Ch. 2 Review

The five steps to financial success A five money myths B Five Foundations

B Five Foundations

The persistent rise in the cost of goods and services A deflation B inflation

B inflation

Compare after-tax income to the money people spend on a variety of items A interest rate B savings rate

B savings rate

Instead of borrowing money for large purchases, you should set money aside in a ______ over time and pay with cash. A emergency fund B sinking fund C credit card fund D mortgage fund

B sinking fund

Saving money over time for a large purchase. A installment loan B sinking fund

B sinking fund

Why is having a fully funded emergency fund so important when it comes to your financial well-being? A as long as you have a good-paying job, you really don't need an emergency fund B the purpose of an emergency fund is to set money aside for unexpected financial emergencies and to provide a sense of financial security C the purpose of an emergency fund is to have money set aside for large purchases, like vacations D none of the above

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

Money today has different buying power than the same amount of money in the future A interest B time value of money

B time value of money

The 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. A Opportunity Cost B time value of money C interest rate D inflation

B time value of money

When a person intentionally invests money in a place where it can earn more money A sinking fund B wealth building

B wealth building

What does it mean to have a negative savings rate? A saving for something that is a want instead of a need B having a fully funded emergency fund C having no savings at all D spending more money than you make and acquiring debt

D spending more money than you make and acquiring debt

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

true

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

True

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

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. TrueFalse

True

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

True

For which of the following should you save? A purchases B wealth building C emergency fund D all of the above

D all of the above

Which of the following is a reason that people don't save money? A they lack discipline B they do not live on a budget C they lack focus D all of the above

D all of the above

The saving habits of Ben and Arthur best illustrate which principle of saving? A the length of time and money is invested matters B the amount of the initial investment is key C rate of return matters D both A and C

D both A and C

Which of the following is NOT a reason your emergency fund should be kept in a separate savings account away from your spending money? A so that you don't get your spending and saving money confused B so that it is clear what money is only to be used for emergencies C so that it is not too easy to access D so that you emergency fund savings can earn a lot of interest

D so that you emergency fund savings can earn a lot of interest

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

False

Your income level greatly affect your saving habits. TrueFalse

False

Using the sinking fund approach, how much do you have to save each month to buy a $4,800 car one year from now? A $400 B $300 C $275 D $500

A $400

At your age, a fully funded emergency fund should be: A $500 B $5,000 C $100 D $1,000

A $500

Interest paid on interest previously earned A compound interest B interest

A compound interest

Saving is about : A contentment and emotion B contentment and earning more money C making more money and discipline D pride and greed

A contentment and emotion

Money set aside and left alone for a "rainy day". A emergency fund B savings account

A emergency fund

Percentage paid to a lender for the use of borrowed money, or the percentage earned on invested principal A interest rate B savings rate

A interest rate

Save a $500 emergency fund A the First Foundation B the Fourth Foundation

A the First Foundation

Which of the following is NOT one the three basic reasons for saving money? A emergency fund B large purchases C have money available to lend to friends D build wealth

C have money available to lend to friends

Which of the following steps is the First Foundation? A Get out of debt B build wealth and give C save a $500 emergency fund D pay cash for your car

C save a $500 emergency fund

Why should interest earned not be a factor with your emergency fund? A inflation can eat up the interest earned B interest-bearing accounts at banks earn a high rate of interest, therefore, interest is not a concern C the emergency fund is not intended to grow wealth D none of the above

C the emergency fund is not intended to grow wealth

Which of these is NOT a key to saving money? A focus B making saving a habit and a priority C your income D discipline

C your income

Americans typically maintain a very high savings rate. TrueFalse

False

The first thing you should save for is your retirement fund. TrueFalse

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. TrueFalse

False