rate of interest you can earn in a certificate of deposit.

Multiple Choice Questions

Pick one answer only:

16. Currently, a self-employed individual will contribute what percentage of his or her income to Social Security?
    a. 6.5% b. 7.51% c. 13.02% d. 15.30%
17. If you invest $1,000 for your child or grandchild, age 1, and the yield averages 12%, approximately how much will the investment be worth when the child reaches age 65?
    a. $250,000 b. $500,000 c. $1,000,000 d. $1,500,000
18. In fiscal year 2004, the highest federal rate at which income is subject to tax was:
    a. 25% b. 33% c. 35% d. 39.6%
19. A corporate employee earning $50,000 will have the following total amount contributed toward Social Security and Medicare:
    a. $3,312 b. $4,243 c. $7,650 d. $7,848
20. A 45-year-old individual would like to retire on $2,000 a month at age 65. Assuming an average inflation rate of 7.2% over the next 20 years, approximately how much income will this individual need each month in retirement to keep pace with inflation?
    a. $4,000 b. $6,000 c. $8,000 d. $10,000

Answers to the quiz

Questions 1 through 15 are all FALSE.

16 = d, 17 = d, 18 = c, 19 = c, 20 = c

Financial Fitness Scoring

Total the number of correct answers and multiply by five. 20 correct answers = 100%.

Ratings

• 90-100% = Excellent shape
• 80- 89% = Good shape
• 70- 79% = Fair shape
• 60- 69% = Poor shape