Only 83% of Millennials Have a Budget. How Good Are You at Managing Money?

Torrance Grey

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About This Quiz

Money, money, money ... We all want to get our hands on it, but no one really wants to deal with it. Are you financially savvy? Take our quiz and find out now! (Note: some questions are specific to the US economy and tax system).

Age 25 is too young to be thinking about retirement.

You certainly shouldn't be *obsessing* about it, but you should start saving as soon as you start earning. You might not be earning much at that age, but you're also less likely to be supporting children, paying a mortgage, etc. Setting aside a little every month will start a good habit and save you a world of worry later.

Why is it important that young people save for retirement?

It used to be very common for both employers and employees to pay into a pension fund, which provided a lifelong annuity after retirement. Since the 1970s, individuals have been increasingly responsible for funding their own retirement -- with very mixed results. The best way to deal with this "DIY" approach to retirement savings is to start young, and let the power of compounding work for you.

The best way to ensure you won't lose money by investing is simply to not to invest.

The "mattress money" argument doesn't take one thing into account: inflation. If you stick your money into a simple savings account with .01 interest, or keep it in a safe at home, you're losing money if inflation is higher than .01 percent (which it almost always is). The inflation rate in mid-2017 was 1.7 percent, for example.

This kind of investment is essentially a loan, sometimes to the government.

When you buy a bond, you're loaning money to an agency, public or private, that will repay you after a fixed period of time. If you don't wish to hold the bond until its maturity, you can sell it, as you would a stock.

"Securities" is a synonym for what?

Stocks are equity securities, and bonds are debt securities. The name comes from the fact that the investor has an "assurance" that they own part of a company, or a loan -- it's otherwise intangible. If you have something tangible as an investment -- like a house -- you don't need that assurance, you actually have the house.

Paying a broker to manage your money will pay off in higher returns in the long run.

According to Teresa Ghilarducci, an economist who specializes in retirement issues, most financial managers are salesmen at heart, with little actual financial savvy. Trusting your money to a broker is a sure way to see it eaten up by fees and low returns.

It's possible to time the market, getting in at low points and selling off just before corrections.

Economists say this is virtually impossible, and you're more likely to lose money -- from bad timing and multiple sales commissions -- than to benefit financially. The key is to set some money as a cash cushion, safe from market fluctuations, and then ride out the hard times.

It's possible to be in the stock market without "playing" the market.

Steady, long-term investment in the stock market, through an index fund, is usually the best way to grow your money. Basically, the price of everything goes up over time: milk, bread, housing, laptops. Investing in a wide range of industries is a way to benefit from rising prices (even as you pay them on the other end). This is vastly different from "playing" the market.

If you're very familiar with the product a company makes, you can make the right decision about whether to buy their stock.

It's easy to say, "Everybody likes beer; beer is never going out of style ... so an investment in _____ Brewing Company can't lose!" The fact is, you don't know how much debt that brewing company has taken on or how well the company is run, or what its competitors are planning. Being familiar with a product is not a good reason to buy its stock.

A stock fund that tracks the S&P 500. or similar, is called an ______ fund.

A low-fee index fund that tracks the S&P 500 is widely considered to be the best vehicle to grow money over a long period of time. An online brokerage is an inexpensive way to invest in this type of fund.

It's okay not to carry health insurance if you're not sick.

This is like saying, "I don't need auto insurance because I haven't crashed my car." Insurance, of whatever kind, must be purchased before it's needed. (This is where the debate over pre-existing conditions arises, because some people are born with medical conditions, but that's a longer story than we have space for here).

Skipping your daily Starbucks coffee is a good way to save money for the future.

Gourmet coffee is a favorite target of personal-finance gurus, but the cost of a coffee every weekday is actually negligible compared to other avoidable expenses. If you save $10,000 by buying a two-year-old car from a private seller rather than a new one from a dealership, you've just funded a decade's worth of cappuccinos.

An account that invests in low-risk stocks and lets you write checks on your account is called a ________.

