Financial Literacy Pt. 1

For most of us, the standard of living that we will enjoy over our lifetimes depends largely on the total income that we will earn. Income that we earn when someone pays us in the form of hourly wages, regular salaries or tips is known as earned income. Earned income accounts for about two-thirds of total income that people receive. Family income depends on both the number of family members who work and the amount of money that each is paid. Other sources of income are called unearned income. These may include the profits we earn from owning a business, the money we make from collecting rents on property we own, the income we receive in the form of interest and dividends from our investments or the non-salary payments we receive from the government. Since unearned income amounts to about a third of total income, it is certainly important. We begin in this module with earned income since it accounts for almost all the income of young adults who have not yet accumulated the savings necessary to generate a lot of unearned income. There are huge differences in the amount of money people are paid for their work in the United States. On the low end, some people work for the U.S. federal minimum wage, which in 2019 was $7.25 per hour (for most states), or $14,500 for a standard 2,000-hour year (40 hours per week for 50 weeks per year with 2 weeks off for vacation). At the high end, sports stars are paid as much as $25 million per year, which would come to $12,500 per hour if they worked 2,000 hours per year. Other high earners include movie and TV stars, top corporate executives and surgeons. What portion of total income earned by Americans is "unearned income" or income other than earned income? A. About One-third B. Less than a tenth. C. Between a tenth and a quarter. D. Two-thirds

A. About One-third Earned income accounts for nearly two-thirds of total personal income in the United States. This means that unearned income is equal to about a third, which is between a quarter and a half.

Andrew's mother explained that when he gets married, he and his wife will have twice Andrew's former take home pay, but she assumed that each of his monthly expenses would also double. Two really can't live as cheaply as one these days. While living together as a couple may save on expenses such as shared food and rent, other expenses (e.g., income taxes) could increase. Therefore, doubling Andrew's expenses is a conservative planning strategy. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod2Q7.PNG Why can't two live as cheaply as one these days? A. Each person has his or her own expenses for food, clothing, transportation, entertainment and so on, which nearly doubles the cost of a single person B. The government taxes couples at much higher rates than single people C. Couples aren't as romantic as they used to be D. Most restaurants don't allow people to split an order

A. Each person has his or her own expenses for food, clothing, transportation, entertainment and so on, which nearly doubles the cost of a single person Aside from sharing a house or apartment, people often have their own expenses for things such as food, clothing, transportation and entertainment, which nearly doubles the cost of a single person. And when they have children, each child will add at least $5,000 per year in expenses, even without child care. Expenses double from $31,000 to $62,000 when he marries at 28. They rise to $67,000 with his first child at age 30 and $72,000 with his second child at age 32, even without things such as private school, camp and college for the kids. These expenses are shown in the graph in the next section.

Many American workers get health insurance through their employer. It is much cheaper for employers to provide health insurance to a large number of workers than for the workers to buy insurance on their own. While not all employers are legally required to pay for this insurance in 2017, many do so because it's a benefit that can help attract and keep good employees. The Affordable Health Care Act ("Obamacare") penalizes employers with more than 50 workers that do not offer health insurance to their workers. The future of the Affordable Care Act is in the hands of Congress and might be changed or eliminated. Some employers will pick up the entire cost of health insurance for their workers, while others will make their workers pay part of it or co-pay by deducting from their paycheck at least part of the cost of the insurance. Since it costs more to insure an entire family than just a single worker, many employers charge a higher co-pay deduction for married workers and an even higher co-pay for married workers with children. A married couple with both spouses working may find that it is better to cover the entire family on the health insurance plan of one spouse or the other. This will enable them to drop the health insurance on the other plan and save those co-payments. We estimate in our example that Joey must pay 3 percent of his gross income for health insurance ($20,800 x 3% = $624 per year divided by 52 weeks = $12 per pay period for health insurance). Which of the following statements is true about health insurance? A. Employers are not legally required to pay any of the health insurance for their employees but may choose to do so. B. Employers may not pay for the health insurance of their employees. C. Employers must pay a part of the health insurance for all of their employees. D. Employers must pay the entire health insurance for all of their employees.

A. Employers are not legally required to pay any of the health insurance for their employees but may choose to do so. Employers are not legally required to pay for the health insurance of their workers, although those with more than 50 employees will be penalized if they do not do so. Many employers feel that offering health insurance is a way to attract and hold good employees.

Household income will tend to increase a lot when a single person enters the Bravo stage because there are generally two incomes instead of one. Occasionally, one partner in a marriage continues to go to school while the other partner works, reducing income that's available to the couple for spending and saving. Maria plans to marry another teacher, with about the same salary, at age 26. She hopes to have her first child at age 28. The chart shows how her graph line would change. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod_8_q_5_2019.jpg Why does Maria's income graph go up so much at age 26? A. She gets married. B. She has children. C. She wins the lottery. D. She gets a huge raise.

A. She gets married. When Maria marries another teacher who makes an income about the same as hers, her "family" income will double as compared with what it was when her family just had one earner - her.

https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod_9_q_9_2019.jpg If Joey was single and his taxable income was $9,800, how much would he pay in taxes each year? A. $982 B. $0 C. $948.75 D. $964

A. $982 The first $9,700 in taxable income would be taxed at 10 percent: $9,700 x 10% = $970.00. The remaining $100 in taxable income would be taxed at 12 percent: $100 x 12% = $12. Adding the two together, Joey's taxes would be $970.00 plus $12.00 = $982.00.

Using the 2019 tax table, how much Federal income tax will Sasha owe if she earns $15 per hour for 2,000 hours of work per year and has a standard deduction of $12,200? https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod_9_q_10_2019.jpg A. $3,000 B. $1,942 C. $0 D. $2,136

B. $1,942 Her taxable income is equal to her gross income of $30,000 minus her standard deduction of $12,200 which equals $17,800. Her taxes are equal to 10% on the first $9,700 = $970.00 and 12% on the rest. If we subtract $9,700 from her taxable income of $17,800, we find that she must pay 12% on $8,100 which is equal to $972.00. If we add this to $970.00, we get total taxes of $1,942.00.

Total opportunity cost, therefore, must include both the opportunity cost of the owner's labor and the opportunity cost of the owner's investment. Virtually every business includes both types of opportunity costs. Janie spends 10 hours per week making flower arrangements. Yesterday she was offered an after-school job by the pet store in the mall, which she often visits to look at the animals. If she took this job working ten hours a week, she could make $2,500 per year. She has $500 invested in her flowers, and she could have that money earning interest at one percent per year in a savings account. What is Janie's total opportunity cost of staying in business for herself this year? A. $2,506 B. $2,505 C. $2,500 D. $2,508

B. $2,505 The answer is $2,505. The opportunity cost for the money she has invested is $5 per year ($500 x .01 = $5) and the opportunity cost of her human capital is $2,500 per year. Adding them together, we get total opportunity cost of $2,505. This is the minimum she would have to make selling flowers in order to have a profit.

The pre-retirement or Echo stage of the life cycle is a period with generally high, two-earner income and no dependent children. It is often called the "empty-nest" stage of the life cycle and lasts until retirement age. It begins when the last child is expected to be out of college, generally at about age 22, or otherwise "off the family dole." Which of the following is generally true of the Echo or empty-nest stage when children are grown and no longer dependent on parents for support? A. Family income is about as high as it will ever get. B. All of the answers are true. C. Most families can save more at this stage than any other life cycle stage. D. Expenses tend to be lower than they were during the Charlie and Delta life cycle stages.

B. All of the answers are true. All of the answers are true. Family income is generally at its highest because both parties are working full time. Expenses, on the other hand, tend to be much lower than they were when there were children to support and educate. As a result, the family is in a position to save more than during the other life cycle stages.

What accounts for differences in the income that we receive from our jobs? A number of factors are important, including the following: The amount and type of education that we have. The demand for people with certain skills. The supply of people with certain skills. Whether or not a job is unionized and the power of the union. The region of the country in which we work. Everyone knows that a farmer with a tractor can grow more wheat than a farmer without one. We also know that a person with a sewing machine can produce more clothing than a person with just a needle and thread. The tractor and sewing machine are examples of "capital." People invest in capital to become more productive, which in turn means they can earn a better living. In a similar way, education to learn or improve job skills is called "human capital" because it helps people do their jobs better and as a result, earn more money. If Andrew earns a college degree in accounting, he will be more valuable to companies that want him to keep track of their finances. He will know how to make financial reports for the owners, how to pay the required amount of taxes and how to use computers to make the work easier. For that reason, a company will pay him more as an educated accountant than they will pay to a bookkeeper or accounting clerk who merely enters numbers in a computer, in spite of the fact that they may both work the same 2,000 hours per year. If Joey takes a class in welding at the community college but doesn't get a degree, which of the following is true? A. Classes in welding do not add to a person's human capital. B. Any education that helps people do their jobs better and earn more money is considered to be human capital. C. Classes in community colleges do not add to a person's human capital. D. If you take courses and do not get a degree, you haven't increased your human capital.

B. Any education that helps people do their jobs better and earn more money is considered to be human capital. Even if you don't earn a degree, an investment in any type of education that allows you to learn or improve a job skill is an investment in human capital. Since Joey works in construction, knowing how to weld is likely to make him more valuable and improve his earnings.

Not everyone goes through each of the "traditional" life cycles just described. Some people choose not to marry, and we will call them Perpetual Alphas until they reach the Echo stage, arbitrarily defined as 10 years prior to their planned retirement. Other people who marry but do not have children are called here Perpetual Bravos. They skip over the Charlie and Delta stages and enter the Echo stage at the same time as their Perpetual Alpha counterparts. Charlies and Deltas may be single as well as married. It is the responsibility for children that puts a person into the Charlie or Delta stages. To make things more complex, remarriage may cause a Delta or an Echo to suddenly become a Charlie again if there is a new baby. In order to be a perpetual Bravo, you must: A. Be divorced with children. B. Be married, but never have children. C. Still be in school. D. Be married and save your money like a Bravo should.

B. Be married, but never have children. Perpetual Bravos get married and stay in that life cycle until they are at a stage of life nearing retirement. They then leap to the Echo stage. Because they do not have children, they skip the Charlie and Delta stages when couples have dependent children living at home.

A certificate of deposit (CD) is a bank account in which your money is deposited for a fixed period of time, generally ranging from one month to several years. CDs pay a fixed rate of interest over that time period as opposed to checking or savings accounts where interest rates can change. In general, the longer the period of deposit, the more interest you will earn. If you need the money before the period is over, however, the bank does not have to let you have it, and if they do, you will probably have to pay a substantial penalty for early withdrawal (generally a specified number of months' worth of interest). Since you can't easily get at the money you have in a CD when you want it, a CD is not considered to be a transaction account. Bank checking accounts, savings accounts, and certificates of deposit have one thing in common-the money that you deposit up to $250,000 is not at risk because it is guaranteed by the Federal Government. You will be able to count on having the money that you invested in this type of asset at some point in the future. Since the money is safe, you will also tend to earn less on it than you could by investing your money in riskier financial assets such as bonds and equities (stocks). Which of the following financial assets is safest in terms of not losing your money? A. Money invested in a business B. Money in a bank certificate of deposit C. Stocks D. Money invested in mutual funds

B. Money in a bank certificate of deposit Money deposited in a bank certificate of deposit (up to $250,000) is guaranteed by the Federal government against loss. The other investments fluctuate in value so it is possible to lose money on them.

Joey and his girlfriend plan to get married in a year, when they are both 27 and working. They both come from large, loving families and hope to have at least five children. Joey plans to get an expensive car and a nice apartment as soon as he has a job. His future wife wants to work until they have their first child when she is 29 and then stay home to raise their family. Although Joey's parents like his girlfriend, they feel that young people are not financially prepared to start raising a large family immediately and should work for a few years to save some money before taking on the added expenses of children. They tell Joey about the difficulties they had raising Joey and his brothers and sisters. They talk about the time that their car broke down when they had no savings to fix it and how Joey's father had to ride a bus an hour each way to get to work. "It is much easier to save money before you have children," he has said many times. "Children are a great joy, but they take every penny you make- and then some." In 2015 the U.S. Department of Agriculture calculated that it costs a middle-income family $233,610- to raise a child from birth to age 18 ($284,570 including projected inflation costs), not including the cost of college. Families with lower incomes are expected to spend $174,690. Why do his parents want Joey and his girlfriend to wait a few years before starting a family? A. They don't like Joey's girlfriend. B. They feel that it's important to work for a few years and save some money before starting a family C. They feel that Joey and his girlfriend are too young. D. They don't like children

B. They feel that it's important to work for a few years and save some money before starting a family It is important to have some savings if you have children, who are expensive to raise, and it's difficult to save once you have them.

