Family Finance Final Exam

According to your readings on debt/credit, when computing the debt to equity ratio, total liabilities (excluding your home mortgage) should not exceed a maximum of _______ % of your net worth (excluding your home value).

100%

If your home mortgage rate is 8% and the inflation rate is 6%, how many years will it take for your home (i.e., house) to double in value?

12

You may use an electronic device and search the web at www. bretwhissel.net/amortization/amortize.html to answer this question. Tim and Susan contracted to purchase a new home for $200,000. They decided to finance their home for 15 years at 3.65% with a down payment of 10%. What would be their monthly house payment (i.e., principal and interest)?

1300.09

You may use an electronic device and search the web at www. bretwhissel.net/amortization/amortize.html to answer this question. Don wants to buy a used car. His credit union said used car loans were 4% up to 48 months. What is the most Don can borrow if he can afford a monthly payment of $300?

13286

Many people believe that winning the lottery could happen to them; however, according to our class discussion the odds you will win the typical lottery are approximately one in _______.

14 million

If you have $5,000 in savings earning 4% interest and inflation rate is 8%, how many years will it take for you to have $10,000 accumulated in savings?

18

According to your text, the total consumer debt in America is approximately:

2.4 trillion dollars

when is comes to their finances

20 somethings are hardly carefree

According to your readings on debt/credit, your debt payments (excluding your home mortgage) should not exceed ________ of your income.

20%

You may use an electronic device and search the web at www. bretwhissel.net/amortization/amortize.html to answer this question. James wants to buy a used car which costs $10000. His credit union said used car loans were 6% up to 36 months and 8 % for a loan of 48 months. If James makes a down payment of 10%, what would his monthly payment be if he borrowed the remainder at 8% for 4 years?

219.72

According to a Public Interest Research Group (PIRG) survey, ______ % of credit reports contained errors serious enough to result in the denial of credit.

25%

Hopefully, one of your financial goals is to maintain a savings account sufficient to cover any unexpected emergencies. According to CNN Money, ___% of American have no savings at all, no retirement, no investments, nothing.

25%

Dave Ramsey recommends ___% of your income be spent on housing.

25-35%

What percentage of American workers have less than $1000 in savings?

27%

What percentage of college students eventually leave school because of financial concerns?

42%

You may use an electronic device and search the web at www. bretwhissel.net/amortization/amortize.html to answer this question. Tim and Susan contracted to purchase a new home for $200,000. They decided to finance their home for 15 years at 3.65% with a down payment of 10%. How much interest will they pay over the life of their loan?

54016

baby step 3

6 months of expenses in emergency fund

You should purchase sufficient disability insurance to pay _______% of your current income.

65%

Other than Chapter 7 bankruptcy, account information is removed from your credit report ______ years after the last activity on the account.

7 years

Hopefully, this class will give you the money management skills needed to avoid living paycheck to paycheck. According to the Wall Street Journal, ____% of consumers actually live paycheck to paycheck.

70%

On average, a new car loses ______ of its value in the first four years.

70%

What % of undergraduate college students have at least one credit card?

84%

What percentage of 90-day Same as Cash repayment plans convert to monthly payments (usually at high interest rates)?

88%

If inflation is at 8%, how many years will it take for the price of groceries to double?

9

Which resource (i.e., web site) would give me the best information about the availability of a vehicle I wanted to buy?

Autotrader

Which resource (i.e., web site) is/are primarily designed to give me information regarding the history of a specific vehicle I wanted to buy?

Carfax & Autocheck

Identify and explain three reasons cash is such a powerful strategy for obtaining a great deal?

Cash is emotional, visual and has immediacy.

According to our class discussion, which resource (i.e., web site) would give me information about dealer/manufacturer incentives or rebates that may be available for a car I wanted to buy?

Edmunds

Which resource (i.e., web site) would provide me with the true market value (TMV) of a used car I wanted to buy?

Edmunds

A zero based plan means that the cash flow plan is based on having zero debt.

False

According to your instructor, your written cash flow plan should be allocated on a weekly or bi-weekly basis.

False

An envelope system should be used to manage utility costs such as electricity, water, and phone.

False

Baby step one requires funding an emergency fund in the amount of $1200 (twelve months times $100)

False

Because an emergency fund is an investment, maximizing the interest rate of return on the account is an important consideration.

False

Dave Ramsey strongly recommends that you NOT use ATM and debit cards.

False

Having zero debt is an important component of a zero based budget.

False

It is recommended that you maintain a fully funded emergency fund equal to 3-4 months' expenses.

False

You need to reconcile your bank statement once every year.

