Pers Fin Ch 10 Financial Planning

______ are purchases you make often and use up quickly.

Consumable goods

A series of equal regular deposits (or payments) is called a(n):

annuity.

_____ is the study of the decisions that go into making, distributing and using goods and services.

Economics

Rob and Mary are the same age. At age 25, Mary began saving $2,000 a year while Rob saved nothing. At age 50, Rob realized that he needed money for retirement and started saving $4,000 per year while Mary kept saving her $2,000 per year. Now they are both 75 years old. Who has the most money in his or her retirement account?

Mary--because her money has grown for a longer time earning interest and/or dividends

The Federal Reserve Bank (The Fed) has a big impact on interest rates consumers pay on things like home loans, car loans and credit cards because:

The Fed raises or lowers interest rates by buying or selling large amounts of U.S. government treasury notes (debt).

A _______ is a person who purchases and uses goods or services.

consumer

Which of the follwing is the most accurate definition of garnishment of wages?

deducting money from an employee's paycheck as a result of a court order (to pay child support or liens for example)

A physical item that is produced and can be weighed or measured is a(n):

good.

Which of the following is NOT a strategy for achieving financial goals?

ignore risk (spend wisely, borrow wisely, and plan for retirement are all strategies for achieving financia goals)

The price that is paid for the use of another's moeny is:

interest.

Why is it a good idea to create a plan of action for achieving long-term financial goals such as saving for retirement or your children's college education?

the farther ahead you plan, the less money you have to save monthly; if you wait too long, you will not have enough saved to meet the goal; the more time you have, the more risk you can with types of investments you buy--giving you faster growth in investments (hopefully!?!)

The increase of an amount of money earned due to earned interest or dividends is:

time value of money.

A plan of action is a list of ways to achieve financial goals.

true

A service is a task that a person or machine performs for you. (T/F)

true

An opportunity cost is what is given up when making one choice over another. (T/F)

true

Intangible items cannot be touched but are often important to your well-being and happiness including personal relationships, health, education, and free time. (T/F)

true

It is impossible to make a good decision unless you know all your options. (T/F)

true

Long-term goals take more than five years to achieve (such as planning for retirement). (T/F)

true

One of the benefits of financial planning is that you have more money and financial security. (T/F)

true

Your financial goals should be all of the following except:

unclear (goals should be realistic, specific and have a deadline (aka time frame).

The beliefs and principles you consider important, correct and desirable are:

values.

The best reason to hire a financial planner is:

you have researched some possible investments, but you want a professional to give his/her opinion before you make the final decision.

One of the main jobs of the Federal Reserve is to:

conduct monetary policy (by raising or lowering interest rates--this affects how much is loaned out by banks).

The amount of goods and services people are willing to buy is:

demand.

The first step in developing a personal financial plan is:

determining your current financial situation.

A good way to estimate your expenses is to keep a careful record of everything you buy for one year. (T/F)

false

Durable goods are expensive items that you do not purchase often such as shampoo and conditioner. (T/F)

false

How you establish and reach financial goals does not depend on whether a goal involves the need for consumable goods, durable goods or intangible items. (T/F)

false

It is not important to keep up-to-date with social and economic conditions because they do not affect your financial situation. (T/F)

false

Liquidity is the risk that you may lose your job due to unexpected health problems, family problems, an accident or changes in your field of work. (T/F)

false

Short-term goals take two to five years to achieve (such as saving for a down payment on a house). (T/F)

false

Value are things you want to accomplish. (T/F)

false

When you make a financial decision you do not necessarily have to accept certain financial risks. (T/F)

false

The amount that your original deposit will be worth in the FUTURE, based on earning a specific interest rate over a specific period of time, is its:

future value.

Geting a college education, buying a car and starting a business are examples of:

goals.

During times of rapid inflation:

it takes MORE money to buy the same amount of goods/services.

All of the following are important factors that influence your day-to-day decisions about finances except:

location.

Saving money to buy a house in ten years and putting away money for retirement are examples of:

long-term goals.

If the Federal Reserve is doing its job well, there should be:

low unemployment and a healthy level of growth in our economy.

Scarcity means there are not enough resources available to:

meet the demand for those resources (example--most people have a limited amount of money--money is therefore said to be a scarce resource).

The amount of money you would need to deposit now (in the PRESENT) in order to have a desired amount in the future is:

present value.

In order to calculate the time value of your savings, you need to know the annual interest rate, the length of time your money will be in the account, and the:

principal (the amount you first put into an account).

How can a person accumulate the largest amount of money over a lifetime?

save early and often by paying yourself first

One of the best strategies you can employ to build wealth is to:

spend less than you earn (live below your means) and save/invest leftover money.

Government transfer payments involve:

taxes being collected by the government and then being distributed to individual citizens in the form of welfare or food stamps.

What is something you give up (opportunity cost) when you take a job?

the ability to spend time with family and/or friends