Maria suggested that they start with her brother Chris to try to understand what went wrong. Andrew's mother agreed and said that they would start with a quick and dirty cash flow analysis. Cash flow means how much money comes into a household and how much goes out. Starting with expenses, she asked Maria about housing which is generally the largest single expense. When asked what Chris paid for his house, she learned that it was $200,000 with a down payment of just five percent ($10,000). Andrew's mother entered some numbers into her computer and multiplied the cost of the house by the percent of the down payment. Since Chris put down 5 percent of the $200,000 cost, she multiplied $200,000 by .05 and found that he put down $10,000. The $200,000 cost of the house minus the $10,000 down payment means Chris borrowed $190,000 from the lender. To avoid payments for private mortgage insurance (PMI), Chris would need to make a 20% down payment ($40,000). If you wanted to buy a house that cost $150,000 and you knew you needed a down payment of five percent, how much would you need for the down payment? A. $2,500 B. $65,000 C. $7,500 D. $75,000

C. $7,500 The answer is $7,500: $150,000 x .05 = $7,500. The math you will use in financial planning is really very simple. Once you get the hang of it, you will discover it's easy to find your financial way using these tools.

The main purpose of life insurance is to provide income to a family if an earner dies. However, some types of life insurance, generally known as cash value life insurance, are also used as a way of accumulating financial assets. Other types of financial assets were held by 13.6 percent of Americans. Of this segment, 5.5 percent held "managed assets," or those managed by bank trust departments and other financial advisors on behalf of people who couldn't or wouldn't manage their assets for themselves. Some of the people who have assets managed for them are very rich and need the help of experts to look after all their money. Others may be children whose parents have died, leaving the children financial assets from life insurance or other sources. Still others are people who are not very rich but who feel that they have little expertise in investments and are willing to pay experts to manage their money. The remaining 8.1 percent of families held other types of financial assets. Transfer payments, including retirement payments such as Social Security and private pensions, accounted for 16.9 percent of total personal income received by Americans in 2018. A transfer payment is defined as income received that is not payment for work done in the current year. This sounds more complicated than it is. Let's begin with some transfer payments with which you may be familiar. Gifts of money given to you by parents, grandparents, other relatives and friends are transfer payments because you didn't work for the money and don't have to pay it back. A grant is a gift given to you by the government or some other type of organization that you also don't have to work for or pay back. For example, if you go to college, some of your financial aid may come from government grants such as a Pell grant from the Federal Government. Grants should not be confused with student loans that must be repaid or government-supported work-study programs for which you must work to earn your money. Loans and work-study programs are not transfer payments. Each month, Gerald receives a government check from the college he attends because he is a work-study student. What are these checks? A. Gifts B. Welfare C. Transfer payments D. Salary

D. Salary Gerald works for his money so his checks are salary. If Gerald received a grant from the government and didn't have to do any work for the money or pay it back, then he would be receiving a transfer payment.

As the last step, Andrew's mother put the income and expense lines together in the next graph. She explained that whenever the blue income line is above the red expense line, he would save money. When the red line is above the blue, he would be spending more than his income, which means that he would either borrow or live off savings made in an earlier stage. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod2Q10.PNG What happens to savings between Andrew's age of 30 and 37? A. Savings is very high. B. Andrew has never been able to save. C. Savings is close to zero. D. Savings is negative.

D. Savings is negative. With the reduced income of a parent not working and increased expenses for the children, this is a period when the expense line (red) is higher than the income line (blue). Instead of saving, they are "dissaving," which means that they are using up savings from an earlier period (if they had any) or taking on debt.

Andrew's mother concluded that it was no wonder that Chris and his wife had been forced to declare bankruptcy and that they will probably lose the cars and the house to their creditors. To avoid the embarrassment of getting into financial difficulty, there is a simple rule that will help most people. It is this: A. You can't keep spending more than you make. B. You should never borrow money. C. You need to spread your debt around to different lenders. D. You must save every penny that you make.

A. You can't keep spending more than you make. You can't keep spending more than you make for very long. Once you use up your savings, you may be able to borrow money, but you have to be making enough money to make the payments to repay the money you borrowed plus the interest charged to you. Remember interest is what a lender wants for letting you use its money. Sometimes the interest rate is low if, for example, your parents lend you the money. But it can be higher if you have to borrow from a finance company or a credit card company, particularly if your credit history isn't so good.

A second part of the income from owning a business is really the opportunity cost of the money we have invested in the business for the inventory (supplies), machinery and other property the business uses. If we invest $2,000 in our business, the opportunity cost of the investment is equal to what we would have earned on an investment of similar risk. Rachel is thinking of starting a bookstore that would require her to invest $100,000 for inventory (books), furniture and other such items. Currently, she has her money invested in stocks, which she expects to return about 10 percent per year. She feels that the investment in her own bookstore would be no more risky than her current investment in stocks. What would the opportunity cost be to Rachel for the money she invests in the bookstore? A. $10,000 B. $20,000 C. $7,500 D. $5,000

A. $10,000 Since she currently receives a 10 percent return on her investment in stocks, and since an investment in the bookstore will be just as risky, the opportunity cost of her $100,000 investments will be $100,000 times 10 percent or $10,000.

Sasha is a single woman who is paid $14 per hour for 2,000 hours of work per year. Using her 2019 standard deduction of $12,200, what is her taxable income? A. $15,800 B. $20,000 C. $12,200 D. $28,000

A. $15,800 Sasha makes $14 for 2,000 hours per year or a total of $14 x 2,000 = $28,000 per year. Subtracting her standard deduction of $12,200, she has a taxable income of $15,800.

Look at the table and compare the average starting salaries in the year 2017 for people who had different bachelor's degrees. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod_3_q_5_2019.jpg In the year 2017, how much more did a new college graduate with a degree in Engineering make than a new college graduate with a degree in the Humanities, which include English and History? A. $17,334 B. $25,840 C. $7,800 D. $8,788

A. $17,334 Engineering degree graduates started at $66,067 per year while Humanities majors started at $48,733, a difference of $17,334 per year. In other words, engineers had starting salaries that were 35.6% greater than those of starting humanities graduates.

If we run a business, part of our income will come from our human capital (the work, effort and creativity that we put into the business). This earned income part of our total business income comes to us in the form of salary that we pay ourselves. If we don't formally pay ourselves, part of the so-called "profit" that we take from the business isn't profit after all. It is really a form of earned income that is equal to our opportunity cost, or what we could have been paid in salary if we did the same thing for someone else. The true profit, which we call "economic profit," is what is left after we subtract all expenses including opportunity cost. Rob quit a job working 20 hours per week at a Subway sandwich shop to make sandwiches in his college dorm room that he sells to hungry students. If he had been paid $9 per hour at Subway and now works the same 20 hours per week but sells his sandwiches for $300 per week and pays only $100 per week for the supplies, how much economic profit does he make? A. $20 per week B. $80 per week C. $300 per week D. $40 per week

A. $20 per week He takes in a total of $300 per week but must pay $100 per week for supplies, leaving him with $200 per week in total income. However, since he can make $9 per hour making sandwiches at Subway, the 20 hours per week that he puts in at his own business has an opportunity cost of $9 x 20 = $180 per week for him. This cost must be subtracted from the total income of $200 per week, leaving him an economic profit of just $20 per week. Remember, however, that he gets to keep the $180 in opportunity costs plus the $20 in profit. Rob really does make $200 per week, even though only $20 of it is truly "economic profit."

Inflation is a general increase in prices over time. To avoid dealing with the uncertainties of inflation these charts are in real or today's dollars. This makes it easier for you to predict income and expenses in the future. For example, if the car you want to buy in five years costs $20,000 today, you would expect that a similar car would also cost $20,000 in today's dollars five years from now. And, if you have a job that pays $35,000 per year now, in ten years you would expect to earn the same amount, $35,000, in today's dollars adjusted for inflation. Reuben would like to buy a sports car that costs $25,000 today when he graduates from college in 5 years. If the rate of inflation is expected to be 3% per year over the next 5 years, how much would Reuben expect to pay for a similar sports car in today's dollars? A. $25,000 B. $35,000 C. $28,982 D. $30,000

A. $25,000 Reuben would expect to pay the same price, $25,000, in today's dollars five years from now. The inflated cost of the car, at 3 percent increase per year, will be $28,982 ($25,000 x 1.15927 from a future value of $1 table) but the question asks for the real price or price in today's dollars.

There are many other deductions that we may decide to have taken from our check. These are often listed as miscellaneous deductions. Some employees may pay for parking, which may be deducted from the check. Most employers will let their employees contribute to the United Way, which supports local charities, through payroll deductions. And some will allow employees to put aside a regular amount that goes to a bank account or a mutual fund for savings in addition to retirement savings. Philip wants to give $208 to United Way, but he wants to give it over the coming year. If he signs up to have a regular amount withheld from his savings each week and given to United Way, how much will be taken from his pay for that purpose every week? A. $4 B. $1 C. $3 D. $2

A. $4 If Philip has just $4 taken from his pay each week, in a year's time he will have contributed $208 ($4 times 52 weeks) to United Way.

Andrew told his mother that he and his wife expected to pay for the education of their future children at a state college, which by then may cost about $10,000 per year. Andrew's mother pointed out that his first child would be in college when he was 48 and the second when he was 50, graduating the year before he plans to retire. The graph shows how expenses jump for the years when the kids are in college and then drop after they are living on their own. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod2Q9.PNG Why are expenses the highest between ages 49 and 50? A. Both children will be in college at that time and Andrew and his wife expect to pay for their education B. Both children will be finished with college and living on their own C. They will need a more expensive house. D. Older children eat a lot.

A. Both children will be in college at that time and Andrew and his wife expect to pay for their education Expenses are highest when both children are in college.

here is an exception, however, in that most young people can expect to get raises that are greater than inflation during the early years of their working lives, as they learn to do their jobs better and become more productive. People who go into certain fields, such as teaching, often know what their increases will be in addition to annual adjustments for cost of living. For example, Maria expects to receive a "step" promotion of $3,000 take-home (in addition to normal cost-of-living increases) after she finishes her probationary teaching period of three years. The chart reflects this change in her graph line. College graduates tend to earn average annual increases of about four percent per year for approximately their first 20 years of work after which raises are negligible. Those without at least a college degree can estimate these same annual increases for only about 10 years. To keep the charts simple, however, we won't include these annual raises until the end of this module. If James does not go to college, he can expect to receive increases in his income, above the cost of living, for: A. For about 10 years after he begins working. B. The rest of his working life. C. For about 30 years after he begins working. D. For about 20 years after he begins working.

A. For about 10 years after he begins working. James will continue to receive increases to his income that reflect increases in the cost of living, but real increases in his wages will occur for about the first ten years that he works to reflect the experience which makes him a more valuable employee.

States with high business taxes also find that companies located in their state will try to find locations in other states with lower business taxes. If a state raises its business taxes, it tends to become less attractive to employers and thus makes it harder for workers to find jobs in that state. Business taxes include state and local corporation income tax, property tax, and sales tax, as well as unemployment compensation and workers' compensation payments. Jody is a factory worker. Business taxes are very high in Jody's state and many factories are moving to other states. If Jody does not move to where the jobs are, which of the following is she most likely to lose? A. Future income. B. Values. C. Family relationships. D. Seniority in her current job.

A. Future income. Shifting job opportunities mean that workers who want to earn money must be geographically mobile-ready to move to new areas that offer jobs. While the cost of job mobility is giving up location near friends and family and relocating to a new and strange place, this doesn't necessarily mean that Jody must give up these relationships or any values. If Jody does not move to a more business-friendly state with lower taxes, however, she is likely to find it harder and harder to get a good job in manufacturing since many companies, including her own, are likely to move.

What would happen to the expense line if both Andrew and his wife continued to work full time after they had children by putting the children in full-time day care? https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod2Q8.PNG What would happen to the expense line if both Andrew and his wife continued to work full time after they had children by putting the children in full-time day care? A. It would be higher. B. It would become zero. C. It would fall. D. Nothing

A. It would be higher. If the children were put in full-time day care, expenses would go up after they were born. Note that income would also go up, but this question is only concerned with expenses.

Income we receive from letting others use physical capital that we own is generally called "rent" or rental income. Most young people own property that they use for themselves, such as a car or a computer, but don't rent it out so rent is typically not a major source of income for young people. Rent becomes a source of income when people are old enough to have accumulated more money than they require for their own needs at the current time and decide to invest in rental property. In recent years it has become more possible for people to "share" the physical capital that they own by letting others use it for a fee. Examples of this are Airbnb which lets people rent out all or part of their house or apartment and Uber, a ride-sharing service, that allows vehicle owners to use their car to transport people for a fee. This type of sharing increases rental income, even for younger people. Raymond shares an apartment with a roommate and they split the rent of $800 per month. He drives his car 10 miles each way to cut a lawn on Saturday for which he is paid $35. He also lets his roommate use his computer 2 hours a day for $30 a week. Which of the following is rent that Raymond receives? A. Money he gets for letting his roommate use his computer B. Money he earns from cutting the lawn C. Money he spends on gas for his car D. Half of the rent on his apartment

A. Money he gets for letting his roommate use his computer Rent is income we receive from letting others use physical capital that we own. This would apply to the computer that Raymond owns and his roommate pays him to use, but not to the rent on his apartment, which he pays rather than receives, or to the money he earns from cutting the lawn which is pay for his labor.

