Do You Know the Basics of Financial Literacy?

Correct answer: 70 percent

Every family is different, but generally, a good allocation plan is as follows:

• 70% of income for living expenses
• 20% of income for a “buffer fund” (saving for emergencies or unexpected expenses)
• 10% of income for long-term savings (retirement, college, etc.)

Learn more about how to create and stick to a budget » 

Correct answer: False

Generally, the biggest obstacle to homeownership is having enough money for the down payment and closing costs, and most first-time homebuyers haven’t saved enough to put down the full 20 percent. With a down payment of less than 20 percent, a buyer may need to pay for mortgage insurance. By putting down less than 20 percent, buyers can use any leftover cash for home improvements.

Learn the four steps to take before buying a home, then read about mortgage insurance and whether it can help you buy a home sooner than you thought »

Correct answer: Around $550,000

After 40 years, that investment could potentially be worth around $550,000 if you receive an 8 percent annual average return.

Learn more about how to review your retirement accounts and the four basic options you may have for 401(k)s to help reach your goals »

Correct answer: True

If you’re getting a large refund check, that means you’ve essentially loaned money to the U.S. government throughout the year, and they’re giving it back to you without interest. If your refund is close to $1,000, $2,000 or even higher, you might want to consider making some adjustments to your W-4.

Learn more about why bigger isn’t always better when it comes to tax refunds »

Correct answer: All of the above

Keeping financially fit begins with ensuring you have all the appropriate, up-to-date documents that reflect your present situation and wishes. Four fundamental building blocks should be included in most financial plans:

• A will assures your personal assets are distributed to individuals or organizations you intend to receive such assets when you pass away.
• An advance medical directive places someone you trust in a position to make important medical decisions on your behalf.
• A durable power of attorney allows another person to manage most or all of your non-medical affairs.
• A revocable trust can be paired with the durable power of attorney to help simplify financial affairs. The trust may safeguard your assets in the event that you become incapacitated. It also could reduce estate settlement costs.

Learn more about how to check up on your financial wellness » 

Correct answer: Keep calm and call your financial advisor

When it seems like the sky is falling, the natural reaction is to panic. It’s certainly easier said than done, but do your best to remain calm and remember that corrections and market downturns are normal and healthy. Contact your financial advisor for a financial check-up. Your advisor will check your asset allocation – what stocks, bonds and assets you are invested in – and help you determine how the rocky markets are affecting your financial health.

Learn more about how to handle a market downturn » 

Correct answer: True

Roth IRA contributions are made after-tax, while Traditional IRA earnings accumulate on a tax-deferred basis until withdrawn. If you expect your tax rate will be lower when you retire, a traditional account may offer you more spendable income for retirement. If you expect your tax rate will be higher than it is now or the same upon retirement, a Roth account may provide you with more spendable income later.

Learn more about how to choose a retirement account » 

Correct answer: All of the above

Permanent life insurance policies accumulate a cash value. They can offer protection for a lifetime and provide a beneficiary with a benefit upon your death. Because of this, and because of the lifetime coverage and the ability to build cash value on a tax-deferred basis, the premiums are higher than for term insurance.

Learn more about how life insurance can help offer the protection you need to reach your financial goals »

Correct answer: False

Some people think Medicare will cover everything and it certainly does not. Even people who have insurance can suffer financial hardship because of mounting medical bills. Before retirement, think carefully about the risks you may face and do what you can to plan for healthcare costs.

Learn more about how to plan for health costs in retirement »

Correct answer: Forever

Keep loan discharge documents forever, as one day you may need proof that you did, indeed, pay off a loan, including student loans and automobiles.

Learn more about what documents you need to save and what you can shred »