Personal Finance Ch. 1 & 2

Learning the language of money is not that important because you will be able to depend on financial planners to manage your money.

False

Most Americans avoid the use of credit when it comes to buying big-ticket items like a car or furniture for their home.

False

Americans typically maintain a very high savings rate.

False

Why should interest earned not be a factor with your emergency fund?

The emergency fund is not intended to grow wealth

The saving habits of Ben and Arthur best illustrate which principle of saving?

The length of time money is invest matters, rate of return matters, BOTH A AND C

Why is having a fully funded emergency fund so important when it comes to your financial well-being?

The purpose of an emergency fund is to set money aside for unexpected financial emergencies and to provide a sense of financial security.

Using the sinking fund approach, how much do you have to save each month to buy a $4,800 car one year form now?

$400

Explain why establishing

...

Everyone should have the same financial plan. A budget that works for one person should be sufficient for everyone.

False

Expensive houses and new cars are a true indication of wealth.

False

Most Americans today are wealthy and will have financial security when they retire.

False

What two things do you consider when evaluating the time value of money?

Interest and inflation

A debt evidenced by a "note," which specifies the principal amount, interest rate, and date of repayment

loan

The credit system today is structured to accommodate a state of uncertain employment and income instability, utilizing high interest rates and fees to turn huge profits.

True

True financial security is achieved when your money begins to generate an income--your money starts working for you.

True

Whent it comes to managing money, success is about __% knowledge and __% behavior.

20, 80

Key components of financial planning include all of the following except:

Allow your financial planner to make all of your major money decisions.

Which of the following is not a factor in becoming money smart?

Learn how to read your credit card statements.

Which of the following best explains why students should learn about personal finance?

Learning to manage money at this stage can eliminate financial mistakes and promote huge financial benefits for the future.

Instead of borrowing money for large purchases, you should set money aside in a ____________ over time and pay with cash.

Sinking fund

Which of the following is not a reason your emergency fund should be kept in a separate savings account away from your spending money?

So that your emergency fund savings can earn a lot of interest

Why do you need an emergency fund at your age?

So we can "fix a flat or replace a cell phone."

What does it mean to have a negative savings rate?

Spending more money than you make and acquiring debt.

All of the decisions and activities of an individual or family regarding their money, including spending, saving, budgeting, etc.

personal finance

A period of temporary economic decline during which trade and industrial activity are reduced; generally identified by a fall in a gross domestic product

recession

At your age, a fully funded emergency fund should be

$500

A system by which goods and services are produced and distributed

economy

During the Great Depression, New Deal policymakers came up with mortgage (home loans) and consumer lending policies that convinced commercial banks that:

Consumer credit could be profitable

Saving is about:

Contentment and emotion

Which of the following statements best describe how Americans are being outsmarted by banks and other lenders?

Credit is marketed so well that we desire to have it while completely dismissing the fact that interest rates and fees continue to destroy our financial well-being.

Since you are a teenager, what you do now with money will have little effect on your financial future.

False

The first thing you should ave for is your retirement fund.

False

When it comes to saving money, the amount you save is determined by how much you have left at the end of the month once all of your spending is done.

False

You should keep your emergency fund in the same account as your spending money.

False

Your income level greatly affects your saving habits.

False

Which of the following is not one of the three basic reasons for saving money?

Have money available to lend to friends

Which of the following statements best explains why income alone does not determine wealth?

How much money a person makes does not dictate his or her spending and saving behavior.

Which of the following is not a benefit of understanding your own money personality?

Knowing your money personality allows you to excuse excessive spending because it is simply part of your nature.

Describe some of the mistakes Americans often make when it comes to money.

Lack of budgeting, overspending, relying on credit.

Why was the use of credit uncommon prior to 1917?

Laws prevented lenders from charging high interest rates, borrowing money was generally not socially acceptable, lending money to others was not profitable, ALL OF THE ABOVE

Personal financial success is primarily the result of:

Managing your money behavior.

Explain how marketing can affect your decision when it comes to spending money.

Marketing affects where and how we spend our money through advertisements; it can encourage us to buy now and pay later.

Which of the following is a consequence of spending more than you make?

Missed opportunity to save and invest, stress, a cycle of debt, ALL OF THE ABOVE

Does managing your money well mean that you can't have fun with your money?

No; you can always budget some money for fun activities.

For which of the following should you save

Purchases, wealth building, emergency fund, ALL OF THE ABOVE

Which of the following steps is the First Foundation?

Save a $500 emergency fund

Explain why understanding your money personality is important when it comes to developing a money plan that's right for you.

Savers will generally have less work to do and won't need as much discipline as spenders, who will have to slowly ween themselves off of their disdainful habits.

Which of the following is not a true statement?

The credit industry in America has not changed much since 1917.

The widespread financial insecurity of Americans is probably because

The savings rate of Americans is low and many borrow in order to spend more than they earn.

Which of the following is not a reason credit is marked heavily to consumers in the United States?

The use of credit is not socially accepted in the United States.

Which of the following is a reason that people don't save money?

They lack discipline, they do not live on a budget, they lack focus, ALL OF THE ABOVE

This principle suggests that a certain amount of money today has different buying power than the same amount of money in the future. This is due to both the opportunity to earn interest on the money and because inflation will drive prices up, thereby changing the "value" of the money.

Time value of money

An interest-bearing account is an account that generates interest income on the available balance in the account.

True

Having debt keeps you from building wealth.

True

When developing a personal financial plan, one of the first things you should do is assess your current financial situation. This includes your income, assets, and liabilities.

True

When you're in high school, you won't have the same emergency expenses as your parents.

True

When you're older and out of school, you'll need to grow your emergency fund into a full three to six months' worth of expenses.

True

You should hold off on investing for retirement until you have college or other post-secondary education paid for.

True

You should save money for three basic reasons: emergency fund, purchases, and wealth building.

True

A person or business that offers loans at extremely high interest rates

loan shark

Which of these is not a key to saving money?

Your income

When it comes to personal finance, the math is easy. What's challenging is managing your

behavior

A person or organization that uses a product or service

consumer

The granting of a loan and the creation of debt; any for of deferred payment

credit

An obligation of repayment owed by one party to a second party

debt

The knowledge and skill set necessary to be an informed consumer and manage finances effectively

financial literacy

A fee paid by a borrower to the lender for the use of borrowed money

interest