Since it isn't easy to earn an accounting degree and since the work is seen as difficult, Andrew knows that the supply of accountants is never going to be so great, relative to demand, that the pay for accountants will be driven down. In other words, he can expect to earn a good living. On the other hand, the supply of strong 18-year olds who would like to work in construction jobs is much higher since entry-level jobs in construction require no skills or education. According to the National Association of Colleges and Employers, the average starting salary for Chemical Engineering college graduates was $68,239 in 2017 and is projected to be $72,889 in 2019, while the starting salary for History college graduates was $39,618 in 2017. Since both fields require four years of college, which of the following accounts for at least some of the difference in starting salaries? A. More students enjoy studying History than enjoy the math and science needed to get a degree in Chemical Engineering B. The demand is higher for History majors because they know more. C. Chemical Engineering is a more glamorous field than History. D. It is far more difficult to get a degree in History than in Chemical Engineering.

A. More students enjoy studying History than enjoy the math and science needed to get a degree in Chemical Engineering Studying history is enjoyable for many students who are attracted to major in it. Many of these students are also attracted to the image of being a writer or teacher of history after graduation. Fewer American students are attracted to the math and science necessary to become a chemical engineer, a field that is not seen as being glamorous in our society. As a result of the much larger supply of history majors than chemical engineering majors, employers must pay more for chemical engineering graduates than for history graduates.

As Andrew, Maria and Joey sat around talking about their futures, they realized something important: while there is much that is uncertain-our health, for example, or our loves-there is also a great amount that is predictable. When prodded by Andrew's mother to state their assumptions about their future lives, all three provided rough estimates of when they would start work, roughly how much they would make, if or when they might marry and have children, whether both parents would work when the children were young, and when they hoped to retire. The amount of money we will make depends on the type of work we choose to do, the amount of education we need to do this work, and to some extent where in the United States (or the world) we choose to work. In addition, over our lifetimes, the total income that comes into our household every year is also very dependent on our stage of life. For example, married couples with both spouses working (which is especially common in the early years of a marriage) usually make more than single individuals and also make more than married couples with only one working spouse. As another example, retired people tend to make less than people with the same skills who are still working. These changes in income are due to the changing stage of the life cycle. Why does income for a family tend to go up when two single persons marry? A. Newly married couples tend to have two earners rather than one. B. Two can live as cheaply as one. C. The Federal government's marriage tax favors married people. D. Married people work longer hours than single people.

A. Newly married couples tend to have two earners rather than one. When two single people marry, they both tend to keep working, at least for a while. This means that they will have two incomes in their new family compared with a single income when the "family" consisted of just a single individual with one income.

Many businesses move from one state to another in an attempt to lower their costs to be more competitive and increase profits. Cities and states that have lower labor costs and business taxes are said to have good business climates. Manufacturing companies who use unskilled labor often move to states where wages are the lowest, and many have moved jobs overseas where people will gladly work for a fraction of the U.S. minimum wage. Why do manufacturing companies that use unskilled labor often move to states or countries where wages are the lowest? A. Other manufacturers of the same product can sell their products for less if their workers cost less. B. If workers are paid less, they can buy more of the company's products. C. Factory owners want to move to warmer places. D. Factory owners move to places where workers are unionized.

A. Other manufacturers of the same product can sell their products for less if their workers cost less. Companies that use unskilled workers to manufacture their products often find themselves in competition with companies located in areas with lower wage rates, such as China. Since many consumers try to buy products that are least expensive, manufacturers who pay their unskilled workers higher wages often find that they cannot compete with companies who pay lower wages. Therefore, they often move manufacturing operations to states or countries where labor costs are lower.

Having two parents employed full time can cause problems for the family. For this reason, there is increased demand for part-time employment, and some employers now provide day care facilities at work. Another trend is toward working from home. Often called "telecommuting," this type of work is generally limited to that which can be done at home on the computer and by telephone. Other possible solutions include "flex-time" offered by some employers to allow parents to adjust their work hours so they can be home when their children return from school and "job-sharing" in which two people, who both want to work half time, share the job responsibilities of a full-time employee. In part, because of the technology that has made it possible for some people to work at home, many people are beginning to work for themselves, often running their businesses from their homes. This gives parents the time and location flexibility to be with their young children. However, not all jobs can be performed by telecommuting. Which of the following is the least attractive solution for parents who want to work but still spend a lot of time with their children? A. Overtime B. Flex-time C. Telecommuting D. Job sharing

A. Overtime Job sharing, telecommuting and flex-time allow parents to keep working but spend more time with their children. Working overtime means parents spend even less time with their children.

It is useful to look at occupational forecasts before settling on a career. Some skills can be used in a variety of occupations. Teachers, for example, can also find work as trainers with companies and government agencies. Many math teachers have gone into computer programming in search of higher pay. In fact, today's high school seniors can expect to have three or more different careers over their lifetimes, each demanding somewhat different skills. For this reason, many experts feel that we must keep learning and taking classes for our entire lives to keep our skills up to date and marketable. Many employers offer classes at little or no cost or will pay for their employees to take a course or two while they are working. Some of these courses lead to additional degrees, but many don't. Those who are willing to keep investing in their human capital by keeping their skills current are likely to earn more over their lifetimes than those who don't. Office workers and professionals always have to learn new computer programs. Factory workers are often confronted with new machinery or are asked to cross-train on another piece of machinery to make them more valuable. Even truck drivers are adjusting to tracking their loads with tiny computers that use satellites to pinpoint their location. The constant drive to become more productive is caused in part by worldwide competition. American workers are paid more than workers in most other parts of the world, particularly those in developing countries who will work for extremely low wages. Since international trade allows countries to import those goods that offer consumers the best value, American workers must offer something extra to justify their higher rate of pay. This something extra generally involves a higher level of skill, often in the operation of sophisticated equipment, which enables them to be more productive in their work. Productive workers produce more and/or better products than non-productive workers. Chuck and Rob work for the same company and earn the same pay. Rob spends his free time taking work-related classes to improve his computer skills, while Chuck spends his free time socializing with friends and attending movies. After five years, what is likely to be true? A. Rob will make more money because he is more valuable to his company. B. Chuck will make more because Rob is likely to be laid off. C. Chuck will make more because he is more social. D. Rob and Chuck will continue to make the same money.

A. Rob will make more money because he is more valuable to his company. Rob will make more money because he has learned new skills that are valuable to his company.

Unless you are very rich or very poor, most of your income will come from working for someone else. While it might be nice to live off the profits from a business you own, or rents from your real estate or even from dividends or interest from the wealth you have accumulated, this probably won't happen when you are young. It will take time for you to earn and save money to invest. If we are able to save money on a regular basis, however, it will grow to an amount that will allow us to invest in a business, an apartment building or in stocks and bonds. As we become older, the income from those investments may end up becoming a significant part of our income. And when we retire, and no longer "earn" any money, our investment income may become a very large part of our income. Transfer payments may be a large part of total income for retired persons since pensions and Social Security are transfer payments. Welfare payments given to those with very low incomes are another type of transfer payment, but fewer and fewer healthy young adults are eligible for welfare. Which of the following best describes the primary source of income for most people age 20-35? A. Salaries, wages and tips B. Dividends and interest C. Profits from a business D. Rents

A. Salaries, wages and tips Most younger adults earn the bulk of their money by working for someone else for salaries, wages and tips. Over time, accumulated savings can be used to invest in businesses, stocks and bonds, and real estate providing profits, dividends, interest and rents as sources of income.

A single taxpayer who in 2019 had more than $12,200 in total deductions (or married taxpayers with more than $24,400 in deductions), could list each of them and deduct the total amount from his or her income. If they did this, they are said to have itemized deductions. If a taxpayer does not have enough deductions to itemize, he or she may instead choose to take the standard deduction of $12,200 per year for single taxpayers and $24,400 per year for taxpayers who were married and file together. Only about 10% of taxpayers currently qualify to itemize deductions. In addition to the standard deduction (or the itemized deduction, whichever one the taxpayer chooses), the taxpayer can subtract from gross income an exemption of $4,050 for every dependent in the family. This includes the taxpayer, his or her spouse, and any children under the age of 19 or in college under the age of 24. Bill and Kay are a married couple with $13,000 in total deductions. In 2019 are they better off: A. Taking the standard deduction. B. Itemizing and taking the standard deduction. C. Neither taking the standard deduction nor itemizing. D. Itemizing.

A. Taking the standard deduction. They should take the standard deduction because their $13,000 in total deductions is less than the $24,400 standard deduction that is available to married couples filing jointly.

A lot of people want a job with steady pay so they can pay the bills without worrying where their next dollar will come from. Other jobs, which are seasonal or irregular, tend to be less desirable for most people than jobs that guarantee a regular paycheck. For this reason, lifetime government jobs are attractive to a lot of people who will take a lower guaranteed salary as a civil servant than as an employee of a business that could lay them off if sales were not good. Even though a few state and local government workers were laid off during the economic downturn, which began in 2008, job security as a government worker is considered to be much greater than it is in private industry. Many of the best-earning jobs in business are in sales where your income depends on how successful you are at selling your product. People in sales, however, can see their incomes rise and fall with business conditions and market demand for their products. This uncertainty keeps a lot of folks away from sales jobs, which raises the average pay for those who are willing to be in this profession. Two jobs are advertised in the newspaper, one by the state government and the other by a fairly young, private company. The jobs appear to be the same in terms of work, salary and benefits. The only difference is that the state government job offers lifetime employment while the private company offers "employment at will," which means that you can be fired or laid off at any time. Which job is likely to have more applicants? A. The job with the state government. B. The job with the private company. C. They both are likely to have the same number of applicants. D. Neither job will get any applicants.

A. The job with the state government. Since the state government job offers all the benefits of the private job but also offers much greater job security; it will tend to attract more applicants. Job stability may not have great appeal to young, single workers, but it has great appeal to older workers with families to support or those who are concerned about having a job until they retire.

Most salaries are determined by the market, which means that people with skills that are in high demand will receive more money than people with skills that are in lower demand. If you are a point guard who can score more than 40 points per game in the National Basketball Association, your skills will be worth more than ten million dollars per year because millions of people are willing to pay to watch you play. If, however, you are the best in the country at a sport such as horseshoes, or shuffleboard or checkers, you won't be paid much at all because fewer people will pay to watch you play. The demand for certain skills varies over time. In the 1990s, there was a huge demand for software engineers and companies paid them a lot of money. When the dot-com bubble burst in the year 2000, many Internet companies went out of business and the pay offered to software engineers fell. However, with the success of Facebook and other types of social media, software engineers are in great demand again with salaries near the top of the scale. If the demand increases more rapidly for software engineers than for office clerks, what would you expect to happen to the average pay for the two occupations? A. The pay for software engineers will go up relative to the pay for office clerks. B. The relative pay for the two occupations would not change. C. The pay of office clerks will go up relative to software engineers. D. The pay for software engineers will go up and the pay for computer experts will not change and may even fall

A. The pay for software engineers will go up relative to the pay for office clerks. If demand is much higher for one occupational skill than another, the pay for the skill in high demand can be expected to go up relative to the pay for the skill in less demand.

Andrew was sitting around with two of his best friends, Maria and Joey in the den of Andrew's home, talking about the future. All three are seniors at Edgemont High School. Andrew and Maria plan to go to college the following year, but Joey plans to work in the construction industry because he doesn't want to wait four more years to earn a living. Andrew seems to have a pretty good idea about his future. He wants to go to college, in part because he knows that in our knowledge-based economy education pays. According to a 2017 study by the U.S. Government, those with a 4-year college degree earned nearly twice as much as those with a high school degree. After he completes his four-year bachelor's degree in accounting, he wants to work for a few years and then go back to graduate school to get a master's degree in business administration. With the additional education, he can move into management positions and eventually find an executive position. He plans to get his first new car and a decent apartment when he graduates from college, but he will wait to buy a house until he finishes graduate school and gets married. He would like to have two kids and feels that one of the parents should stay home with them at least until the youngest is in first grade. He would like to retire by age 55 to "enjoy life" while he is still young. Which of the following is a source of earned income? A. wages B. business ownership C. rental properties D. investments

A. wages Earned income is income that we earn when someone pays us in the form of hourly wages, regular salaries or tips.

Federal tax brackets are indexed to the cost of living. This tends to keep inflation from bumping taxpayers into higher brackets and increasing their average rate. If Joey were married when he started to work, and his was the only income in the family, his first $19,400 in taxable income would be taxed at just 10 percent. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod_9_q_8_2019.jpg Paul is a student who works after school and weekends at a local fast food restaurant. His total gross income from his job is $9,500. Using his standard deduction of $12,200 and the 2019 tax tables, how much in taxes would Paul have to pay? A. 12% B. 0% C. 22% D. 10%

B. 0% Since Paul's standard deduction equals $12,200, which is greater than his gross income of $9,500, he is in the zero marginal tax bracket and doesn't have to pay any taxes.

