There’s been plenty of news in the past year that affects your money. In honor of Financial Literacy Month, we thought we’d help you see how well you have been keeping up on your finances. Take this quiz to find out.
1. Last year, for the first time in six years, the IRS increased the maximum amount of money you can deposit into an IRA or Roth IRA in a given year. As of Jan. 1, 2019, your IRA and Roth IRA contribution limit is now:
Correct answer: B. Because IRAs receive preferential tax treatment, the IRS places limits on the amount you can contribute each year. In November 2018, the IRS pushed the contribution limit to $6,000 from $5,500. If you have an employer-sponsored 401(k) or 403(b), a 457 plan or are enrolled in the federal government’s Thrift Savings Plan, the contribution limit was lifted from $18,500 to $19,000.
2. Which of the following companies didn’t experience a high-profile data breach in the past year?
Correct answer: D. No, Target didn’t have a notable data breach last year. However, you probably remember the 2013 breach that exposed personal data from 41 million Target customers. In 2017, the company paid $18.5 million to those affected by the incident. These companies weren’t the first, and certainly won’t be the last, to experience a cyberattack. Here’s what to do if you get wrapped up in the next big data breach.
3. The Tax Cuts and Jobs Act, signed into law in 2017, was among the more significant overhauls of the U.S. tax code in the past several decades. One of the biggest changes — among many — was increasing the standard deduction, which is used by millions of households every year. In 2017 the standard deduction for single taxpayers was $6,350. What was it for them in the 2018 tax year?
Correct answer: C. The standard deduction gives taxpayers a choice: deduct a standard amount or itemize your deductions. Americans could always choose the more advantageous deduction, but the new tax law makes taking the standard a lot harder to beat – the White House Council of Economic Advisors estimates 92 percent of tax filers will take the standard deduction, up from about 75 percent last year. Note, the standard deduction for married couples filing jointly was $24,000 for the 2018 tax year.
4. It’s one of the most effective preventative measures you can take to protect yourself from fraud, and, as of Sept. 21, 2018, it must now be offered as a free service by companies in the industry. What is it?
A. Freezing your credit
B. Providing endpoint cybersecurity
C. Encrypting Facebook posts
D. Putting your phone number on the Do Not Call list
Correct answer: A. Credit freezes lock access to your credit file, which makes it much harder for identity thieves to steal your personal information and open new accounts in your name. As part of the Economic Growth, Regulatory Relief, and Consumer Protection Act, consumers no longer need to pay the “big three” credit bureaus (Equifax, Experian and TransUnion) a fee to freeze their credit. The process is fairly easy.
5. What is the only action on this list that can help improve your credit score?
A. Closing a credit card
B. Having a wide variety of debt on the books (mortgage, credit card, student loans)
C. Paying off a loan early
D. Not using your credit card
Correct answer: B. It sure does sound counterintuitive, but credit companies grant higher scores to people who are paying back a variety of loans — known as your credit mix. FICO research has found that consumers who make timely payments and have a rich credit mix (student loans, a mortgage, credit and car loans, for example) tend to be less risky than people with one type of credit.
Choice C isn’t necessarily going to hurt your score, but it isn’t likely to raise it either. If you have an installment loan and have been making payments on time, you’ve already shown potential lenders that you’re responsible at paying your debt back on schedule. The other two choices have to do with your available credit. When you cancel a credit card or stop using a card, you may inadvertently end up lowering the total amount of credit available to you. This, in turn, could raise your credit utilization ratio (the ratio of your balances to your limit).
6. In 2018, if you had put $1,000 into any single asset class, which one would have generated the highest returns for you?
A. Domestic stocks
B. Foreign stocks
C. Government bonds
D. Cash alternatives (e.g., CDs, money market funds, Treasury bills)
Correct answer: Surprisingly, the answer is D. If you had stuck $1,000 into a three-month Treasury bill, you would have earned 1.9 percent on average, which was higher than stocks, other types of bonds, commodities — everything in 2018. You’ve probably heard that stocks are all about growth, but that’s an average over time. In any given year, stocks could post negative returns. That doesn’t mean cash is a good place for your nest egg, either — cash rarely outperforms other assets. Remember that all investments carry some level of risk, including loss of your original investment.
Instead, 2018 was a case-in-point example of why asset diversification is such an important cog in a financial plan. There’s no telling which asset will lead in a given year, which is why it helps to own a little of everything – of course, diversification doesn’t guarantee a profit or protect from losses.
7. According to a recent survey from Bankrate, what percentage of Americans would be able to cover an unexpected $1,000 expense with money from their savings account?
Correct answer: D. A majority, 61 percent, said they would resort to using a credit card, borrowing money from a bank or friends, or simply spending less on other things to make up the $1,000 over time. That’s why it’s so important to start building an emergency savings fund as soon as possible (if you haven’t already).
8. So you want to pay for your child’s college education, but you’ll need to set aside a small fortune over time to do it. Which of the following account types allows you to save for a college education on a tax-advantaged basis?
A. 529 plan
B. 459 plan
C. Roth College Saver Program
D. C(3)(p)(o) plan
Correct answer: A. A 529 plan allows you to deposit money into a tax-advantaged investment account. When your child enters school, they can generally withdraw earnings tax-free, so long as they are used for qualified education expenses. What’s more, distributions from a 529 plan owned by a student or their parents isn’t reported as income (though the account will need to be listed as an asset on the FAFSA application). A 529 plan from, say, a grandparent, won’t need to be listed as an asset but any distributions will need to be reported as untaxed income.
9. Follow-up question: Lawmakers recently made a big change to that college savings plan. What was it?
A. You can use the money to pay down credit card debt
B. Money from the plan can pay for K-12 tuition as well
C. It can be used for a down payment on a house, penalty-free
D. It can cover the cost of transportation to and from campus
Correct answer: B. Funds from 529 plans can now be used to pay up to $10,000 of tuition, per beneficiary, each year at any public, private or religious K-12 school.
10. When you skim through financial news, there’s an awful lot of chatter about the Federal Reserve and its next moves. That’s because it has a big role in shaping our country’s economic policies. As established by Congress in the Federal Reserve Act, what are the three key objectives set for the Fed?
A. Print money, bail out too-big-to-fail companies, sell Treasury bonds
B. Oversee credit card companies, protect consumer interests, make business loans
C. Maximize employment, keep inflation stable, moderate long-term interest rates
D. Set the minimum wage, prevent economic espionage, fund military operations
Correct answer: C. The Fed uses a variety of strategies to hit three objectives: maximize employment, keep inflation in check and moderate long-term interest rates. The Fed can simply change its key rate, which affects interest rates on just about everything else. It can also buy and sell assets to control inflation and interest rates. How it goes about using the tools at its disposal is, and will be, the subject of fierce debate.