False

Steve and Wanda are serious about managing their money well and have decided to develop a written plan to achieve their financial goals. According to our class discussion, what four guidelines would you recommend to help Steve and Wanda develop effective financial goals?

realistic, specific & measurable, time frame, & action oriented

Risk goes up

return goes up

A bargain ain't a bargain unless it is something you really need!

true

An important strategy for negotiating a great deal is to know when to quit talking.

true

Dave Ramsey believes it is okay to give money to a friend or relative, but you should never loan them money.

true

Dave Ramsey believes that conflict over money matters is the number one cause of divorce in America.

true

Dave Ramsey does not believe it is possible to get a good deal on a new car.

true

For men financial problems most likely represent a loss of esteem.

true

I (your instructor) believe that it is possible to get a good deal on a new car.

true

If you own a business, you can take a tax deduction for your car even though you are not making car payments.

true

If you pay late on a 90-day same as cash agreement, you will usually be charged interest for the entire 90 days.

true

In order to minimize the money lost on items that depreciate (i.e., go down) in value, it is recommended that you buy slightly used.

true

Inaccurate information is the only information that may be legally removed from a credit report.

true

It is estimated that people spend 12-18% more when they use a credit card instead of paying with cash.

true

It is recommended that you buy only low-cost term life insurance.

true

J.C. Penny Stores did not begin to widely accept credit until after the death of its founder in 1971.

true

Leasing a vehicle is the most expensive way to finance and operate a vehicle.

true

Medical bills and illnesses are the leading cause of bankruptcy in the U.S.

true

Most people that lease a vehicle do so because leasing allows them to upgrade their car selection.

true

Nearly one-third of U.S. households do not have any life insurance at all.

true

Nearly three out of four people (75%) say they are influenced by the opinions of others when making a decision to buy a product.

true

Selecting a shorter elimination period for your disability insurance will increase your premium costs.

true

Short-term disability is covered by your emergency funds; therefore you should only buy long-term disability.

true

The first credit card, Diners Club, originated in 1950 and is still in business today.

true

The majority (more than 50%) of people over the age of 65 will require long term care at some point in their lives.

true

The primary purpose for buying insurance is to transfer risk.

true

Under the debt snow ball plan you should pay off the smaller account balances first even if they have the lowest interest rates.

true

Using the phrase "that's not good enough" would be an effective strategy for letting a salesman know that you have walk away power.

true

When it comes to financial decision making, disagreements regarding major purchases most likely represent conflicts in a couple's value system.

true

When purchasing life insurance, policies that accumulate a cash value are not a good choice.

true

When you die, the insurance company keeps any cash value accumulated on a life insurance policy.

true

Women are more likely than men to experience a loss of security when faced with financial problems.

true

You would not find any information about the history of a particular car on Edmunds.com.

true

Because of social pressure and advertising, you may end up buying what you think you ______, rather than what you really _______.

want, need

3. For building _____.

wealth

The great misunderstanding:

wealth gives power to good intentions

poor in spirit are those who will loan to those

who will want to borrow their stuff

Which one of the following was not one of the tips Dave Ramsey provides to help you stick to your budget?

you must pay cash for everything

Which of the following is not one of the three keys to opening the door to huge bargains?

you must research everything

The annualized costs of items paid on a non-monthly basis would most likely be included in:

your lump-sum payment n

Qualified Investment Plans

IRA, SEPP, 401K

Adults make a plan & stick to it

Kids do what feels good

The statement, "the borrower is slave to the lender":

Proverbs 22:7

Discover Card became the most profitable division of:

Sears

The catalog of this company once referred to buying on credit as folly:

Sears

In your own words, describe/explain the four-step process (i.e., the major components) of making a wise car buying decision when you are looking for a quality used car.

The first step to purchasing a used car is looking at reviews on the car to examine details and features of what you are looking for. The second step is to look at pricing. Do research to find the TMV and the different levels someone may be charging according to the condition it is in. The third step is to look at availability in your area and the surrounding areas. The fourth step is finding the history on the car. You should always look up the Carfax or pay to have them revealed, because you never know when someone will try to scam you.

Failure to have a written cash flow plan contributes to "management by crisis."

True

Frequent money fights indicate that a couple is not actually following their written cash flow plan.

True

The most powerful cash flow plan is a zero based plan using an envelope system.

True

Your emergency fund should be thought of as insurance, not an investment.

True

Your written budget should include a plan to blow your money (i.e., blow money).