Andrew's mother offered to get her laptop to show Andrew, Maria and Joey their plans, even though they didn't know that they had such a plan. She added that in her practice, about half the clients crash and burn the first time they do their plan since their lives aren't workable without some changes. Andrew asked whether this was like an airplane flight simulator where it's better to crash on the computer if you make an error than to be in the airplane making the mistake. His mother agreed enthusiastically. Which of the following is least likely to "crash and burn" in a financial planning simulation? A. A family with one earner in the workforce, a number of children and no savings. B. A family with two earners who pay off their student debt and start saving before having a family. C. A family with two earners, some debt and little savings who are about to buy a very expensive house (relative to their income) before having children. D. A family with two earners, a lot of debt and little savings who are about to start a family.

B. A family with two earners who pay off their student debt and start saving before having a family. In financial planning, you crash and burn when you run out of money and can't pay your bills. The family with two earners who have first paid off their student debts and have then begun to accumulate savings before having children is least likely to run out of money because they don't have high debt payments and they also have funds put aside for emergencies.

Over the past half-century, the "labor force participation rates of women" (the proportion of women who work) has increased relative to those of men. At least two factors have influenced the increase in labor force participation by women. First, most middle-income families realize that it takes two workers to live comfortably. In addition, except among the wealthy, staying at home is no longer held in high regard. For many reasons, women want to have careers equal to men. Which of the following helps explain why such a large proportion of women work outside of the home? A. Few women find it rewarding to have a career. B. Families who wish to live middle class lives find that it generally takes two paid workers to live comfortably. C. Fewer women than men now get college degrees. D. The government pays for good childcare for all working women.

B. Families who wish to live middle class lives find that it generally takes two paid workers to live comfortably. Most middle class families find it difficult to live comfortably on a single income, which pushes women, even mothers of small children, into the paid labor force.

When Andrew was asked to estimate his future income over his entire life, until retirement, he objected that it was impossible to look so far into the future. However, his mother, the financial planner, disagreed and said that it was actually pretty easy. She asked her son what he expected to earn after finishing his graduate business degree. He replied that if he went to a good private university for his graduate business degree, it would cost him about $25,000 per year for the tuition. But when he gets out, he expects to make about $70,000 per year-or take home pay of about $47,000 after deductions since he would have only about two-thirds of that amount to spend. His mother asked when he expected to get married and how much he thought his wife would bring home. He estimated that he would probably get married after grad school, when he was about 28. He assumed that his wife would work and bring home roughly the same amount that he made, about $47,000 per year, at least until they began a family. His mother asked when she could expect to become a grandmother, how many grandchildren she could expect, and, whether Andrew expected that both he and his wife would continue to work, full-time, with small children at home. Andrew replied that he would like to have two kids, spaced two years apart, starting when he was 30, adding that one of the parents would stay home with the kids until they are both in school. When asked his intended retirement age, he said "55." Why does Andrew's mother ask about when she will have grandchildren, how many are planned and if Andrew or his wife will stay home with them when she is trying to project Andrew's income? A. She is hoping she won't be a grandmother for many more years. B. If Andrew or his wife stays home with their children, their income will fall. C. Little children are always very expensive. D. She is anxious to be a grandmother.

B. If Andrew or his wife stays home with their children, their income will fall. The timing of children affects future income if a working parent will give up his or her salary to stay home with them.

Another benefit for getting your health insurance through work is that you do not have to pay income tax on the amount that your employer contributes to your health plan. If you had to pay for it yourself, it would be out of your after-tax dollars, so it is cheaper for you to have your employer pay for it, even if the employer deducts its cost from your pay. For example, if you are in the 22% marginal tax bracket and your employer pays $4,000 toward your health insurance, that benefit is not taxed. If, on the other hand, your employer did not pay for your health insurance and gave you an additional $4,000 in salary, you would have to pay 22% of that in added income taxes ($4,000 x 22% = $880 in added taxes), so you would get $3,120 after tax which wouldn't pay for a health insurance policy that costs $4,000. While it is true that you can deduct health insurance premiums that you pay yourself, you can only do so if your total health costs are a fairly high percentage of your income (over 10 percent) and many people would not be able to deduct their health insurance premiums. The portion of your health insurance paid by your employer: A. Is fully taxable. B. Is not taxable. C. Is a quarter taxable. D. Is half taxable.

B. Is not taxable. If your employer pays all or part of your health insurance premiums, that benefit is not considered to be taxable income and therefore you are not taxed on it.

Social Security is a pension plan run by the U.S. Government. Most workers are required to join Social Security and pay for its benefits by contributing a certain percentage of their income, which is matched by their employers. When a worker begins to receive Social Security retirement payments, that income is called a transfer payment since the work was done in earlier years and the amount that the worker receives is not strictly a withdrawal from his or her individual investment account. Why is Social Security considered to be a transfer payment? A. It is a pure gift from the government. B. It is neither withdrawal of your own money from an account you own nor payment for work you did in the current year. C. You receive it while you are still working. D. The Social Security system is not safe.

B. It is neither withdrawal of your own money from an account you own nor payment for work you did in the current year. A transfer payment is defined as income received that is not payment for work done in the current year. Social Security income is not a payment for work done in the current year.

Andrew's mother asked Maria whether Chris owns or leases his cars. Maria replied that Chris leases his cars and that the sport utility vehicle cost $40,000 new and his wife's van was about $25,000. Andrew's mother did a brief calculation, which found that Chris' car lease payments were costing him more than $10,000 per year! Adding the cost of insurance, which is probably about $3,000 because Chris is a male driver under the age of 26, the cars alone cost about $13,000 a year. Then she added the $23,700 for the house and the $4,000 in credit card payments and found that Chris spends $40,700 per year for these items alone. In addition, Chris' student loans probably cost him another $4,000 per year. She asked Maria how much Chris makes per year and found that he earns $60,000, which Maria considered to be very good pay. Andrew's mother explained that $60,000 is the gross amount and Chris doesn't get to take all of that home since there are many deductions made to his earnings. After federal and state income tax, Social Security tax and benefits such as health and life insurance and pension contributions, she felt that Chris would be lucky to keep two-thirds of that amount. Two-thirds of $60,000 is $40,000, which means that Chris is spending nearly his entire take-home pay for the house, the cars, the student loans and the credit card bills. That leaves nothing left for groceries or for buying clothes or for paying doctor bills not covered by insurance or even the gas for the cars. If a company advertises a job starting at $26,000 per year, what is this amount? A. It is the gross amount minus Federal Income tax. B. It is the gross amount before taxes and benefits are taken out. C. It is the gross amount minus Social Security contributions. D. It is the amount that the employee takes home.

B. It is the gross amount before taxes and benefits are taken out. Companies advertise the "gross" salary that is before deductions for taxes and benefits are taken out. The take-home pay is what is left over and this often amounts to no more than about two-thirds of gross pay.

What many people think of as traditional family with mother and father living together with their biological children under age 18-makes up less than 20 percent of American households. In 2013, less than half of all children under the age of 18 were found to be living in a home with two married parents of opposite sex in their first marriage. There are many reasons for the continuing decline of the traditional, stable family. For example, more women have the education and job skills needed to support themselves and their children, making it possible for them to leave an unhappy marriage. People also are choosing to marry later with nearly half of all American women still unmarried by age 30. The idea of "family" has changed over time, in part because: A. More people use computers. B. More women have entered the workforce and as a result have some financial independence. C. Young people are marrying earlier. D. Most women never marry.

B. More women have entered the workforce and as a result have some financial independence. Most women now work and their independent income gives them more ability to determine their own futures and to decide if they want to leave an unhappy marriage.

What kind of person makes a good entrepreneur? The personality traits needed to successfully start your own business have been widely studied and they generally include the following: Innovative - An entrepreneur must want to innovate or do something new. This could involve creating a new product or producing or distributing an existing product in a better way. Driven - In order to succeed, an entrepreneur must be willing to endure a number of obstacles including naysayers, funding difficulties, technical problems and so on but keep moving toward the goal of starting a profitable business. Risk-taker - One must be a risk-taker in order to quit a paying job and invest much of one's wealth in order to start a business. Leader - Since most businesses involve more than one person, a good entrepreneur must be good at leading and motivating employees and/or collaborators to put out their best efforts to make the business succeed. Family support - It is important for new entrepreneurs to have the financial and moral support of their families and close friends. It can sometimes take years for a new product to be developed and this support may be critical. Alexis has come up with a great new device to hang her purse underneath a restaurant table, safe from those passing by and off the dirty floor. She wants to open a web site and bring it to market. Which important entrepreneurial trait does she have? A. She is a leader. B. She is an innovator. C. She is driven. D. She is a risk-taker.

B. She is an innovator. Alexis is an innovator. From the information provided in the question, we cannot conclude that she is driven, a risk-taker or a leader.

Over a lifetime, income earned from work (earned income) is the largest source of income for most Americans, accounting for nearly two-thirds of personal income. However, there are other sources of income that you can get without earning it (working for it this year). Unearned income includes the profit you make from owning a business (the salary you take from the business is earned income; profit is income you make above your salary). Other types of unearned income include property income (interest, dividends and rents). Another type of income, called "transfer payments," comes in the form of gifts from relatives and friends or payments from the government for things other than wages or salary. For example, the government gives some poor people welfare which is a form of transfer payment. Social Security payments paid to retired persons are also considered to be transfer payments even though workers contribute to Social Security during their working lives. It is a transfer payment because it is not in exchange for work done during the current year. According to the Bureau of Economic Analysis, in 2015, while earned income accounted for 64 percent of personal income, property income in the form of dividends, interest and rent accounted for 19 percent, and transfer payments accounted for 17 percent. One Friday afternoon, Rose Marie went to her mailbox and found two envelopes addressed to her. One envelope contained a check for $152 from a "side hustle," and the other contained a check for $25 from her grandmother. What kind of income did Rose Marie receive that day? A. She received $152 in property income and $25 in transfer payments. B. She received $152 in earned income and $25 in transfer payments. C. She received $177 in earned income. D. She received $177 in transfer payments.

B. She received $152 in earned income and $25 in transfer payments. Rose Marie's check from her employer is considered earned income, and the gift from her grandmother is considered a transfer payment.

https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod_3_q_9_2019.jpg In the table, which of the following is most likely to account for the large expected demand for registered nurses? A. The job demands little education. B. The American population is aging and older people need more health care than younger people. C. The educational requirements to be a registered nurse are increasing rapidly. D. Fewer young people are expected to go to college

B. The American population is aging and older people need more health care than younger people. The American population is aging as people live longer. Since older people need more health care than those who are younger, this creates additional demand for registered nurses.

The amount of money that you will earn also depends on where you choose to live. People who live in urban areas tend to earn more than those who live in rural areas. This is because the demand for people with certain skills is higher in cities (because there are more employers competing for workers) and also because it costs more to live in cities and people must be paid more to offset these added costs. Why are people who live in or near cities paid higher average salaries than those who live in rural areas? A. Metro areas tend to have lower living costs than rural areas B. The demand for skilled workers is high in metro areas as is the cost of living C. Non-metro areas need many more skilled workers than metro areas D. Non-metro areas are too boring for most workers

B. The demand for skilled workers is high in metro areas as is the cost of living Employers of skilled workers generally prefer to locate in metro areas since there are many more workers available for them to hire. Since workers with skills and education are paid more than unskilled workers, those in metro areas tend to earn more. In addition, the cost of living is generally higher in metro areas where real estate is scarce and housing prices are higher which means that workers in metro areas are paid more to offset this higher cost of living.

Andrew, Maria and Joey got to talking about Maria's older brother, Chris, who can't pay his bills and has just declared personal bankruptcy at the age of 24. This means he has gone to a judge and said he cannot pay his debts and has asked to be relieved of the responsibility to pay them. He now has a bad credit rating and finds it both difficult and expensive to borrow money. Chris had been a pretty good student in high school and college and had taken what appeared to be a pretty good job. He was happily married with a child, and had been living in a nice house and driving a good car. In other words, he was the perfect "family man." What happened that caused his life to crash? Maria felt that the problem was Chris' student loans. Chris didn't want to take any money from their folks and he went to a pretty expensive college. When he had to start paying back the loans, he just ran out of money. Joey was more skeptical and asked Maria about the $40,000 sport utility vehicle that Chris drives, wondering how he can afford to pay for that on top of his student loans and house mortgage. Andrew wondered why Chris' wife wasn't working to help pay the bills. Maria became very defensive about her brother, explaining that part of his trouble was due to the fact that he was having to pay 24 percent interest on his credit cards. And because he owes $20,000 on all those credit cards, he was paying about $4,800 to the credit card companies just to pay for the interest each year. Maria felt that the credit card companies pushed Chris over the top. Then, Andrew's mother entered the room with some snacks and suggested that poor planning may have led to Chris' downfall. Which of the following does not contribute to Chris's financial problems? A. The interest rate charged on the debt. B. The fact that he graduated from college. C. The amount of debt he owes. D. The expensive lifestyle that he has.

