50 Fun Facts About Financial Literacy

Which effect turned Benjamin Franklin's £1,000 gift to Boston into almost $5 million over 200 years?

Compound interest did the work: Franklin's will put the money in trust to gather interest for two centuries. His matching gift to Philadelphia had passed $2 million by 1990.

Which agency, created after a third of US banks failed, insures deposits up to $250,000?

The FDIC was set up by the Banking Act of 1933 to end bank runs. Its cover applies per depositor at each insured bank, so money spread across two banks is protected twice.

Which investing principle is summed up by the proverb about not putting all your eggs in one basket?

Diversification spreads money across different investments so that one collapse cannot sink the whole portfolio. The catch is that juggling too many baskets can push up costs.

Which US pay rule started at just 25 cents an hour under the Fair Labor Standards Act of 1938?

Minimum wage law at first covered only employees tied to interstate commerce. Amendments in the 1960s stretched it to large shops, service firms and government staff.

Which fraud, used by Bernie Madoff, pays early investors with money taken from newer ones?

A Ponzi scheme takes its name from Charles Ponzi, who in 1920 promised huge profits from trading postal reply coupons and simply paid old investors with newcomers' cash.

Which US credit bureau suffered a 2017 hack exposing the records of nearly 148 million Americans?

Equifax revealed the breach in September 2017. The stolen files held names, birth dates and addresses, the details a thief needs to open accounts in someone else's name.

Which economic force explains why a dollar buys fewer groceries than it did twenty years ago?

Inflation is a rise in the general price level, so the same money buys less. Cash savings that earn nothing lose buying power every year that prices climb.

Which type of borrowing, usually $500 or less and due within weeks, can cost almost 400 percent a year?

A payday loan with a typical fee of $15 per $100 borrowed for two weeks works out at an annual rate of almost 400 percent. The full sum usually falls due in one payment.

Which process typically strips a new car of 20 percent or more of its value within the first year?

Depreciation bites hardest in the first year and has usually taken more than half of a new car's value within five, which is why a lightly used car can be a smart buy.

Which program, created under Franklin Roosevelt in 1935, pays retirees from taxes taken out of paychecks?

Social Security issued its first monthly benefit check in 1940, to Ida May Fuller, for $22.54. The payroll deductions that fund it appear on payslips under the name FICA.

Which cash reserve is set aside for surprises such as a car repair, a medical bill or a lost job?

An emergency fund is kept for unplanned bills. The Consumer Financial Protection Bureau says even a small one helps people recover faster and stay on track with bigger savings goals.

Which economics term describes the vacation a family gives up when it chooses to buy a new car instead?

Opportunity cost is the value of the best alternative forgone, and it need not be money: lost time or lost pleasure counts as well.

Which figure on a personal balance sheet turns negative when debts exceed everything a person owns?

Net worth is everything owned minus everything owed, so paying down a car loan raises it just as surely as adding the same sum to savings would.

Which kind of financial institution is owned by its own customers, who are called members?

A credit union is a member-owned cooperative run to serve its members rather than to maximize profits. In the US its members' savings are insured by a federal agency, the NCUA.

Which bank charge for spending more than an account holds has needed opt-in on card purchases since 2010?

An overdraft fee on a one-off card payment or ATM withdrawal has been barred since July 2010 unless the customer opted in to overdraft protection with the bank first.

Which bank product pays a higher rate in exchange for locking money away for a fixed term?

A certificate of deposit has a specific, fixed term, and taking the money out before it ends usually triggers a penalty. In return the bank pays more than on instant-access savings.

Which nine-digit code along the bottom of a US check identifies the bank rather than the customer?

The routing number system was devised by the American Bankers Association in 1910 to help sort, bundle and deliver paper checks back to the writer's own bank.

Which piece of plastic pulls money straight out of the holder's bank account at the moment of purchase?

A debit card needs the money to be in the account already, which keeps spending honest. The flip side is that disputing a bad charge is harder once the cash has gone.

Which budgeting method uses cash instead of bank cards, with a labeled stash for each spending category?

The envelope system has shoppers take only the designated envelope when they buy from a category, which makes it physically impossible to overspend on it.

Which 1926 book of parables urges readers to pay themselves first by saving a tenth of all they earn?

The Richest Man in Babylon was written by George S. Clason. Its hero Arkad, a poor scribe turned tycoon, tells listeners to spend only nine of every ten coins they earn.

Which three-letter figure does the Truth in Lending Act make lenders disclose so borrowers can compare loan costs?

APR, the annual percentage rate, puts the cost of borrowing into one standard yearly figure. On a mortgage it must reach the borrower within three days of the application.

Which factor counts most toward a FICO credit score, making up about 35 percent of the total?

Payment history covers late bills and other black marks on a file. Contrary to a common misconception, age, job status and income play no part in the score at all.

Which scoring measure divides the amount owed on cards by the total borrowing limit, with lower being better?

Credit utilization falls whenever a card's limit is raised, even if spending stays the same, because the ratio compares what is owed with what could be borrowed.

Which free safeguard stops anyone, even the owner, opening new borrowing accounts in a person's name until it is lifted?

A credit freeze costs nothing to place or lift and does not affect a credit score. Lenders cannot see the file, so a thief holding stolen details cannot borrow in the victim's name.

Which payoff strategy clears the smallest balance first, whatever its interest rate, for a quick psychological win?

The debt snowball beat the math in a 2012 Kellogg School study, which found that people who tackle small balances first are likelier to wipe out everything they owe.

Which word describes the car or house a borrower pledges, which the lender can take if repayments stop?

Collateral protects the lender, which is why loans backed by a house or car usually charge far lower rates than borrowing with nothing behind it.