A money-market account certainly won't make you a pile of money, but it generally outperforms a passbook savings account. It also offers liquidity, which is convenient.

Organic food might cost more, but the health benefits are worth it.

Hundreds of studies have borne out the fact that organic food is nutritionally indistinguishable from conventionally-grown. (The ecological benefits are fairly debatable, too, when you look at the broader picture). President Clinton's secretary of agriculture, Dan Glickman, opposed an organic label for this very reason: that consumers would see it as a guarantee that the food they were buying was healthier or safer, which wasn't true. Obviously, Glickman lost that debate.

Buying underpriced stock on the intuition that it's business is likely to pick up in the future is called _____ investing.

This is sometimes summarized as "buying snowshoes in July and sun hats in January." It's also the type of investing practiced by the legendary Warren Buffett and Charlie Munger. However, it takes a lot of time and research to do this well, so you're better off investing with Berkshire Hathaway (Buffett and Munger's fund) than trying to do this yourself.

In a 2014 survey, 47 percent of survey takers said they wouldn't be able to cover an emergency expense of $_____.

Amazingly, just a $400 unexpected expense would require many people to borrow money. And emergencies do happen, which is one reason finance experts suggest you keep a cushion of three months to a year of living expenses available. How long depends on your individual circumstances, including how long you think it would take you to find a job if you were laid off.

What is the best time period for a household budget to cover?

Some expenses are annual, true -- like a vacation trip or property taxes. But since many expenses are monthly, it's best to divide annual expenses by 12 and add them into a monthly budget, a practice called prorating. This tends to give you a manageable picture of your finances and reminds you that irregular expenses are ones for which you need to save money monthly, and not put them off until the last minute.

Which expense does NOT belong in your budget?

FInancial guru Suze Orman points out that most people underestimate their living expenses by only adding up the essentials: rent or mortgage, groceries, utilities, then maybe "entertainment," and they're done. But when you're making your budget, you should include infrequent expenses: road trips, car repairs, donations to charity, vet bills, your eye exams and glasses ... everything. Having this extremely clear picture of your finances can be difficult at first, but you won't be blindsided by unexpected bills.

There are circumstances in which renting is better for your finances than owning a home.

The real-estate and mortgage industries have been very successful at spreading the message that "renting is throwing away money," but it's not that simple. Mortgage interest can triple the price of a home by the time you've finished paying it off. It can also put you on the hook for expensive repairs, leave you vulnerable to downturns in the real-estate market, and so on. If you don't need a lot of space, or you're sure yoy don't want to live in one place a long time, and you don't want to own pets, then renting probably makes better sense.

An investment that goes up when the stock market is down is called a _______ investment.

Gold is one such countercyclical investment. Its price is usually stagnant when the market is booming, then spikes in hard times. We saw this in the IPO-crazy 1990s and the mid-2000s recession.

Socially-responsible investment funds are a good way to make sure your investments reflect your values.

Before you invest in such a fund, take a close look at its definition of "socially responsible." Some might refuse to invest in companies that make alcohol or cigarettes, which you might not find objectionable. Also, check out its fee schedule -- there's nothing ethical about eating away a client's money by charging high fees.

Which of these is most important when choosing a credit card?

All of these are incentives to get you to use your credit card, and -- banks hope -- not pay off the balance every month. If you have sufficient money to pay off a card balance every month, a cash-back deal can be to your advantage -- but don't get careless and miss the payment deadline, as late fees can be steep.

Which of these is it unwise to economize on?

A cheap car will get you places as well as an expensive one, and it doesn't need premium gasoline to do so. There's plenty of opportunity to cut a grocery bill without sacrificing taste. But when it comes to your health, don't shop around, even if your insurance co-pays might be higher to see the right specialist. Without good health, everything else falls apart pretty quickly.

Which of these is a cryptocurrency?

Bitcoin is an extraordinary innovation that finally allowed people to pay for things online without giving a stranger their credit-card information. It was the brainchild of "Satoshi Nakamoto," who, to this day, has not been identified.