True

30% worry frequently

about their debts

Roth IRA

after-tax IRA that grows tax free, more choices, best if in a higher tax-bracket at retirement

Appraisal is

an opinion of value, always order one if in doubt

When Tim's son was born, he invested $5000 in a college savings fund to pay for little Johnny's future education expenses. According to our class discussion, what three variables will determine the future value of Johnny's college savings fund?

annual rate of interest, number of times compounded each year, & number of years

baby step 5

college funding for your kids

bonds

debt instrument, company owes you money

Single Stocks

extremely high risk, buy ownership in the company, return comes from value of company, paid dividends

According to Dave Ramsey, a 15-year variable-rate mortgage is an acceptable alternative to the 30-year fixed-rate mortgage.

false

According to Dave Ramsey, a 20-year fixed-rate mortgage is an acceptable alternative to the 30-year fixed-rate mortgage.

false

According to Dave Ramsey, when it comes to shopping, most men primarily save money by hunting for the best deals.

false

According to Dave Ramsey, when it comes to shopping, most women primarily save money by negotiating for the best price.

false

An auto insurance policy with liability coverage is designed to repair your vehicle in the event you have a wreck (i.e., auto accident).

false

Because automobiles are one of the largest consumer purchases an individual will make, Ford Motor Company has always given consumers the option to buy a car on credit.

false

Because of the pressure to be a good provider, most men report higher levels of stress when it comes to money, job stability, etc. than do women.

false

Cash value life insurance is a good way to invest because it has a built in savings plan.

false

Dave Ramsey believes that government funded lotteries are an appropriate way to fund public education.

false

Dave Ramsey believes that you need a credit card for occasional use in order to build up your credit score.

false

For a married couple, financial decision making should be done by the person that has the natural gift for finances.

false

If you know you will be moving in just a few years, then it is wise to take out an adjustable rate mortgage (ARM) because of the lower introductory interest rate.

false

In 1910, the Sears catalog began to promote the purchase of merchandise on credit.

false

In 1970, only 25% of Americans owned a credit card.

false

It is desirable to have a high FICO credit score because it is a good indication of your financial success.

false

It is important to purchase both short-term disability and long-term disability insurance.

false

It is not recommended that you purchase items from public auctions because you usually do not know how an item has been maintained.

false

It is recommended that you carry a cancer insurance policy to supplement the coverage of your health insurance policy because the costs of cancer treatment are so high.

false

It is recommended that you obtain a homeowner's insurance policy with extended replacement cost coverage.

false

It is usually a good idea to get out of debt by first consolidating many payments into one loan payment.

false

It is usually necessary to have one credit card in order to rent a car and make hotel reservations.

false

It is wise to maintain life insurance for the duration of one's life expectancy (i.e., permanently).

false

Leasing your car is often a good idea because of the income tax advantages.

false

More people make buying decisions based on the quality of the product than on the price of the item.

false

Most people that lease a vehicle do so because it is the only way they can afford something decent.

false

Occupational ("own occ") insurance is primarily designed to pay benefits when you have been injured on your job.

false

Often you can save finance and operating costs by choosing to lease a vehicle in lieu of financing it.

false

One way to increase your FICO credit score is to increase the amount you maintain in your emergency fund.

false

Pawn shops are not a safe place to find bargains because of the risk that you may purchase something that has been stolen.

false

The first key to opening the door to huge bargains is you must know where to find great deals.

false

The idea of driving your car for 200,000 miles is an unrealistic goal because most vehicles are not designed to go that far.

false

Upon your death, the life insurance company will pay you the face value of the policy plus the cash value that has accumulated over the life of the policy.

false

Usually, couples that attach the same meaning to money do not experience significant money problems.

false

When I become upset because Wanda wants to spend a few dollars on her "collectible tins" it is most likely because I do not understand (i.e., know) what money means (i.e., the meaning of money) for Wanda.

false

You are entitled to obtain a free credit report four times a year, once in each quarter of the calendar year.

false

Your personal budget should always include a provision for the purchase of life insurance.

false

buying a home

forced savings plan, inflation hedge, grows tax-free, land survey

Dave Ramsey identifies seven baby steps you should take to reach financial success. Baby step one is to:

fund $1000 emergency fund

Which of the following was not one of the places recommended for finding big, big bargains?

