Financial Literacy Quiz: How Much Do You Actually Know About Money?

Studies consistently show Americans overestimate their financial literacy while underperforming on objective tests. This quiz identifies your genuine knowledge gaps — the areas where improving your understanding directly improves your financial outcomes.

10 essential financial questions

1. If you're in the "22% tax bracket," what percentage of your total income goes to federal income tax?
   Answer: Less than 22% — your effective rate is lower because only income above $48,475 is taxed at 22%. Income below this is taxed at lower rates.
2. What's the maximum penalty for early 401(k) withdrawal?
   Answer: 10% penalty PLUS ordinary income tax on the full amount. Total cost can be 32-47% of the withdrawal.
3. A stock ETF with 0.04% expense ratio vs 0.75% on $50,000 over 25 years: what's the cost difference?
   Answer: Approximately $50,000+ in lost returns — compounding makes small fee differences enormous.
4. Which credit score factor carries the most weight?
   Answer: Payment history (35%). Not utilization (30%), not credit age (15%).
5. True or false: Your employer's 401(k) match counts toward your personal $23,500 contribution limit.
   Answer: False. The $23,500 is your personal limit. Employer match is separate, counted toward the total $70,000 combined limit.
6. If you receive a $5,000 bonus, is it all taxed at your marginal rate?
   Answer: Supplemental wages are withheld at 22% federally, but your actual tax depends on your total income — you reconcile in April.
7. What does "diversified" actually mean for a stock portfolio?
   Answer: Owning many different companies across different sectors and geographies so no single company's failure meaningfully harms the portfolio. Owning 5 tech stocks is not diversified.
8. Is a 720 credit score good enough for the best mortgage rates?
   Answer: Close but not quite — best conventional mortgage rates typically require 760+. Going from 720 to 760 can save $0.4-0.5% on rate and $80-100/month on a $400,000 mortgage.
9. What's the advantage of a Roth IRA over a Traditional IRA for a 25-year-old?
   Answer: Contributions are taxed now (at the 25-year-old's likely lower bracket) and all growth and withdrawals are tax-free. The tax-free compounding over 40 years is extremely powerful.
10. What does "compound interest" mean in plain English?
    Answer: You earn interest on your interest. $1,000 earning 7% grows to $1,070 in year 1. In year 2, you earn 7% on $1,070 (not $1,000). The extra $4.90 seems trivial — over 30 years it's the difference between $7,600 and $13,800 on the same $1,000.