Why are banks able to pay interest?

Banks use the money you deposit to make loans and similar investments at a profit. They return a fraction of that profit to you as interest. Because the interest on passbook savings accounts or checking accounts is guaranteed, it's lower than investments in which you take a risk (like stocks).

Which of these is a reason to not buy a car from a private seller?

Buying a secondhand car from its owner is one of the biggest single things you can do to save money. If you're concerned about repair issues, ask to have a mechanic look it over, or bring along a mechanically-savvy friend. In fact, bring a friend anyway, and meet in a public place. Although most crimes associated with Craigslist have been linked to the personals ads and people offering, ahem, "adult services," it never hurts to be careful.

What is a 401(k)?

The 401(k) is a workplace retirement plan that has largely taken the place of pensions in the US. When you're hired, an HR representative will sign you up for the company's plan, and your savings will be taken automatically from your paycheck.

What is a good reason to enroll in your employer's 401(k)?

Many employers will match your contribution up to a certain percent; you're free to contribute more, of course. And the fact that the contributions are automatic and monthly makes it easier to save -- you won't miss money that you never saw as part of your biweekly check, the logic goes.

What is a drawback of the 401(k)?

Pensions, the previous model for retirement in the U.S., were automatic -- workers had to be in the plan and couldn't touch the money until retirement (like Social Security, nowadays). 401(k)s are different: It requires a certain amount of foresight and discipline to choose to have money withdrawn from your paycheck and to keep your hands off it when the car needs a new transmission. On the bright side, you do have some control over the funds your employer offers -- lobby HR for an index fund if one isn't offered!

What is "lifestyle creep"?

As your earnings go up, you'll likely want a bigger home, a better cable package, or the new iPhone every year. Then, ironically, you'll think how much more fun life was in your 20s, when you had a cheap apartment and a flip phone, and you had to go to your friend's house to watch the game. The moral: Pay attention to what *really* makes you happy and spend your money there, economizing on other things.

What is "opportunity cost"?

When deciding whether to pay for something, consider the "opportunity" cost. This doesn't just mean another item you could purchase with the same money. It also might be leisure time -- if you have to work overtime for a year to afford a big-ticket item, you've lost hours you could spend sleeping or playing with your kids. As defined by economists, leisure and pleasure are "goods" just like possessions are.

What does "P/E ratio" mean?

We hate to discourage anyone from learning for learning's sake, but if you're analyzing a company's price-to-earnings ratio, you're getting into territory in which you're more likely to lose money that to earn it. Undoubtedly, you'll meet people who say they pick their own stocks, trade on a weekly or monthly basis, and are "doing really well." Then they drive off in an old Camry. Stick to slow-but-steady course of saving monthly and putting the money in a low-fee index fund, and you'll be much better off.

At what age should you start reallocating money from stocks to bonds?

Beware of articles that say "by age XX you should have a 60/40 split of stocks and bonds." If you're an overweight smoker, your life expectancy is different than a triathlete's. If your field is prone to downturns and layoffs, your future earnings outlook is different from a tenured college professor's. However, as people age, they do tend to shift money out of stocks toward bonds, which are much less volatile. No one wants to see the bottom fall out of their portfolio at age 82.

How much should an engagement ring cost?

The diamond industry itself worked hard to spread the idea that an engagement ring should cost two months's salary. There is no reason why this should be the case. Nor should a man feel obligated to buy a diamond ring, either -- diamonds were chosen because they were durable enough not to scratch when worn daily, not because they are more valuable than other precious gems.

Which of these is an important strategy in increasing your income?

Salary negotiation is not usually considered to be a form of financial management, but it should be. Saving money is great, but there will be more money to save if you're earning more, and the wage you negotiate at your hiring is the basis for any future raises. Sure, negotiation can be unnerving, but keep your cool. if you've gotten to the point where you and a potential employer are talking money, they want you. After all, they have a job to fill. They really don't hold all the cards, no matter how it might feel.

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