WISE Financial Literacy Certification Test with Verified Solutions

1 WISE Financial Literacy Certification Test with Verified Solutions What are exemptions (also known as allowances) and how do they function? ✔✔Exemptions, or allowances, are deductions from your taxable income if you are not a depende nt on another’s tax return. Married couples filing jointly can each claim one exemption. These function similarly to deductions but with fewer restrictions. How do exemptions work when claiming dependents? ✔✔You can claim extra exemptions for each d ependent you have. Generally, dependents include children who live with you for more than half the year, are under 19 years old (or under 24 if attending school full -time), and who do not provide more than half of their own financial support. What is th e meaning of liquidity in financial terms? ✔✔Liquidity is the measure of how quickly and easily an asset can be converted into cash without significantly altering its price. Which financial instruments are considered to be highly liquid? 2 ✔✔Highl y liquid financial instruments include cash, most stocks, money market funds, and government securities. How do gift cards operate? ✔✔Gift cards are a form of prepaid financial value issued by stores or financial institutions, used instead of physic al presents. What are the regulations regarding fees on gift cards? ✔✔Gift cards and prepaid cards must be valid for at least five years from their activation date unless the expiration terms are clearly communicated. Dormancy, inactivity, or service fees cannot be charged unless the card remains unused for a year, and all fees must be disclosed before purchase. Which types of cards are not subject to these fee regulations? ✔✔Cards that are excluded from these regulations include prepaid phone cards, reloadable cards, loyalty or rewards cards, admission tickets for e vents or venues, and paper -only certificates. What is discretionary income, and how can it be used? 3 ✔✔Discretionary income is the portion of your earnings available for spending, saving, or investing after covering essential expenses such as taxes, food, housing, and clothing. It includes money spent on non -essential items like luxury goods, vacations, and leisure activities. What is a money order, and why is it often counterfeited? ✔✔A money order is a financial document allowing the recipien t to receive cash on demand. Issued by financial institutions or government bodies, it functions similarly to a check, with the purchaser able to stop payment if necessary. Money orders are frequently targeted by counterfeiters due to their widespread use. What does earned income include? ✔✔Earned income encompasses any financial rewards obtained from active involve ment in a job or business, such as salaries, wages, tips, commissions, and bonuses. How does unearned income differ from earned income? ✔✔Unearned income refers to money acquired through investments or other non -work -related sources, such as interes t from savings accounts, bond yields, alimony payments, and dividends from shares.