Know your money quiz

Vague knowledge of financial products, concepts and facts can be the difference between having enough money for your needs and wants, or being left short. Here are a few questions to help you find out where you stand


Photo: Mint
Photo: Mint

The quiz has been prepared for Mint by Venkatesh Varadachari, co-founder and director, Money Wizards, which conducts the Youth Money Olympiad for college students and corporate employees.

Cash Management

(1) At the end of the month, I can clearly tell where my money went, to the nearest

(a) Rs1,000

(b) Rs5,000

(c) Rs10,000

(d) I do not know where my money went

(2) Every month

(a)I set aside some money for my financial goals, before I spend it on discretionary items

(b)I save what is left after all expenses – fixed and discretionary

(3) At the end of every month, I can precisely account for what is a necessary monthly spend and what is an impulse purchase.

(a) Yes

(b) No. I do not clearly account for my expenses

(4) At the beginning of every month, I budget my expenses in to the following 3 buckets – fixed expenses, financial goals (saving, investment and insurance) and discretionary expenses.

(a) Yes

(b) No. I do not do any planning at all regarding my expenses

(5) I track my actual spending versus the planned spending at the end of every month to see if I am on track to meet my financial goals.

(a) Yes

(b) I plan at the month beginning, but I do not really track whether I am sticking to my plan/budget

(c) I don’t plan in the first place, so there is no question of tracking the actual expenditure vs. the planned/budgeted expenditure

Answers:

1b. Rs5,000

2a. I set aside some money for my financial goals, before I spend it on discretionary items

3a. Yes

4a. Yes

5a. Yes

Emergency fund

(1) I have an emergency fund to cover ____ months of expenses.

(a) 6 months

(b) I have no emergency Fund

(c) More than 2 years

(d) Less than 3 months

(2) I park my emergency fund in

(a) Savings bank account

(b) Money market mutual funds and short tenor debt funds

(c) Fixed Deposits

(d) Equities

(3)The main purpose of emergency fund is to provide

(a) Adequate and immediate liquidity during times of emergency

(b) Above average returns

(c) Safety

(d) Capital appreciation

(4) I contribute to my emergency fund every month

(a) Yes

(b) No. Emergency fund is a one time effort. So, once the required emergency fund is built, no more contribution is required

(5) One of the key indirect benefits of an emergency fund is that

(a) It provides a cushion for investing in risky assets like equities or real estate which are more volatile or illiquid

(b) There are no indirect benefits

Answers:

1a. 6 months

2b. Money market mutual funds and short tenor debt funds

3a. Adequate and immediate liquidity during times of emergency

4b. No. Emergency fund is a one time effort. So, once the required emergency fund is built, no more contribution is required

5a. It provides a cushion for investing in risky assets like equities or real estate which are more volatile or illiquid

Life insurance

(1) I see life insurance policy primarily as a vehicle for

(a) Pure insurance

(b) Insurance and investments

(c) Insurance and retirement planning

(d) Insurance and tax planning

(2) The bulk of my life insurance policies are in the form of

(a) Unit-linked insurance plan (Ulip)

(b)Term insurance

(c) Money back policy

(d) Endowment policy (other than money back)

(3) For the same insurance premium, which type of insurance policy offers the highest cover?

(a) Ulip

(b) Term insurance

(c) Money back policy

(d) Endowment policy (other than money back)

(4) My current life insurance cover is

(a) Less than 2 times my annual income

(b) Between 2 and 5 times annual income

(c) Between 5 and 10 times annual income

(d) Above 10 times annual income

(5) If the expected inflation over the next several years is high, it is a good idea to take more insurance cover (for a policy holder with dependents)?

(a) True

(b) False. Inflation is not a factor is how much insurance cover I need

Answers:

1a. Pure insurance

2b. Term insurance

3b. Term insurance

4d. Above 10 times annual income

5a. True

Health, Car and Home Insurance

(1) I have the following motor insurance for my car

(a) Third party liability only policy

(b) Comprehensive coverage policy

(c) I have not renewed my auto insurance policy

(2) During the recent Chennai floods, my car was submerged in water. I tried starting the car engine, but the engine got damaged. I have a basic comprehensive coverage for my car. Therefore,

(a) The expenses incurred due to engine damage while trying to start it will be covered by the company

(b) Starting an submerged car engine will not be covered by the comprehensive cover policy because it is not considered an unforeseen event

(3) To me home insurance is

(a) I don’t have a home insurance policy

(b) Something that I purchased at the insistence of the lending bank, but I do not really know what it covers and what it doesn’t cover

(c) Something that I purchased after going through the policy document in great detail and I am fully aware of what the policy covers and what it does not cover

(4) The following members of my family are covered by own (other than employer cover) health insurance policy

