ECON1200 Personal Finance Chapter 1
After considering the alternative courses of action to reach financial goals, one of the possible courses of action is to ______.
continue the same course of action
According to AICPA Insights, which of the following is a common mistake related to implementing a financial plan?
emotional decision making
simple interest calculation example
$500 x 0.06 x 0.5 = $15
societal changes influence financial needs:
- delaying marriage - dual income households - single parent households - caring for both children and elderly parents
To calculate time value of money for savings, the following items are needed:
-annual interest rate -length of time -principal amount
long-term goals have a timeframe of
5+ years (such as retirement fund, college education fund, etc)
deflation
a decline in prices
financial plan
a formalized report that summarizes your current financial situation, analyzes financial needs, and recommends future financial activities
personal factors influences spending and saving habits include
age, income, household size, and personal beliefs
the Federal Reserve System (The Fed)
attempts to maintain an adequate money supply to encourage consumer spending, business growth, and job creation
Which of the following is not part of the fourth step in the personal financial planning process?
gold prices
time value of money
the increase in an amount of money as a result of interest earned
consumable-product goals
usually occur on a periodic basis and involve items that are used up relatively quickly, such as food, clothing and entertainment
three amounts are used in calculating the time value of money for savings in the form of interest earned:
- the amount of savings (the principal) - the annual interest rate - the length of time the money is on deposit
According to the text, there are ______ main factors that contribute to Americans having money problems.
2
American consumers spend hundreds of dollars on goods and services. The goods and services manufactured are offered by American companies and companies from other countries. this is an example of:
a global economy and foreign competition
inflation
a rise in the general level of prices
economic environment includes
business, labor, and govt working together to satisfy needs and wants
The steps in the financial planning process can guide your ______ planning.
career
Choosing to save a larger amount each month is an example of which possible course of action that is a part of step three in the financial planning process?
expanding
Managing risk is not a financial planning activity.
false
A rise in the general level of prices is called:
inflation
as borrowing by consumers, businesses and govt increases, interest rates are likely to
rise due to increased demand
future value
the amount that will be available at a later date
compounding
the amount to which current savings will increase based on a certain interest rate and time period ex: $100 deposited in a 6% account for 1 year will grow to $106 $100 + ($100 x 0.06 x 1yr) = $106
the CPI measures
the average change in the prices urban consumer pay for a fixed basket of goods and services
What is the purpose of developing and analyzing your financial goals?
to differentiate your needs from your wants
Three items needed to calculate future value include: principal, length of time, and annual interest rate.
true
intermediate goals have a timeframe of
2-5 years
The main purpose of the Federal Reserve is to ______.
act as the central bank and maintain an adequate money supply
present value is referred to as
discounting
Your financial goals are the basis for measuring the progress of which of the following?
spending, saving, and investment activities
Interest rates are affected by the following:
supply and demand of money
present value
the current value of an amount desired in the future
time value of money tables can used to determine ?
the future value of equal yearly savings deposits
values
the ideas and principles that a person considers correct, desirable, and important
financial literacy
the use of knowledge and skills for earning, saving, spending, and investing money to achieve personal, family and community goals
opportunity cost
a trade off; every financial decision requires sacrifice in order to attain something more desirable
Determining your current financial situation involves which of the following?
-identifying current income, savings, living expenses, and debts - preparing personal financial statements
Every financial decision has a trade-off, also known as a(n):
opportunity cost
In the context of global influences, which of the following statements are true of American consumers and American businesses? Multiple select question.
American consumers provide foreign companies with a market AND American businesses compete against foreign companies for the spending dollars of Americans
Assume a $650 investment earning 8% for 10 years. What is the future value?
FV=PV (1+i)n FV= $650(1+.08)10 FV=$1,403.30
Which of the following is the first step in the financial planning process?
determine current financial situation
Opportunity costs can be viewed in terms of:
financial and personal resources
financial opportunity costs
involve monetary values of decisions made. For example, the purchase of an item with money from your savings means you will no longer obtain interest on those funds.
According to the text, what are the main reasons Americans have financial problems?
- advertising efforts and availability of goods encourage overspending - poor planning and weak management of money habits
Understanding how the ages of dependents will affect your savings goal is a part of step four in the financial planning process, which involves evaluating your ______.
alternatives
simple interest calculation
amount in savings x annual interest rate x time period = interest
When planning your financial goals, what role does the economy play?
daily economic transaction facilitate financial planning activities, which affect personal finance decisions
intangible-purchase, or nonfinancial goals
relate to personal relationships, health, education, community service, and leisure
SMART goals
specific, measurable, action oriented, realistic, time based
adult life cycle
the stages in the family situation and financial needs of an adult
annuity
a series of equal deposits or payments
Long-term financial security starts with a regular ______ plan for emergencies and unexpected bills.
savings
When discussing personal financial growth, what is an important aspect?
setting goals
interest rates represent
the cost of money
short-term goals will be achieved within
the next year or so
personal financial planning
the process of managing your money to achieve personal economic satisfaction
economics
the study of how wealth is created and distributed
personal opportunity costs
time, energy, health, abilities, knowledge
use the Rule of 72
to find out how fast prices (or savings) will double - divide 72 by the annual inflation or interest rate ex: annual inflation rate of 4% means prices will double in 18 years (72 / 4 = 18) for savings; if you earn 6%, your money will double in 12 years (72 / 6 = 12)
A key factor in making financial decisions is time value of money.
true
consumer price index (CPI)
is computed and published by the Bureau of Labor Statistics
advantages of financial planning
- effectiveness when using and protecting financial resources - expanded control of financial affairs by avoiding excessive debt and dependence on others - improved personal relationships - freedom from financial worries
Key factors for most people in making financial decisions include:
- financial opportunity cost - inflation cost - time value of money
time value of money calculation methods
- formula calculation - TVM tables - financial calculator - spreadsheet software - websites and apps
The Fed has indirect control over interest rates. The Fed attempts to make adequate funds available for which of the following?
consumer spending and business growth
in times of inflation, the buying power of the dollar ___
decreases
Which of the following is a possible pitfall in creating and implementing your financial plan?
inflexibility
daily economic transactions facilitate financial planning activities, such as:
investing in debt securities (bonds), equity securities (stocks), buying and selling mutual funds, certificates of deposit (CDs) and commodity futures
durable-product goals
involve frequently purchased, expensive items such as appliances, cars, and sporting equipment
What measures the increase in an amount of money as a result of interest earned?
time value of money
True or false: A financial plan is a formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities.
true
Which of the following are part of evaluating alternative courses of action in the financial planning process?
-considering the consequences of choices -consideration inflation risk -evaluating risk