B. The fact that he graduated from college. The fact that he "graduated" from college does not contribute to his financial problems, and the college degree is a financial plus for Chris that has allowed him to get a good-paying job. The other answers do contribute to his financial problems. He has too much debt, pays a high rate of interest on much of that debt and lives a large lifestyle that makes it difficult for him to reduce his debt.

Pay is also different for different regions of the country, for many of the same reasons. According to the U.S. Census Bureau, in 2017 the highest median household income was found in the West at $67,517, followed by the Northeast at $66,450. Lower family incomes were found in the Midwest at $61,136 and the South at $55,709. Pay is generally higher in places of the country that are economically strong. High tech cities such as San Francisco, Austin and Seattle have experienced stronger economic growth after the recession that began in 2008, creating new jobs and demand for workers, which raises pay. In contrast, some older economic areas such as Detroit and other Great Lake industrial cities continue to decline in job opportunities as employment goes elsewhere. If four people of the same age each have the same education and skills, which will likely earn the greatest amount of money? A. The one who lives in a metro area in the South. B. The one who lives in a metro area in the Northeast C. The one who lives in a non-metro area in the Midwest. D. The one who lives in a non-metro area in the West.

B. The one who lives in a metro area in the Northeast Workers in the Northeast and West tend to be paid more than workers in other areas of the country, and workers in metro areas tend to be paid better than workers from rural areas.

If the adults in the household are working full-time before the Echo stage, income will continue at the same level in the Echo stage. It will generally drop off at retirement or Foxtrot age when income comes primarily from retirement benefits, Social Security and investments. Andrew's total retirement income is equal to half his family's Echo-stage income. The chart represents his complete lifetime income. Note that since Andrew's last child will be 22 when he is 54, and if he and his wife retire at age 55, they will have only one year as Echos. This is the stage when many families have the ability to save for retirement, after they've finished putting their kids through college. Having only one Echo year could make retirement difficult. Perhaps Andrew and his wife need to think through their intended retirement age. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod_8_q_10_2019.jpg Why does Andrew's income line go down in the Foxtrot stage? A. Social Security may fail by that time. B. The retirement income of Andrew and his wife is expected to be less than when they were working. C. Andrew's wife has no pension. D. Andrew is spending more on retirement activities.

B. The retirement income of Andrew and his wife is expected to be less than when they were working. Andrew's household income is expected to go down when he and his wife retire. Most people see their incomes fall when they no longer receive their salaries. However, with planning and saving in advance, an individual can have enough income to live comfortably.

For families with children, the Delta stage begins when the youngest child is at least six years old-school age. With all children in school, most families have both parents (if there are two parents) working full time. This means that the incomes of Delta families are often higher than in Charlie families. Since Andrew will have two children, spaced two years apart, beginning at age 30, his youngest will be six years old when he is 38. At that time, both parents will be back at work, doubling their income, as we see in the chart. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod_8_q_8_2019.jpg Why does Andrew's income line jump so much when he is 38? A. Income taxes will drop. B. They will have two earners again. C. Andrew expects a huge raise. D. Andrew expects his children to start work.

B. They will have two earners again. At age 38, the youngest child will be six and of school age. At that time, both parents expect to be working full time so income should increase substantially.

In 2018, PEW Research reported that 32 percent of U.S. children under the age of 18 did not live with two parents, 21 percent lived with their moms, 4 percent lived with their dads and 7 percent lived with cohabitating parents. While many single parent households result from divorce or the death of a spouse, a sizable number are the result of births to parents who are not married. It is financially difficult to be a single parent, particularly if the children are young and there is no support coming from the other parent. If the single parent wants to work, this means finding and paying for full-time child care. And, if the single parent is young and lacks education and experience, the cost of child care can be more than the person can earn at work, thereby forcing that parent to be dependent upon his or her own parents or the government for support. Federal welfare laws that limit welfare payments to a maximum of five years are particularly tough on single parents with young children. Partly for this reason, births to young, single women have been dropping in the United States. Being a single parent can be tough because: A. Changes in welfare laws have increased the time welfare will help the single parent. B. Working to support the family often means paying a lot of money for childcare. C. The single parent has twice the income and half the expenses. D. Taxes are much higher for single people than for those who are married.

B. Working to support the family often means paying a lot of money for childcare. If you are single and must work, you generally must pay for child care, which decreases the income you can keep.

Many restaurant and hotel workers, including students who work in the "hospitality industry," receive much of their income in the form of cash tips. This creates a problem for the Internal Revenue Service (IRS), the federal government agency responsible for collecting income tax, since it has no way of knowing just how much income these workers have received.In recent years, if you work in a restaurant and earn tips, the federal government has required restaurants to withhold taxes on "tip income" equal to at least 8 percent of total bills paid by the customers you served. If you make tips from waiting tables, how does the government collect income tax on the tips you get? A. The government counts all your tips, and taxes you. B. Your employer withholds taxes on at least eight percent of the total bills paid by the customers you served. C. Your employer counts all your tips and withholds taxes on that amount. D. Tips are not taxable.

B. Your employer withholds taxes on at least eight percent of the total bills paid by the customers you served. Since often no one but you knows what your cash tip income is, your employer must include as part of your taxable income, total tip income of at least 8 percent of the total paid by customers you served. If you receive more than eight percent in tips, you are legally required to report the entire amount as tip income.

Equities, more commonly called "stocks," are ownership shares in a company. Income paid directly from the company to its shareholders is called a dividend. Many companies that are growing tend to pay low dividends, preferring to reinvest their profits in the company to make it grow faster. The average American stock pays a dividend that is only about 2 percent of its value. Johnstown Baseball Hats had a very profitable year. The company decided to share some of the its profits with the people who own shares of its stock-the shareholders. The money Johnstown Baseball Hats sent to the shareholders is called: A. Interest B. A transfer payment C. A dividend D. Rent

C. A dividend The payment is a dividend.

Property income is generated by assets we own other than our body and mind. Economists call the ability to generate income from our body and mind our "human capital." Therefore, when we pay for additional education, we are "investing" in our human capital, in an attempt to increase our income. Property income generated by the physical assets that we own is often called "non-human capital." Physical assets include businesses and real property such as real estate. Financial assets include bank accounts as well as investments in stocks, bonds and mutual funds. In short, a physical asset is something real that we can point out and touch like a building or a car, while a financial asset represents ownership of wealth, but not in the form of a physical asset. Which of the following is an example of non-human capital? A. A high school degree B. A pilot's license C. A pickup truck D. A college degree

C. A pickup truck A pickup truck is an example of non-human capital because it can be used to generate income but it is not part of our body or mind such as education and skill mentioned in the other three answers.

In the 20th Century, it was not unusual for a person to work in the same field, or even for the same employer for his or her entire life. In the last quarter of that century, however, this changed. People are now more likely to change employers many times, particularly when they are young. In addition, many people even change careers, often going back to college as adults to learn new skills. In the middle of the 20th Century, it was common for women with children, particularly of pre-school age, to stay at home rather than work outside the home for pay. While there were clearly advantages for the family, the cost to women who were "housewives" was four-fold: 1) if one worker was no longer employed, family income would fall, often substantially; 2) when the children were older and the woman wanted to return to work, her skills may have become rusty or out of date; 3) if the woman's career was one that rewarded experience with higher pay, the missed years of work would result in lower average pay over her working years; and 4) since retirement benefits are often based on number of years of work, women who took many years from their working lives to raise a family found that they retired on a fraction of the income of men with similar educational backgrounds and experience. Mary Lou is planning to stay at home with her children until they enter first grade. Mary Lou's husband Bob, however, has just pointed out to her that this may not be such a good idea. Mary Lou is a trainer at a big company, and she loves her job. She teaches others how to use the latest computer software. He suggests that she still work part time if she can arrange it with her employer. What is a benefit of Bob's suggestion? A. The children will benefit if Mary Lou works part time. B. The company will pay Mary Lou the same salary for part time work as for full time work. C. After six years at home, Mary Lou might be very out of date on the newest computer software. Part-time work would help keep her skills up to date. D. Taxes will take away much of Mary Lou's income from working part time.

C. After six years at home, Mary Lou might be very out of date on the newest computer software. Part-time work would help keep her skills up to date. Mary Lou could have a hard time getting the same kind of job in six years if she's been out of the workforce. Since she loves the work she does, she may be better off if she continues to work part-time after she has children. Not all parents even have a choice about working when their children are young. Many parents simply need the money.

In general, income patterns change over the life cycle in the following manner. Young people typically move from a period of financial dependency on their parents, while they are still in school, to one of independence, while they are still unmarried. The period between the beginning of financial self-sufficiency and marriage is the Alpha stage. Maria expects to finish college at age 22 and start work as a teacher, earning a net (take home) salary (after taxes and other deductions) of about $20,000 per year. She actually expects to make a gross salary of $30,000 per year, but we estimate that about one-third of that amount will go to pay taxes, Social Security, health and life insurance and other deductions. Maria expects to get married at age 26, so her Alpha stage goes from age 22 to 26 as we see in the chart. Joey plans to work a year before getting married at age 19. His construction job will pay a gross income of $20,000 per year or an estimated $13,000 take-home pay ($20,000 x 2/3). As we see in the chart, his Alpha stage graph line is very short since he will be independent and single for just a year. Andrew expects to take home about $27,000 per year at age 22, work three years and then earn nothing for two additional years when he is back in school. When he has his graduate degree at age 27, he will take home about $47,000 per year for a year until he gets married at age 28. As we see in the chart, Andrew's Alpha stage graph line is longer. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod_8_q_1_2019%282%29.jpg Why does Andrew's Alpha stage graph line include more years than Maria's and Joey's graphs? A. Andrew's graph line includes more years because he will make more money. B. Andrew's graph line includes more years because he will go to graduate school. C. Andrew's graph line includes more years because he plans to marry at an older age than Maria and Joey. D. Andrew's graph line includes more years because he is older than Maria and Joey.

C. Andrew's graph line includes more years because he plans to marry at an older age than Maria and Joey. Andrew's Alpha graph line includes more years because he plans to marry at an older age than Maria and Joey. This means there is a longer time gap between when he becomes independent financially and when he becomes a husband.

A whopping 98.5 percent of American families own some type of financial asset. The table shows how American families distributed these assets at the end of 2016, the last period for which data are available. Transaction accounts are deposits where money can be withdrawn quickly. At the end of 2016, 98.0 percent of American families had a transaction account, which included checking, savings and money market accounts at banks and brokerage firms. Money held in a transaction account tends to earn less than money invested in other types of financial assets. A checking account allows you to write checks to pay your bills. Most checking accounts now let you pay your bills as well through an online bill-paying service. Most also allow you to take cash from your account through an ATM machine and some will allow you to use a debit card instead of a check to pay for goods with money in your checking account. Most checking accounts are with banks (including savings banks and savings and loan associations) or credit unions. Some people have checking accounts with stockbrokers. In general, money held in checking accounts earns very little, if any, interest since it is expensive for banks to provide the services associated with these accounts. A savings account pays interest but does not allow you to write checks on the account. However, most savings accounts allow you to withdraw cash through an ATM machine. Interest paid on savings accounts has been low in recent years but may vary with the amount of money you have with the bank. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod_6_q_1_2019.jpg Why do people keep money in transaction accounts? A. Because it is safer than in other types of bank accounts. B. Because it is very prestigious. C. Because the funds can be withdrawn quickly so that the money can be spent. D. Because they earn more interest than they would with other types of financial assets.

C. Because the funds can be withdrawn quickly so that the money can be spent. People keep some of their money in transaction accounts so they can get to this money quickly to buy things or pay bills. Other types of financial accounts, which are harder to change back to cash, tend to pay more income to the account holder.

The consumer life cycle has six basic stages. First, let's look at the younger stages. Alpha: First is the Alpha stage, which consists of young, single, childless persons who are financially independent from their parents. Currently, Andrew, Maria and Joey are pre-Alphas since they are still supported by their families. Joey will become an Alpha when he graduates from high school and begins working full-time, since he will no longer be financially dependent on his parents. Perhaps he will share living costs with one or more roommates. Andrew and Maria will not become Alphas until they finish college, at the age of 22. If, for example, Andrew decided to go to law school or medical school right after college and needed his parents' support to do so, he would remain a pre-Alpha until he was out of school, supporting himself. This could be at age 26 or even later. Bravo: The second stage of the life cycle, for most people, is the Bravo stage in which they are married, but still childless. Most Americans do marry, although not all stay married to the same person. According to a 2014 study by the Pew Research Center, three quarters of today's young adults are expected to marry at least once in their lives. However, the age of first marriage is increasing rapidly. In 2018, the median age of first marriage was 27.8 for women and 29.8 for men. For both women and men, this average age has increased from age 25.1 and 26.9, respectively in 1999, just 20 years earlier. Charlie: The Charlie stage begins with the birth of the first child and continues until the youngest child is of school age. The creation of this as a separate stage is due to the fact that more than a third of parents of pre-school children choose not to work full time. Those who do work generally have high childcare expenses, making it difficult to save money. In 2018, 65.1 percent of women with children under the age of 6 worked in the paid labor force. This compares with 71.5 percent of all women with children under the age of 18. In which of the following life cycle stages will saving money tend to be most difficult? A. Alpha. B. They are all equally difficult. C. Charlie. D. Bravo.

