You don't need to be an expert to manage your money. But there are some things you really should know. When it comes to money, you're richer with a little knowledge!
Start the year off right by testing your financial knowledge. You might even find some inspiration for your 2018 financial resolution!
Q1. Which of the following can have a negative impact on a person's credit rating?
a) Frequently use of a credit cardb) Asking your financial institution to lower your line of creditc) Not paying or paying less than the minimum monthly payment on a credit card
R. c) Not paying or paying less than the minimum monthly payment on a credit card
A credit rating is like a grade given to you by credit-reporting agencies to describe your credit payment history. The more you make your payments on time, the higher your credit rating.
Q2. True or false? Tenants don't need home insurance.
Home insurance coverage protects tenants in cases of unintentional damage (e.g., if a tenant accidentally starts a fire in the building) and also covers their personal belongings from fire, theft, vandalism and floods.
Q3. If you forget to pay your credit card balance by the due date, how will the interest be calculated on your purchases?
a) From the statement due dateb) From the date of the purchasec) From the beginning of the month
R. b) From the date of the purchase
Most people wrongfully believe that interest starts accruing on the due date. If you pay the balance before the due date, you won't pay any interest. However, if you fail to do so, the interest will be accrued from the date of purchase of the product or service.
Q4. True or false? Repaying your mortgage over 30 years instead of 20 years allows you to reduce your monthly mortgage payments and the total amount of interest paid.
If you repay your mortgage over a 30-year period instead of a 20-year period, your monthly mortgage payments will be lower, but the total interest paid will be significantly higher.
Q5. Suppose you have $100 in a savings account and that the annual interest rate is 2%. After 5 years, how much do you think you'll have in your account if you leave your money untouched?
a) More than $110
b) Exactly $110
c) Less than $110
R. a) More than $110
If you let the interest accumulate in your account, you'll earn interest both on your initial $100 deposit and on the interest that will accumulate in your account every year. After 5 years, at a 2% annual interest rate, your account balance will be $110.41. This is called compound interest.
Q6. Elizabeth inherited $10,000 on the death of her grandmother. She wants to use it in a year to replace her old car. Which of the following investments should Elizabeth choose?
a) Shares in a solid companyb) A mutual fund that invests in bondsc) A guaranteed investment certificate
R. A guaranteed investment certificate
To choose the investment that's right for you, you have to determine your objectives. Elizabeth, who wants to use her inheritance in a year to replace her car, should opt for a 1-year guaranteed investment certificate. Stocks or mutual funds are investments with no guaranteed capital.
Q7. In your opinion, which of the following investment portfolios is the most diversified?
a) Portfolio 1: A variety of mutual funds investing in stocksb) Portfolio 2: Shares in various companiesc) Portfolio 3: Mutual funds, stocks and bonds
R. c) Portfolio 3: Mutual funds, stocks and bonds
All 3 portfolios are diversified because they contain many securities. However, you need more than just several securities to have a well-diversified portfolio. It's also important for these securities to belong to different risk categories. Generally speaking, stocks are riskier than bonds, and bonds are in turn riskier than long-term investments.
You might also like to read:
The Desjardins Personal Finance Index