(a) All the family members

(b) Only I am covered

(c) The senior citizens in the family are not covered

(d) No one in my family is covered

(5) The total health insurance coverage for my family, including the employer group insurance plan, is

(a) Less than Rs 2 lakh

(b) Between Rs 2 lakh and Rs 5 lakh

(c) Between Rs 5 lakh and Rs 10 lakh

(d) Greater than Rs 10 lakh

Answers:

1b. Comprehensive coverage policy

2b. Starting an submerged car engine will not be covered by the comprehensive cover policy because it is not considered an unforeseen event

3c. Something that I purchased after going through the policy document in great detail and I am fully aware of what the policy covers and what it does not cover

4a. All the family members

5d. Greater than Rs 10 lakh

Basics of Investment

(1).The single most important investment decision that I make is

(a) Allocating capital among various asset classes (asset allocation)

(b) Which stocks to buy

(c) Getting the right financial advice related to stock tips

(d) How much I invest via SIP every month

(2).The asset class that has consistently beaten inflation over the past two decades is

(a) Bonds, fixed deposits (fixed income)

(b) Equities

(c) Money market mutual funds

(d) Real estate

(3).The single largest asset class of my net worth is

(a) Gold

(b) Real estate

(c) Bank deposits, fixed income mutual funds (fixed income )

(d) Equities (direct equity and equity mutual funds)

(4). My investment horizon for risky assets is typically

(a) 6 months

(b) 1 Year

(c) Between 1 and 5 years

(d) Between 5 and 10 years

(5).I look for investments that

(a) provide highest returns with minimal or no risk

(b) provide highest returns

(c) provide returns commensurate with the risks that I want to take

(d) have no risk

Answers:

1a. Allocating capital among various asset classes (asset allocation)

2b. Equities

3d. Equities (direct equity and equity mutual funds)

4d. Between 5 and 10 years

5c. provide returns commensurate with the risks that I want to take

FIXED INCOME

(1) The exposure to fixed income (fixed deposits, savings deposits, income funds) as a percentage of my net worth is

(a) Greater than 50%

(b) Between 25% and 50%

(c) Less than 10%

(d) Between 10% and 25%

(2) Fixed deposit (FD) interest income is taxed at

(a) 10%

(b) 20%

(c) Marginal tax rate

(d) No tax on FD Interest Income

(3) Fixed income investments are an effective hedge against inflation

(a) True

(b) False

(4) Long term bond funds typically give more returns than bank FDs

(a) True

(b) False

(5) Fixed maturity plans usually give better after tax returns compared to bank FD because they have indexation benefits

(a) True

(b) False

Answers:

1d. Between 10% and 25%

2c. Marginal tax rate

3b. False

4a. True

5a. True

Equities

1) My exposure to equities as a percentage of my net worth is

(a) Zero exposure

(b) Less than 10%

(c) Between 10% and 25%

(d) Greater than 25%

2) I make equity investments ( direct equity or mutual funds) based on

(a) Professional advice from an investment adviser

(b) Tips from brokers and colleagues

(c) My own research based on newspapers and magazines and online content

(d) I do not invest in equities

(3) The long-term capital gains on direct equity investment is

(a) Zero

(b) 15%

(c) 20%

(d) Marginal tax rate

(4)The average annual total return on BSE Sensex over the last 20 years has been around

(a) Less than bank fixed deposit rate

(b) Around 15%

(c) Around 10%

(d) Negative returns

(5) I plan to have greater exposure to equities in my thirties and forties than during my retirement years

(a) Yes

(b) No

Answers:

1d. Greater than 25%

2 a and c: Professional advice from an investment adviser, and my own research based on newspapers and magazines and online content

3a. Zero

4b. Around 15%

5a. Yes

Alternative Assets

1) My exposure to real estate as a part of my net worth (excluding the roof over my head) is

(a) Greater than 50%

(b) Between 25% and 50%

(c) Less than 10%

(d )Between 10% and 25%

(2) Real estate prices usually only go up

(a) False

(b)True

(3)Gold has a track record of being an inflation hedge over a long period of time (decades)

(a) True

(b) False

(4)Exposure to precious metals (gold and silver) as a percentage of my net worth is

(a) Less than 10%

(b) Between 10% and 25%

(c) Between 25% and 50%

(d) Greater than 50%

(5)In India, it is better to rent a house than to own it, because of low rental yields

(a) True

(b) False

Answers:

1d. Between 10% and 25%

2a. False

3a. True

4a. Less than 10%

5a. True

The quiz has been prepared for Mint by Venkatesh Varadachari, c www.money-wizards.com (www.money-wizards.com), which conducts the Youth Money Olympiad for college students and corporate employees.

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