C. Charlie. During the Charlie stage, children are not in school yet and someone must take care of them. If both parents work full time, they generally have to spend a lot of money for childcare, reducing funds that might have been available to save. If one parent stays home with the children, the family must sacrifice the income of that person, also making money tight and saving difficult.

Joey is the first of the three friends who intends to work full time. He knows that he can get a construction job that pays $10 per hour. If he works eight hours a day for five days a week, his gross pay will be $400 per week, which he figures will cover his costs for housing, transportation and spending money. However, Joey didn't calculate the deductions he would have to pay. Look at the chart to see what his pay record looks like. In fact, the total payroll deductions of $90.79 are equal to 22.7 percent of his gross pay (pay before deductions), leaving him just $309.21 in take-home pay to spend each week. Joey may have to rethink his plans. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod9Q1.PNG Joey's net income: A. Is equal to his gross pay. B. Has no relationship to his gross pay. C. Is less than his gross pay. D. Is more than his gross pay.

C. Is less than his gross pay. Joey's net income is less than his gross pay. Gross pay or gross income is your income before any payroll deductions are taken out. Net income is what's left after payroll deductions are subtracted, so net income is always less than gross pay if any deductions are taken out, as they are in most cases.

Many companies offer inexpensive life insurance to their employees, paid through payroll deductions. While some young people may have little or no need for life insurance, those who have—or will shortly have—families, need to be sure that their dependents are taken care of should they die. Taking care of dependents is the real purpose of life insurance.Since Joey plans to marry eventually, he has decided he will need life insurance in the future. We have estimated that Joey must pay 1 percent of his gross income for life insurance:$20,800 gross income x 1% = $208 annually divided by 52 weeks per year = $4 per week deducted from his pay. In comparison to older employees with families, young unmarried people tend to need: A. More life insurance, but not twice as much. B. Twice as much life insurance. C. Less life insurance. D. The same amount of life insurance.

C. Less life insurance. The main reason for life insurance is to take care of dependents if a worker should die. Young unmarried people usually do not have dependents, so they generally need less life insurance than older workers with families. Very often, no life insurance is needed. One exception would be young unmarried adults with parents as cosigners of their private student loans. Life insurance proceeds would pay off these loans if a young adult dies.

Take a look at the classified ads online or in your local newspaper. You will see that jobs requiring college degrees pay more than those requiring only a high school diploma or no degree at all. In general, the more education you have, the more you can expect to make. In fact, those with a four-year college degree (a bachelor's degree) tend to make, on average, much more than double those who did not graduate from high school. The table shows how average earnings increase with education while the unemployment rate goes down. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod_3_q_3_2019.jpg If you went to college and earned a four-year degree, how much more money could you expect to earn each year than if you did not graduate from high school? A. No more, I'd earn about the same either way. B. A little more, about 20 percent more. C. More than twice as much. D. About 10 times as much.

C. More than twice as much. On average, people with a four-year college degree earn more than twice as much each year than those who did not graduate from high school.

Andrew's mother told Andrew that his earned income would end when he and his wife retired. At that time, his income would come from sources other than work, such as savings in tax-deferred employer retirement plans, Social Security, and interest on money he and his wife saved. Andrew was distressed to learn that no raises were included in his plan. His mother replied that to keep his plan easy to understand, she was projecting income in today's dollars, which are called "real" dollars. Since no one knows what inflation will be over the life of a young person, it is best to not worry about it now. Inflation is a general increase in prices and decrease in the purchasing power of money over time. Also, to keep things simple, she assumed that like most people, Andrew's raises would just about equal inflation. While he would probably get raises greater than inflation for a few years early in his career, the simplest thing to do is to ignore them. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod2Q5.PNG Andrew's chart doesn't show regular raises because: A. He won't get any. B. The total amount of his raise will be taken away by increased taxes. C. Most people don't get large real (greater than inflation) raises except earlier in their careers and they are not included here to keep the graph easy to understand. D. His expenses will go down making a raise unnecessary.

C. Most people don't get large real (greater than inflation) raises except earlier in their careers and they are not included here to keep the graph easy to understand. Since the charts in this module are in today's dollars and since most people do not tend to get raises that are much above the rate of inflation, these simplified charts show real salaries remaining the same over time. In later modules, we will begin to deal with the complexity of raises.

We pay federal income taxes on our taxable income, which is equal to gross income minus tax deductions and exemptions allowed by the government. Examples of such deductions include interest paid on a home mortgage, money given to charity, taxes paid to a state or city, and certain medical expenses. Tax rates may change from year to year as the result of changes in the laws and changes in tax brackets, which are adjusted annually for inflation. In this section, we will use 2019 tax rates for teaching purposes. Which of the following is adjusted every year for inflation? A. Sales taxes B. Tax rates C. Tax brackets D. Tax deductions

C. Tax brackets Every year tax brackets, or the upper and lower limits on tax rates, are adjusted for inflation. This is done to prevent people who earn the same real or inflation-adjusted income from having to pay higher taxes as the result of inflation.

In recent years, the proportion of American workers belonging to unions has fallen from 20.1 percent in 1983 to 10.5 percent in 2018, according to the US Bureau of Labor Statistics. The average salaries of non-union workers, however, are only 80 percent of workers who are represented by unions. While unions cover only 6.4 percent of workers in the private sector, this number jumps to nearly 33.9 percent of government workers. The proportion of public school teachers who are covered by union contracts is even higher. When Maria becomes a teacher in the public schools, she may very well be covered by a union contract. Which of the following statements best describes the trend in union membership in the U.S.? A. The percent of workers who are union members is increasing. B. The portion of workers in the private sector who are union members is increasing. C. The percent of government workers who are union members is more than 5 times that of workers in the private sector. D. The average salary of union workers is lower than non-union workers.

C. The percent of government workers who are union members is more than 5 times that of workers in the private sector. While unionized workers are paid more than non-unionized workers, the percent of unionized workers in the private sector is down to 6.4 percent. The percent of government workers who belong to unions, however, is 34.4 percent, more than 5 times the percent in the private sector.

Delta: The fourth life cycle stage is the Delta stage in which there are dependent children who are no longer of preschool age. With no children at home during the day, and college expenses on the horizon, most families with two adults have both working. In 2018, over three quarters (76.4 percent) of women with children age 6 to 17 were employed. Echo: When the last child has finished his or her schooling and is no longer dependent on the parents, the Echo stage begins. This is the pre-retirement or "empty nest" stage. For those individuals without children, the Echo stage begins about 10 years before retirement. Foxtrot: The Foxtrot stage begins when people retire and ends at the time of their death. Parents enter the Echo stage when: A. Their children begin college. B. Their children are married. C. Their children are financially independent. D. Their children are in high school.

C. Their children are financially independent. The Echo stage begins when the last child is financially independent

A factor causing an increase in the age when people marry is an increase in the number of young adults who live by themselves or with a roommate of opposite gender to whom they are not married. In 2018, there were 8.5 million opposite-sex couples living together. Also delaying marriage (and probably contributing to the instability of marriage) is the trend of young adults to live with their parents. In 2018, more than half (54 percent) of those 18 to 24 years old, lived in their parents' home. Even among adults age 25 to 34, 16 percent still lived with their parents. Not only has the Alpha (young, unmarried) stage been lengthened as young people put off marriage, but so has the Bravo (young, married without children) stage. Married women now wait longer before having their first child. The average age of the mother when she gave birth to her first child was 28 in 2018, according to the Centers for Disease Control and Prevention (CDC). The increase in the number of working years until the birth of the first child allows single individuals and childless couples to put aside more money than ever before. If they use these years for saving, they will be able to better afford children and achieve other financial goals sooner (like retirement). If, however, they spend so much money during the pre-child years that they are not able to save (and even add to their debt), they will find the years with young children to be difficult financially. Agnes and Dwayne married recently and have decided to wait ten years to have their first child. If, instead of saving their extra income, they use it to travel a lot during those ten years, what will happen? A. They will be able to retire earlier. B. They will live longer. C. They will probably not be able to retire as early as they could have if they had their children earlier. D. They will be in much better financial condition than if they had children right after marriage.

C. They will probably not be able to retire as early as they could have if they had their children earlier. By extending the Bravo stage and having children later, their children will still be in college when Agnes and Dwayne are in their late 50s, giving them little time to save for retirement and forcing them to retire later. If they saved money during the Bravo stage and reduced the amount spent on travel, they would probably not have to put off their retirement.

Some union workers are paid very little money, hardly more than the minimum wage, while others, such as sports stars, may be paid millions of dollars per year. The pay of unionized workers depends on the skills required, the demand for those skills, and the difficulty of joining the union. Unions made up of unskilled workers have relatively little bargaining power with employers since the employers can easily hire more workers if their unionized workers go out on strike. In addition, employers can move or threaten to move their operations to places in the country where there are no unions and where workers will work for less. Finally, unskilled workers can be hired overseas for a fraction of the wages paid in the U.S., and companies can always threaten to produce "offshore" if unions bargain too hard for higher wages. On the other hand, some unions, such as the Major League Baseball Players Association, are in a very good bargaining position because only those players with the best skills qualify to be represented by that union. In addition, the team owners cannot really threaten to move to another country because their fans are local. In 2019, the minimum salary for a major league baseball player was $555,000 per year while the average was more than $4.3 million. This amount varies from team to team. In 2011, the start of the National Basketball Association's season was delayed when the team owners and the National Basketball Players' Association, a union of players, could not agree to a contract. Why would NBA players, who make huge salaries that average in the millions of dollars, want to belong to a labor union? A. To show their solidarity (togetherness) with other American workers B. Because very few people know how to play basketball C. To be able to bargain more effectively with team owners by threatening to shut down the league if agreeable terms are not reached D. To get together socially during the off-season

C. To be able to bargain more effectively with team owners by threatening to shut down the league if agreeable terms are not reached Without a players' union, each player on a team would have to bargain with his team owner individually, and if he asked too much, the team owner could fire him and substitute another highly skilled player in his place. However, if all players belonged to a union and bargained together, they could not be easily replaced by the owners since few fans would pay to watch unknown players with lower skills.

Having estimated Andrew's lifetime income, his mother turned to Andrew's expenses. She asked what he expected his monthly expenses to be after college and before he got married. Andrew added together $1,000 per month for an apartment, including utilities; $600 a month for a car which included lease payments, insurance and gas, $100 for clothes; $600 per month for food, restaurants and entertainment, including cable TV; and $200 per month for trips and vacations. That came to a total of $2,500 per month or $30,000 per year. Already, Andrew could see that he was in trouble. Andrew's mother agreed and pointed to Andrew's expense line, colored red in the next graph. Expenses are $30,000 per year for 3 years and then jump to $55,000 per year for two years when Andrew hits 25 and $25,000 in tuition is added to his living expenses. Then the line goes back to $30,000 for expenses once he finishes graduate school. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod2Q6.PNG Why does Andrew's expense line jump so high at age 25? A. Because taxes will increase substantially at that time. B. Because income falls when Andrew attends graduate school full time. C. To show the additional cost of tuition for attending graduate school. D. Because having children is very expensive.

C. To show the additional cost of tuition for attending graduate school. When Andrew is 25, he plans to enroll in graduate school with tuition of $25,000 per year. This boosts his expenses by that amount, causing the red expense line to go up. It is possible that he could receive financial assistance, but it is best not to count on this for planning purposes.

To make sure that workers pay their income taxes, the law requires that taxes be withheld or taken from the employee's pay by the employer and deposited with the government for the employee. Since the government doesn't know for sure how much we will owe in taxes at the end of the year, it estimates the amount that should be taken out of paychecks. The estimate is based on the amount of total pay we get and the number of children and other dependents that we support. Between January 1 and the tax filing deadline (on or around April 15), those of us who earned income during the previous year must file our tax returns (or ask for more time by that date). On the tax return, we figure out the amount that we actually owe in taxes for the previous year. If more than this amount was taken from our pay checks in withholding, we are entitled to a refund and we get the difference back. If too little was withheld, we must pay the difference to the government. The income tax structure in the United States is so complex that more than half of all taxpayers hire a professional tax preparer to fill out their federal tax returns every year. In this module, we will focus on the most important things you need to know about your federal income tax rather than trying to make you a tax expert. If we receive a refund from our federal income tax, what does this mean? A. Not enough tax was withheld from our pay the previous year. B. We didn't earn any income last year. C. Too much tax was withheld from our pay the previous year. D. The right amount of withholding was taken from our pay the previous year.