Which person, often a friend or family member, must repay a loan if the main borrower stops paying?

A cosigner puts their own finances and creditworthiness on the line. If the main borrower misses payments, the lender can demand the money from the cosigner instead.

Which interest-free window runs from the end of a credit card's billing cycle to the payment due date?

A grace period only helps people who pay the balance in full by the due date. Card companies are not required to offer one, though most do on purchases.

Which starter credit product asks for a cash deposit up front, which then backs the borrowing limit?

A secured card usually lets the holder spend up to the amount deposited. Unlike a prepaid card, it is real borrowing, so paying the bill on time helps to build a credit history.

Which kind of credit check, made when someone applies for a loan, can lower a score, unlike checking one's own file?

A hard inquiry stays on a credit report for two years but stops affecting a FICO score after twelve months. Looking up a personal report is a soft pull and costs no points.

Which form, required by law to open by October 1 each year, do US students file for federal college aid?

The FAFSA, short for Free Application for Federal Student Aid, costs nothing to file. As well as help with tuition, it is the route into the part-time jobs of the Federal Work-Study Program.

Which federal college aid for low-income undergraduates was renamed in 1980 to honor the senator who helped create it?

The Pell Grant honors Senator Claiborne Pell, and unlike borrowed money it need not be repaid. It is reserved for students with exceptional financial need who have yet to earn a first degree.

Which tax-advantaged college savings account is named after a section of the US Internal Revenue Code?

A 529 plan lets savings grow for a named student's future education costs. A tax law passed in 2017 widened it to cover tuition at private and religious schools from kindergarten up.

Which IRS form does a new employee fill in so the employer withholds the right amount of federal tax?

Form W-4 tells the employer how much federal tax to hold back from each paycheck. The IRS recommends filing a fresh one whenever a major life event occurs.

Which amendment to the US Constitution, ratified in 1913, allows Congress to levy a federal income tax?

The Sixteenth Amendment effectively overruled an 1895 Supreme Court ruling against the income tax. Congress passed it in 1909, and enough states had signed on by February 1913.

Which tax on profits from selling shares or property drops to lower US rates when the asset was held over a year?

Capital gains tax applies to profits realized on a sale, so shares that have only risen on paper are not taxed until they are sold. Patience pays as well: long holdings get the lower rate.

Which word describes a tax, like US federal income tax, whose rate rises as the amount being taxed rises?

Progressive taxes take a bigger share from bigger incomes. A sales tax works the other way round, because the poor spend a larger slice of what they earn at the checkout.

Which insurance amount, called the excess in Britain, must a policyholder pay before the insurer pays anything?

A deductible works like a seesaw with the price of the policy: agree to pay more out of pocket after a mishap and the insurance is typically cheaper to buy.

Which type of car insurance, mandatory in most US states, pays for damage the driver causes to other people?

Liability coverage pays when the insured driver is to blame: hit a telephone pole and it pays for the pole. Lenders usually insist on collision coverage too, to protect the financed car itself.

Which kind of insurance gives employees hurt on the job wages and medical care in exchange for their right to sue?

Workers' compensation rests on a trade-off known as the compensation bargain. Its model was an accident insurance law that Otto von Bismarck pushed through in Germany in 1884.

Which animal, cast in bronze near Wall Street after the 1987 crash, stands for a stock market that keeps rising?

Bull markets are periods of generally rising prices. Italian artist Arturo Di Modica made the 7,100-pound Charging Bull as a symbol of optimism after the Black Monday crash.

Which payout from company profits, set at a fixed amount per share, goes to stockholders simply for owning shares?

A dividend need not arrive as cash: a company with a reinvestment plan can pay it in further shares instead, so the holding grows without the investor lifting a finger.

Which low-cost type of investment, mocked as un-American when John Bogle launched one, simply tracks a whole market?

An index fund holds the same securities as the market yardstick it follows, in the same proportions. Rivals nicknamed the 1975 launch Bogle's folly, yet by 2000 it had outgrown the famous Magellan Fund.

Which retirement account, named for a US senator, takes already-taxed money so that later withdrawals are tax-free?

A Roth IRA flips the usual deal: pay tax up front in exchange for tax-free income later. Senators William Roth and Bob Packwood first floated the idea in 1989 under the name IRA Plus.

Which mental shortcut divides a set figure by the yearly interest rate to estimate when money will double?

The Rule of 72 says money growing at 8 percent a year doubles in about nine years. Luca Pacioli set it down in a Venetian arithmetic book in 1494 without explaining why it works.

Which part of the US bankruptcy code, the most commonly filed, has a trustee sell assets to repay creditors?

Chapter 7 is known as straight bankruptcy, and it lingers on a credit report for ten years. Some debts survive it, including child support and, in most cases, student loans.

Which word describes a money manager bound by the highest legal standard of care to stay loyal to the client?

A fiduciary must put the other person first and may not profit from the position without that person's consent. The duty has been summed up as one of undivided loyalty.

Which process hands staff full ownership of an employer's retirement contributions after enough years of service?

Vesting on a cliff schedule is all or nothing: leave before, say, the three-year mark and every dollar the employer put in is lost. Money already vested cannot be reclaimed.

Which word describes paying off a loan through equal installments, each part interest and part principal?

Amortization front-loads the cost of borrowing: more of each level payment goes to interest at the start of the schedule, and more to paying down the sum owed at the end.

Which payment card company, the first independent one in the world, credits its start to a wallet forgotten in 1949?

Diners Club tells of Frank McNamara finding himself without his wallet at a New York restaurant, then returning in 1950 to pay with a cardboard charge card. Its own press agent later said the tale was invented.