Financial literacy classes used to be as simple as balancing a checkbook. Now, covered subjects include avoiding scams, reading invoices, and investing concepts. These comprehensive subjects can become complicated and intricate. Passing a financial literacy test can be difficult. It will take some effort to keep everything straight.
To ace a financial literacy test, you should use a few simple concepts. By utilizing a few rules to study and a few rules on the test, you can excel on the test. These guidelines will help you ace your financial literacy exam. Here is a list that will help you get ready for such an important career milestone.
1. Gather Materials
Let us start with something basic. You will need the assigned reading materials. This seems obvious, but, just in case… make sure you have the proper reading materials. Having the correct course materials will determine whether or not you can study accurately.
Course literature will be likely referenced on exams, giving you a shortcut to correct answers. Having the right book is the first place you need to start to pass a financial literacy test.
2. Review Your Materials
This is another obvious step to pay attention to before you take the exam. Unless you have familiarized yourself on materials, you are likely to run into difficulties. Even if you have a cursory knowledge of finance, you should review your materials.
More complex financial literacy courses will have highly involved problems. You will need to know about interest rates, global finance, etc. Every book will treat these questions differently. You need to review the one that you have to find the right wording. Many of these tests will utilize misdirection to trip you up. Be wary!
3. Read the Questions Carefully
Again, this might seem like a silly and obvious thing, but it still bears repeating. Check the questions very carefully to get the wording correct. In many cases, you will face multi-phrase questions that may be misleading.
To ensure you understand these complex concepts, many financial literacy exams try to trick you. Be confident in your knowledge, but wary of potential confusion. Always read your questions carefully.
4. Understand Basic Math
With the simple stuff out of the way, worry about the actual concepts. The basic math concepts of financial literacy are generally arithmetic. Your test will ask you to balance a checkbook, read an invoice or calculate taxes. This simple arithmetic is only difficult in its wording. Check your work, and you will not have much difficulty.
5. Understand Invoices
Many online financial literacy tests feature questions about reading an invoice. Invoices are relatively simple. At the top of the sheet, you will see both the business and the customer. The business is sending a bill (invoice) to the customer. The listed services define the charges. The tallies at the bottom show the total money owed.
Generally speaking, the customer will always owe the business money in these questions. Work from top to bottom on these questions and you should be fine.
6. Understand Sales Tax
Sales tax is an easy concept that can still trip people up. Those unfamiliar with a few quick shortcuts can find these very difficult. You can quickly calculate what the sales tax is by multiplying the total by the tax rate.
For instance, a 6% tax rate corresponds to multiplying a number by .06. A $100 bill with 6% tax is 100 x .06 = 6. An easy shortcut is multiplying $100 x 1.06 — 100% and then the 6% on top. That will get you $106, which is the $100 price and the $6 in sales tax.
7. Understand Interest Rates
Doing the math on interest rates can seem complicated, but it needs not be. Interest rate math tends to build on itself; as long as you get the first step right, you should be fine.
After the first step, you simply reapply the math repeatedly. The simple formula is A= P(1 + Rt). In this case, principal times the interest rate multiplied by time. It seems complicated, but it isn’t.
If you have $10,000, an interest rate of 4% and 5 years time, you have [ A = $10,000 ( 1 + 4% * 5 ) ] 4% multiplied by 5 years is .2; $10,000 multiplied by .2 is $2,000. You’re adding $10,000 to $2,000. The total amount is $12,000. Keep this in mind.
8. Understand Equities vs. Savings
You may face a series of questions about savings vs. investing, and the relative merits of both. Savings are bank accounts like savings accounts or money market accounts. Equities are stocks and bonds. A quick summary is that savings tend to be somewhat accessible (liquid) while equities are not.
Some complex courses might get into M1, M2, and M3 money supply questions, too. In short, investing leads to better returns, with a 3% expected return on investment (ROI) over time.
A financial literacy test is likely to ask about the difference between equities and bonds. Equities are riskier but get better rates of return. Bonds are stable but less profitable.
9. Understand Bonds and Interest Rates
A financial literacy test will likely have questions about bonds and interest rates. Those questions can be relatively complicated. Interest rates are determined by central banks. Changes to interest rates will affect bond prices. There are two general rules to follow with bonds and interest rates.
When interest rates go up, bond prices go down. When interest rates go down, bond prices go up. There is a simple reason why. New bonds released after a rate increase will have higher yields and better returns. That means old bonds are not as valuable. That is why older bond prices go down. The opposite is also true when rates go down; bond prices go up.
Following these rules should positively impact your chances of passing a financial literacy test. You will need to read your materials proactively. You need to study the questions and concepts included therein. Finally, pay particular attention to the questions being asked.
Follow these tips and adhere to the rules of financial literacy and you should be fine. You will need to do the work to understand the concepts. Nonetheless, the hardest questions are easy with enough practice.