C. Too much tax was withheld from our pay the previous year. If we get a refund, it means that too much withholding was taken from our paychecks the previous year.

For most young people just starting their careers, retirement seems a long way away. As we learned earlier, however, fewer and fewer employers will pay us retirement income (pensions) out of their company money. When we retire, most of the money that we will have to live on (other than Social Security that pays a modest amount), will come from money we saved. Much of our retirement savings will be deducted from our checks.These days, many employers, and most larger employers, tend to offer their workers some type of retirement savings account. Each pay period, the employer will deduct a certain percentage of our check (which we have agreed upon) and put it in a retirement savings account in our name. The types of retirement savings accounts have various names, but the 401(k) is the most popular.In many cases, an employer also will contribute to our retirement account. The employer contribution is generally calculated as a percentage of our income. Generally, an employer will only contribute if we also contribute to encourage us to save for our own retirement. This type of "matching contribution" can be a full match (for example, the employer puts in four percent if you put in four percent), or a "partial match" (for example, the employer puts in two percent if you put in four percent). Many types of retirement accounts offer some tax advantages to the employer for making a matching contribution.If a retirement plan is considered to be qualified by the government, as most are, the contribution of the employee is tax-deferred. This means that taxes are not paid on the contributions when they are made, but only when they are taken out. Most people take their contributions out of their accounts at retirement when their income drops and their tax brackets are lower. It is beneficial to receive this income when individuals are in lower tax brackets because they will pay less in taxes.Depending upon the plan offered by our employer, our retirement savings may be invested in many different types of investments including stocks, bonds and mutual funds.In our example, we have estimated that Joey will pay four percent of his gross income as a contribution to his retirement. $20,800 gross income x 4 percent = $832 per year/52 weeks per year = $16 per week. (To make things simple, we will not assume that his contribution is tax deferred). What is true about retirement savings withheld from our paycheck? A. It is another way of making our employer rich. B. It is always matched, dollar for dollar, by the employer. C. We don't have to pay taxes on it until we take it out of the account. D. It is not needed by most Americans for their retirement.

C. We don't have to pay taxes on it until we take it out of the account. Retirement savings withheld from our paychecks are generally tax deferrable, which means we don't pay income taxes on it now, but rather when we take that money out of our retirement account to support our retirement.

A certificate of deposit (CD) is a bank account in which your money is deposited for a fixed period of time, generally ranging from one month to several years. CDs pay a fixed rate of interest over that time period as opposed to checking or savings accounts where interest rates can change. In general, the longer the period of deposit, the more interest you will earn. If you need the money before the period is over, however, the bank does not have to let you have it, and if they do, you will probably have to pay a substantial penalty for early withdrawal (generally a specified number of months' worth of interest). Since you can't easily get at the money you have in a CD when you want it, a CD is not considered to be a transaction account. Bank checking accounts, savings accounts, and certificates of deposit have one thing in common-the money that you deposit up to $250,000 is not at risk because it is guaranteed by the Federal Government. You will be able to count on having the money that you invested in this type of asset at some point in the future. Since the money is safe, you will also tend to earn less on it than you could by investing your money in riskier financial assets such as bonds and equities (stocks). When Andrea graduates from high school in a few weeks, she is planning to take a trip across the United States. She has all of the money she saved for the trip in a savings account. A friend suggested that she earn more interest on that money by putting it into a Certificate of Deposit, which she could not withdraw for a year. What is the problem with this suggestion? A. The longer your money is tied up, the lower is the interest you will get. B. It will take Andrea more than a year to get her money from her savings account. C. You cannot easily withdraw money held in a Certificate of Deposit without paying a penalty. D. Money held in a Certificate of Deposit is safer than money held in a savings account at the same bank.

C. You cannot easily withdraw money held in a Certificate of Deposit without paying a penalty. Andrea should keep the money she needs for her trip in an account that she can use in a few weeks. If she keeps it in a Certificate of Deposit (CD) she cannot use it for her trip without cashing in her CD (if the bank even allows her to do it) and paying a penalty. Some folks feel that money they will not need right away should be kept in financial assets that earn more money than the interest earned on checking or savings accounts. But, Andrea needs her money soon and it should be kept where she can get to it.

Is it worth it to run your own business? This is a personal decision. On the downside, the profit isn't guaranteed. If you have a bad year, you could lose money. The uncertainty could also cause you to worry all the time and even lose sleep. On the upside, you have the freedom of working for yourself and not answering to a boss. You also have the opportunity to expand your business, earn more profit and eventually sell your business for more than you invested in it. This is the reason why almost 10 percent of American families are headed by people who are in business for themselves. Which of the following is an advantage of owning your own business? A. You don't have to work on weekends and holidays. B. You always know how much you will earn each month, regardless of how the business does. C. You won't have a boss. D. You are guaranteed to make more than if you worked for someone else.

C. You won't have a boss. An advantage of owning your own business is that you work for yourself and won't have a boss to complain about. However, some disadvantages of working for yourself is that you possibly will make less money than if you worked for someone else, the money you get depends on how well the business does, and you can never really leave the business and probably have to work at least some hours even on weekends and holidays to make sure everything is done.

Education is an expensive investment that we might not make if it didn't help us earn more money. The cost of education consists of two things: First is the actual out-of-pocket cost that we must pay for tuition, books, fees and supplies. In economic terms, this is known as the explicit cost. The cost of higher education also includes the income that we lose by spending time in school rather than working. This income that we lose by not taking advantage of the opportunity to earn money is called opportunity cost. In Andrew's case, the explicit cost of going to college is the cost of college tuition and fees, about $5,000 per year for four years after receiving anticipated financial aid, if Andrew goes to a state college in his state (and lives at home), plus the opportunity cost of not working right out of high school like his friend Joey. If Andrew could work in construction without going to college, like his friend Joey, he could make $10 per hour. That means that if Andrew goes to school and doesn't work, his opportunity cost is $20,000 per year (for a 2,000-hour year) for the four years that it takes him to earn his degree. Some quick math tells us that the four-year college degree at a state college will cost Andrew a total of $100,000-$20,000 in explicit costs and 4 x $20,000 = $80,000 in opportunity costs. To keep things simple, we will ignore the taxes that are taken from our pay. If Andrew plans to work for 33 years as an accountant (until retirement at age 55), he must make at least $3,000 per year more than Joey just to break even on his investment (the $100,000 cost of college divided by 33 years = $3,030.30). Since, according to the U.S. Department of Labor, accountants with a college degree had an average starting pay of $67,190 in 2015, this would be $47,190 more than the $20,000 Joey makes per year. Andrew's choice would appear to make sense, financially. Andrew quits his job as an accountant where he earns $55,000 per year to go back to school for two years to get an MBA degree. He attends a school that charges $25,000 per year for tuition and related expenses. How much is the total cost (explicit cost plus opportunity cost) of that degree? A. $75,000 B. $143,436 C. $153,436 D. $160,000

D. $160,000 His explicit cost is $25,000 for tuition, etc., per year and his opportunity cost is $55,000 per year for a total of $80,000 per year. Since his degree takes two years, the total cost is $160,000.

Social Security taxes are another sizeable amount taken from the check of nearly all workers. In 2019, 6.2 percent of your earnings up to $132,900 goes to pay for the Social Security payments that you will get when you retire. An additional 1.45 percent of your pay (with no ceiling) is taken to pay for Medicare health insurance which covers your medical expenses when you turn 65. This is a total of 7.65 percent of your pay which is matched by your employer. In Joey's case, 7.65 percent of his gross income is taken out of his check for Social Security and Medicare tax and forwarded to the government by his employer. Since his annual pay is $20,800, this amounts to $1,591.20 per year or $30.60 per week ($20,800 x 7.65 = $1,591.20 which, divided by 52 weeks = $30.60 per week). This is much more than Joey pays in Federal income tax! If you work for yourself, you are considered to be your own employer and you must pay double the amount of Social Security and Medicare taxes to the government. For most people, this is 7.65% times 2 = 15.3%. If Joey worked for himself and called his company "Joey's Construction Company" and made $21,000 per year, how much would he pay per year in total Social Security and Medicare tax? A. $3,182.40 B. $1,591.20 C. $1,163 D. $3,213

D. $3,213 Since he would be self-employed, he must pay both the employee and employer parts which comes to 15.3 percent of his earnings. This equals to 15.3 percent of $21,000 or $3,213.

Joey's gross pay is $600 per week. If he works 52 weeks per year, his annual gross income will be $600 x 52 = $31,200 per year. Since he has no actual deductions, his taxable income in 2019 is easy to figure - it is equal to his gross annual income minus his standard deduction. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod_9_q_6_2019.jpg If Joey was married and his wife was not working for pay, what would his 2019 taxable income be? A. $20,800 B. $7,600 C. $11,900 D. $6,800

D. $6,800 The standard deduction for married taxpayers in 2019 is $24,400. Joey's Gross Annual Income of $31,200 minus the married filing jointly Standard Deduction of $24,400 equals Taxable Income of $31,200 - $24,400= $6,800. Joey does not have to pay any income tax.

Federal income tax must be paid on the income we earn each year. The federal government uses income tax money to run the country and provide services to its citizens. Income taxes in the United States are progressive which means that, as a worker's income increases, he or she pays a higher percentage of income in taxes. In the United States, income tax rates start at 10 percent for those with the lowest incomes and go up to 37 percent for those with the highest incomes. Progressive income taxes are designed to give a break to low-income workers who can least afford to pay taxes. As we make more income, our marginal tax rate goes up. This is the rate that we pay on our last dollar of income. For example, the table below shows us that in 2019 a single person, like Joey, must pay 10 percent on the first $9,700 in taxable income that he earns. If he earns more than $9,700 in taxable income, he must pay 12 percent on the amount over $9,700 but below $39,475. The marginal tax rate has gone from 10 percent to 12 percent and keeps going up as taxable income increases. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod_9_q_2_2019.jpg Wendy, who is single, worked her way through college earning an annual taxable income of $10,000 in 2019. Her first job after graduation will give her a taxable income of $35,000 per year. Using the tax table, what is her marginal tax bracket in 2019 while she is still in school and what will it be when she graduates? A. 10 percent now and when she graduates. B. 0 percent now, 10 percent when she graduates. C. 0 percent now and 10 percent when she graduates. D. 12 percent now, 12 percent when she graduates.

D. 12 percent now, 12 percent when she graduates. When Wendy is in college, with a taxable income of $10,000, she is in the 12 percent marginal tax bracket. When she makes a taxable income of $35,000, she will still be in the 12 percent tax bracket.

A "labor union" is a group of workers with similar skills who join together to try to improve their wages, benefits and working conditions. There are unions for teachers, truck drivers, airline pilots, electricians and many, many other professions. An important function of a labor union is to bargain for higher wages for its members. Some unions are more successful than others in helping to raise the pay of its members. Most effective are those unions that limit membership, thereby lowering the supply of workers who can work at certain jobs. The lower supply of workers forces pay up. Plumbers and electricians in some large cities must be chosen as apprentices and serve long years at low pay to become full members of the union. Since only union members may work at those jobs in these cities, a low supply helps keep wages high. In most places in the United States, where there are both unionized and non-unionized workers with the same skills doing the same type of work, the unionized workers will tend to make more per hour than the non-unionized workers. This is because a large group of workers can bargain more effectively for higher wages or better benefits or working conditions than can individual workers. Suppose that Joey finds a job with a non-unionized construction company for $10 per hour. If the owner of the company decides that profits are not high enough, he can call Joey in and tell him that he is lowering his salary to $9 per hour. If Joey doesn't like it, he can quit and try to find a job elsewhere. If Joey belonged to a union, the union would have a contract with the construction company to pay $10 per hour to people with Joey's skills and experience until the contract ended. The employer couldn't lower Joey's pay at any time. And if the company wanted to negotiate a new contract at lower pay, the union might threaten to strike if there were a cut in pay. A strike by workers would leave the company with no experienced employees who could carry on the business. Which of the following is an advantage to belonging to a labor union? A. You never have to pay any dues. B. You will always be paid the same as a worker who doesn't belong to the union. C. You don't have to work hard. D. A large group of workers can bargain more effectively for higher wages or better benefits or working conditions than can individual workers.

D. A large group of workers can bargain more effectively for higher wages or better benefits or working conditions than can individual workers. If you bargain just for yourself, you may not have a lot of influence with your boss. If you are joined by a large number of fellow employees in your union who are bargaining together, however, your ability to increase wages or improve benefits and working conditions will improve.

There is an exception, however, in that most young people can expect to get raises that are greater than inflation during the early years of their working lives, as they learn to do their jobs better and become more productive. People who go into certain fields, such as teaching, often know what their increases will be in addition to annual adjustments for cost of living. For example, Maria expects to receive a "step" promotion of $3,000 take-home (in addition to normal cost-of-living increases) after she finishes her probationary teaching period of three years. The chart reflects this change in her graph line. College graduates tend to earn average annual increases of about four percent per year for approximately their first 20 years of work after which raises are negligible. Those without at least a college degree can estimate these same annual increases for only about 10 years. To keep the charts simple, however, we won't include these annual raises until the end of this module. Why do young workers, just starting their careers, tend to get pay raises that are greater than increases in the cost of living (inflation)? A. They are more attractive and likeable than older workers. B. They work harder than older workers. C. They are smarter than older workers. D. As they gain experience, they become more valuable to their employers.

D. As they gain experience, they become more valuable to their employers. Most workers require on the job experience, in addition to education, to become fully valuable to their employers. Many employers train their workers or send them to special training programs or schools to learn additional skills. Since employers will pay more valuable workers more money, they tend to give greater than normal raises to younger workers as they increase their skills and experience and value to their employer.

Andrew's mother showed him his lifetime income line as shown in the graph. She explained that it was merely the future take home pay for Andrew and his wife without any adjustment for either raises or inflation. She said that his take-home income would be about $27,000 when he graduated from college at age 22; it would fall to zero when he is in graduate school full-time from 25 to 27 and jump to $47,000 when he finished his MBA. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod2Q3.PNG Why does the income line fall to zero from ages 25 to 27? A. Because Andrew will have no expenses at that time. B. Because Andrew will work full time. C. Because expenses have gone up to support the tuition that he must pay. D. Because Andrew will be in graduate school full time and he will have no income.

D. Because Andrew will be in graduate school full time and he will have no income. Andrew's income line falls to zero because Andrew will have no income while he is back in school full time.

When you buy a bond, you are lending money to a company or government. Since this is a loan to the company or the government, the income that you will receive for loaning your money is called interest. The most common type of bond is issued by the U.S. Government. It is important to know that bonds issued by the U.S. Government are considered to be totally safe. Therefore, they pay less interest than bonds issued by companies, which aren't as safe since they sometimes go out of business. The most common type of bond owned by American families is a savings bond issued by the U.S. Treasury. In 2016, 8.6 percent of families owned a savings bond. Georgette has read about U.S. Government Savings Bonds, and she has decided she wants to invest her $100 to buy one. How does the safety of these bonds compare to bonds issued by companies? A. Company bonds are as safe as U.S. Government bonds. B. Neither company bonds nor U.S. Government bonds are considered to be very safe. C. Company bonds are a lot safer than U.S. Government bonds. D. Company bonds are not as safe as U.S. Government bonds.

D. Company bonds are not as safe as U.S. Government bonds. Savings Bonds are issued by the U. S. Government and are considered to be absolutely safe. They are backed by the government's full faith and credit and ability to print money. Bonds issued by companies are not as safe since they can go out of business and not pay back money to holders of bonds that it issued.

Andrew's mother continued that when he got married, his family's take home income could double to $94,000. He would be 28 years old then. His income would fall back to $47,000 from age 30 to 38 when Andrew or his wife stayed home with the kids, and then go back to $94,000 when he is 38, when both parents are working again. It would stay at that level for 17 years until Andrew retired at age 55. His complete working or "earned" income line looks like the one shown in the graph. Note that, for simplicity, this analysis ignores possible raises in the future and assumes that the at-home spouse keeps his or her job skills current to avoid a drop in pay upon re-entering the labor force. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod2Q4.PNG Why does the earned income line in the graph dip down between the ages of 30 and 38? A. Andrew will be paid less at work because he has children. B. Expenses go way up when the children are born. C. Taxes are much higher when you have children. D. Either Andrew or his wife will quit work until the youngest child is school age.

D. Either Andrew or his wife will quit work until the youngest child is school age. When the first child is born, either Andrew or his wife will quit work to stay home with the children until the youngest is six years old. Since they expect to have their children two years apart, one of them will be out of the paid work force for a total of eight years.

As an example, Andrew expects to have the first of his two children, spaced two years apart, at age 30. This is when he enters the Charlie stage. He leaves the Charlie stage when his youngest child is 6 and his wife goes back to work. Since the children will be spaced two years apart, he will be in the Charlie stage for a total of eight years, or from age 30 to 38. Of course, life is not always so predictable, but this plan provides a framework to get started. In the Charlie stage, a fairly large percent of families sees at least a temporary decrease in income. While a majority of Charlies now have both parents at work, it is still common in our society for a parent (most often the mother) to either leave the work force or cut back on the number of hours worked for pay to be at home with the young child. Families that follow this more traditional pattern tend to have reduced incomes during the Charlie stage. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod_8_q_7_2019.jpg Why does Andrew's income line drop so dramatically when he reaches the age of 30? A. He gets married. B. He will retire. C. He expects to be fired. D. Either he or his wife will leave the work force to be with the children.

D. Either he or his wife will leave the work force to be with the children. Andrew expects that he or his wife will want to stay home with pre-school age children, which means that they lose one income when they have their first child.

Your take-home pay from your job is less than the total amount you earn. Which of the following best describes what is taken out of your total pay? A. Federal income tax, sales tax and social security contribution. B. Federal income tax, property tax, Medicare and social security contributions. C. Social Security and Medicare contributions. D. Federal income tax, Social Security and Medicare contributions.

D. Federal income tax, Social Security and Medicare contributions. The answer is Federal income tax, Social Security and Medicare contributions. The taxes taken from your pay do NOT include sales tax or property tax.

After listening to his mother, a professional financial planner, explain why Maria's brother Chris ran into financial difficulty at age 24, Andrew confessed that he had always admired Chris and hoped to have a life like his, with a family, a nice home and a good car. Now he asked his mother whether that was impossible. She replied that Andrew could probably have it all-the education, the family, the house, the cars-but probably not all at once. This interested Andrew who volunteered to have his future finances explored. When asked how much he expected to make per year when he finished his undergraduate degree at age 22, Andrew replied that it would be about $40,000. Multiplying that by two-thirds gave Andrew an estimated take-home pay of about $26,600. However, at age 25 Andrew expected to go to graduate school to get a Masters degree in Business Administration (an MBA). If he went to graduate school full time and didn't work at all, his income would stop. Then he would have to figure how much he would need per year for school tuition as well as living expenses. Is it more costly to Andrew to go to graduate business school full time or part time if the tuition is the same for each? A. It doesn't cost anything to go to graduate business school. B. Part time C. It costs the same whether he goes full or part time. D. Full time

D. Full time Going to graduate business school full time will cost Andrew more than continuing to work full time and going to school evenings or weekends. Since the out-of-pocket costs are the same (many graduate business schools offer both full time and part-time programs for the same tuition), the difference is the money Andrew will lose by not working if he goes to school full time. This amounts to his take-home pay of $26,600 multiplied by the years he will be in school.

Most of the rental income that individuals receive comes from the ownership of real estate. In the United States, nearly two-thirds of families own their homes while the others pay rent. Some people live in two or three family houses they own and rent the apartments that they do not use to others who pay them rent. Others own a number of rental units, houses or apartments, whose rents provide them with a large part of their income. Still others own a summer cottage or ski condominium that they rent out when they are not using it. Increasingly, people rent out their apartment or a room in their apartment by the night through outfits such as Airbnb. People who own rental real estate are called "landlords." Some landlords manage the property themselves, collecting the rents, mowing the lawn and fixing the plumbing. Others pay management companies to handle this work. Few people make much income from renting property other than real estate. While you might consider renting your car to someone, this is prohibited by most insurance policies although you might drive people in your car for a fee through outfits such as Uber or Lyft. During the two years he has been working, Jeffrey has saved some money to buy a house. His parents have agreed to loan him part of the down payment, and he has started to look for a house he can afford. He discovered a great house that has two apartments in it. He has looked at all the information carefully, done his budget, and thinks he can afford the house because he will live in only part of it and will rent out the other half. If Jeffrey buys this house, lives in the apartment upstairs and rents out the apartment downstairs, which of the following is true? A. Jeffrey is not a landlord since he rents out only one apartment. B. Jeffrey is not a landlord since his parents loaned him part of the down payment. C. Jeffrey is not a landlord since he lives in part of the house he owns. D. Jeffrey is a landlord.

D. Jeffrey is a landlord. Jeffrey is a landlord since he rents out part of his house, and the part he rents to someone else is considered rental property. Jeffrey has found a good way to own some income-producing property-he will combine his home with his investment in real estate.

The Charlie Stage begins with the birth of the first child and continues until the last child is of school age. This is a period when some families experience loss of income as a parent leaves the labor force, fully or partially, to care for the young child (or children). Juan has borrowed heavily to get through college and expects to be able to pay back his large student loans after he marries and begins a family. What is a problem with Juan's plan? A. For the first 10 years after college, he will be making less and less money in today's dollars. B. Income taxes will be much higher in a few years. C. Many employers reduce the salary of their workers who have children. D. Many families have difficulty repaying loans in the Charlie stage because they have the additional expense of children along with a drop in income (or an increase in child care costs) if a parent quits work to be home with the children.

D. Many families have difficulty repaying loans in the Charlie stage because they have the additional expense of children along with a drop in income (or an increase in child care costs) if a parent quits work to be home with the children. People who have children when they have a lot of loans outstanding often have difficulty repaying their debts because having children tends to greatly increase costs and may also decrease income if a parent quits work to stay at home or cuts back to part-time work.

Maria wants to be a teacher when she graduates from college and hopes to marry another teacher so they can get their summers off. She wants to start her family young so that her three children will be through college when Maria and her husband are about 50. When she has children, she plans to go back to work as soon as her paid leave is over for each child. While she would enjoy being a full-time mom, staying home with her children until the last is of school age, she realizes that decision would change their financial picture. She expects to make the same salary as her husband, and their income would be cut in half if she quits working to stay home. That cut in income will have a big impact on their standard of living, forcing them to do with less money when the children are young and keeping them from saving as much for things that are important, such as the children's education and their ability to retire early. She would like to retire as soon as she and her husband have finished 30 years of teaching and can enjoy a good pension. What is a disadvantage of Maria's staying home with her children until the youngest is of school age? A. The children would not benefit from having their Mom at home with them. B. It isn't something Maria would enjoy. C. Child care costs would go up a lot. D. Maria and her husband might not be able to retire as soon as they would like.

D. Maria and her husband might not be able to retire as soon as they would like. Maria would enjoy staying home with her children while they are young, and the children would probably benefit from having their mother at home with them. By leaving her position as schoolteacher, however, she would cut her family's income in half for those years. This would prevent Maria and her husband from saving as they would like toward their retirement and would probably keep them from retiring at an early age. In financial planning, there are tradeoffs that must be made and this is one of them.

Income from owning a business is called business income or proprietor's income. Proprietor is another name for a person who owns a business. Owning a business may involve owning a lot of physical assets, such as a factory or a store, or it may involve just being in business with few physical assets. For example, plumbers or writers often work out of their homes with little in the way of physical business assets. People who work for themselves and run their own businesses tend to make a lot more money than those who work for someone else. This is often reflected in government data that indicate that families headed by a self-employed person earn significantly more (more than twice as much) than those who work for others. However, the mean (average) is calculated by taking the income of all self-employed persons, adding them up and dividing by the total number of such persons. Since many of the highest earners in the U.S. are self-employed, this inflates the mean. If we compare median incomes, or incomes of those in the middle (half have higher incomes and half have lower incomes), the difference is not as great (about a third more for self-employed household heads). When we say that families headed by a self-employed person make significantly more than families whose head works for someone else, which of the following types of income average do we refer? A. Median B. Mode C. Variable D. Mean

D. Mean We refer here to mean incomes which add every family's income together and divides by the number of families. Mean incomes of the self-employed are driven up by a relatively small number of super high-income entrepreneurs. The difference in median income isn't nearly so large.

Andrew's mother knew something about planning since she was, in fact, a financial planner-a person who helps others to plan the best way they can manage their money. She explained that financial planning is common sense, like good nutrition in that there's nothing wrong with driving a nice SUV just like there's nothing wrong with having potato chips and colas, as long as you do it in moderation, as part of a somewhat balanced plan or diet. She added that people are unlikely to get a heart attack from an occasional bowl of potato chips and are equally unlikely to be driven into bankruptcy if they use their credit cards in moderation. However, she concluded, a constant diet of chips or credit cards could be hazardous to one's physical or financial health. Joey asked how much was too much and Andrew's mom answered that the amount could only be determined as part of a person's lifetime financial plan. "Nearly everybody has some sort of plan in their mind, even though they don't know that they have a plan. Otherwise, they'd spend everything they have the moment they got it." Why does Andrew's mother say that most people have a lifetime financial plan even though they don't know it? A. Most people have been to a professional financial planner. B. Most people have been through bankruptcy and have their plans decided by the courts. C. You must do a financial plan to get into college. D. Most people have some idea of what they want their lives to be and this helps regulate their spending and saving.

D. Most people have some idea of what they want their lives to be and this helps regulate their spending and saving. