By Leigh Taylor
Financial literacy is an understanding of how money works in general. If you’re financially literate, you know how to manage your money and use it to reach your financial goals.
If you’re wondering whether or not you’re financially literate, this quiz will help you find out:
1) True or False: You should check your credit report once every few years.
False. Ideally, you should check your credit report once a year. You can obtain a copy of your report for free by writing to Canada’s two credit reporting agencies, Equifax Canada and TransUnion Canada. You can also get your report on each of the agency’s websites for a fee. Once you get your report, go over it carefully for errors. If you find any, you can dispute them online.
2) True or False: Paying more than the minimum amount on your credit card each month can help you save money and pay off debt faster.
True. The extra money you add goes to principle reduction, shortening the time it takes to pay off your debt while reducing the interest you pay. Even paying just a little more each month will save you thousands and help you pay off your balance much faster. For example, if you pay the minimum payment on a credit card with a $750 balance, it will take you 84 months (7 years!) to pay it off, and you’ll have paid $548 in interest. If you pay just $10 more a month, you’ll pay your card off in 34 months and pay $208 in interest.
3) True or False: Ideally, your emergency fund should have at least 6 months’ worth of expenses.
True. A rainy day fund is the best way to prepare for financial emergencies as small as a car repair or as a large as a job loss. If your emergency fund isn’t up to par, set savings goals that are realistic, keeping track of your progress. It also helps to keep your emergency fund in a separate account that isn’t as easy to access.
4) True or False: It’s ok to skip a payment now and then as long as you eventually pay it.
False. Late payments hurt your credit score and can trigger an increased interest rate and a host of fees. A skipped payment is also a missed chance to lower your principle balance, resulting in more interest paid. If can’t afford to make a payment, contact your creditor and discuss your situation. Skipping payments might also be a sign it’s time to redo your budget.
5) True or False: A budget is one of the most important things you can do to manage your finances.
True. A budget is the foundation of good money management and provides you with the information you need to set realistic financial goals. Your budget will also help you eliminate poor spending habits. If you are new to budgeting, search online for templates that can help you design your budget.
If you’re not as financially literate as you’d like, don’t worry—there are plenty of resources available at LCTaylor.com to get yourself up to speed.