Finances FYI Presented by JPMorgan Chase
The world of personal finance is more complicated than ever, with digital currencies and easy access to investment accounts. But are you financially savvy enough to understand the terms used in these circles? Read on to quiz yourself and total your points for a look at your financial knowledge score.
Investments
- Describe the difference between stocks, bonds, and mutual funds. (1 pt.)
- What does a “diverse portfolio” mean? (1 pt.)
Stocks are a share of ownership in a public company. You can sell your share at any time. Bonds are a guarantee from a company or government to pay back money you’re loaning them, along with interest, at a specific future time. Mutual funds are investments in a group of assets using money from multiple investors. Your investment portfolio is your bundle of investments, and it is “diverse” if you have money in several kinds of markets and assets. Learn more here.
“A Strong/Weak Dollar”
- Explain what it means when someone says the dollar is strong or weak. (1 pt.)
The “strength” of the dollar refers to its purchasing power in relation to foreign currencies. The exchange rate describes how much foreign currency a dollar will buy. A “strong” dollar means that, compared to historical averages, your money can buy more foreign goods than it used to; a “weak” dollar is the opposite. Learn more here.
IRAs vs. 401ks
- Explain what an IRA is, including the two primary kinds. (1 pt.)
- How are they different than a 401k? (1 pt.)
Both an IRA (Individual Retirement Account) and a 401k are retirement savings accounts. The primary differences are that a 401k is only available through an employer, and an IRA has a maximum annual contribution. Either account can use pre- or post-tax funds and can be invested in a wide array of stocks, bonds, and mutual funds. They both have penalties for withdrawing money early. Traditional IRA contributions are pre-tax, while Roth IRA contributions are post-tax. Learn more here.
Interest Rates and APR
- Explain what interest means. (1 pt.)
- Describe the different kinds of interest rates. (1 pt.)
An interest rate is a fee for borrowing money, charged as a percentage. You pay back the principal (original amount you borrowed) along with the interest. Simple interest rates are calculated at the beginning based on your principal and stay a fixed amount, whereas compound interest rates are calculated over and over again and include interest on the unpaid interest! Many loans show an APR (Annual Percentage Rate) that includes the other fees and costs associated with borrowing the money. Learn more here.
Taxes
- What are taxes? (1 pt.)
- Describe several different kinds of taxes. (1 pt.)
Taxes are mandatory fees or contributions paid by a person or business to the government. Sales tax is a fee on goods purchased, while property tax is a fee on land or buildings that you own. Income tax is a fee on the money that you make at work. Corporations pay based on revenue. Different states and countries have varying laws regarding these taxes, including the rates and limits (and more!). Learn more here.
Net Worth
- What is net worth, and how is it different than your bank account balance? (1 pt.)
Net worth takes into account all of the assets you have and subtracts all of the liabilities. Your assets include bank account balances, real estate values, and any investments or other tangible items, like cars and jewelry. Liabilities include money owed for bills, taxes, and loans. Calculate yours here and learn more.
Inflation
- What does it mean when the country experiences inflation? (1 pt.)
- Explain the difference between real and nominal values of money. (1 pt.)
Inflation happens when the buying power of the dollar declines; what you used to purchase with $50 now costs more. Even though the nominal value of your money has stayed the same (the bill still says one dollar), the real value (the amount of real-world power it has) went down. Some inflation shows a growing economy, but high levels are worrisome. Learn more here.
Cryptocurrency
- What is crypto? (1 pt.)
Cryptocurrency is digital money that only exists online and isn’t tied to a government or bank. It’s bought and sold through encrypted public ledgers called blockchains. Most companies don’t accept crypto as payment. Learn more here.
Total Your Scores
See where your financial knowledge lands!
0-4 points: Financial Newbie
Now is the perfect time to start learning about finances! These free, online beginner courses will help you understand your personal financial position.
5-10 points: Financial Foundations
You have a solid foundation in financial concepts. You know enough to understand some of your personal options and ask the right questions when you meet with professionals. Explore free online courses from MIT to deepen your knowledge.
11+ points: Financial Dynamo
You possess a profound and comprehensive understanding of financial topics. Keep an eye on the newest financial buzzwords each year to keep your skills sharp.
Finances FYI is presented by JPMorgan Chase. JPMorgan Chase is making a $30 billion commitment over the next five years to address some of the largest drivers of the racial wealth divide.