individuals, repo lot, flea markets, online auctions

Basic Way to finance: 2. 2. FHA

insured by Department of housing, 3% down payment(lower priced homes), more expensive loans

title insurance

insures you against an unclean title, good buy

15 percent rule

invest 15% of before-tax gross income toward retirement

baby step 4

investing 15% household income into Roth IRAs & pre-tax retirement plans

55% dont have

investments in an IRA account

The first key to opening the door to huge bargains is to:

learn to negotiate

Real Estate

least liquid investment, needs lots of cash

high liquidity =

less return

houses are priced on 3 things:

location, location & location

fixed annuities

low interest rate, low investment

Money Market

low risk, checking privileges, great for emergency fund

100% of 15-year periods

made money

97% of 5-year periods

made money

"Lost Decade"

market drop in 2008, 2000-2009 terrorist attack & recession - 1% annual return & negative returns

baby step 2

pay off debt using the debt snowball

baby step 6

pay off your home early

Basic Way to finance: 4. owner financing

pay owner over time, great way due to creativity in the structure of the loan

Dave Ramsey identifies seven baby steps you should take to reach financial success. Baby step two is:

pay-off all debt other than your home mortgage

Samuel Johnson said, "Resolve not to be _____; whatever you have, _____ less."

poor, spend

Dave Ramsey identifies seven baby steps you should take to reach financial success. Baby step three is to:

put 3-6 months of expenses in savings

The factor that determines whether a lender will extend credit to you that is based on the borrower's attitude toward his or her credit obligations is referred to as:

character

maximum annual contribution for IRA

$5000(according to Dave), now it is $5500 or 6500 for 50 & older

Which one of the following is not a reason buyers fail to obtain big, big, bargains:

(all reason buyers fail) they are afraid to ask for a deal, they fail to use walk away power, & they are afraid to say "that's not good enough"

Horrible Mortgage Options

1. Adjustable Rate Mortgage 2. Reverse Mortgages 3. Accelerated or Biweekly Payoff 4. Tax advantages of a mortgage

According to the U.S. Census Bureau, there are nearly ______ credit cards in use in the United States.

1.5 billion

It is recommended that you purchase life insurance the amount of which is equal to _______ times your annual income.

10 times

Dave Ramsey recommends ___% of your income be spent on charitable gifts.

10-15%

Basic Way to finance: 3. VA

benefit veterans, 0% down purchase

mortgages

best one is 100% down, 25% of your take-home pay for 15 years fixed with 10% down

baby step 7

build wealth & give!

what to buy?

buy in the bottom price, near water or with a view, buy bargains, good basic floor plan, attractive from the street, home inspector,

The factor that determines whether a lender will extend credit to you that is based on your existing income and debts you already have is referred to as:

capacity

The factor that determines whether a lender will extend credit to you that is based on your existing assets and net worth is referred to as:

capital

Which of the following is the most important strategy for getting the maximum miles (i.e., distance) out of your car? In other words, the most important strategy for making your car last a long time.

change the vehicle's fluids regularly

The time between a disabling event (i.e., being disabled) and the beginning of payments is referred to as:

elimination period

The next three questions will go together: You should save money for three basic reasons: 1. For an _________ fund,

emergency

Baby step 1

emergency fund

horrible investments

gold, commodities & futures, day trading & viaticals

Mutual Funds

good long-term investments, diversified, money spread across 4 classes

The smartest investment you can make is

in yourself.

liquidity

means availability

60% feel they face

more financial pressure than past generations

Compound Interest

most effective way to become a millionaire

variable annuities

mutual funds sheltered by annuity covering, grows tax-deferred

IRA

not type of investment at a bank, tax treatment on any type of investment

The type of insurance that provides an income in the event you are unable to perform the job that you were educated or trained to do is called:

occupational disability

You make money on a home

on the front end

You can never get enough of what you do not need, because what you do not need can never _______ you.

satisfy

annuities

saving accounts with insurance company

Mary wants to have her car note ($2400) paid off when she graduates in 22 months. According to our class discussion, Mary's goal to pay off her car would represent what?

short-term goal

Which of the following expenditures would NOT be included in a lump-sum repayment plan?

significant home repairs, major medical expenses, summer vacations & christmas gifts

According to Horace, "He will always be a ______, he who does not know how to live upon a _____."

slave, little

Diversification

spread around. It decreases your risk

As a college student you have two goals:

stay in school & stay out of debt

What not to buy?

trailors or mobile home, timeshares

The point at which an insurance company begins to pay 100% of an individual's medical expenses is referred to as:

stop loss point

A life insurance policy for a specific period of time is referred to as:

term insurance

Nothing (no thing) is more important than __________.

the relationship

Selling a home

think like a retailer, "near perfect", return on fix-up dollars is enormous, curb appeal (71% make decision according to curb appeal),

Basic Way to finance: 1.conventional loan

through the FNMA and privately insured against default

The primary purpose in an adjustable rate mortgage (ARM) is to:

to protect the bank for the risk of higher interest rates in the housing market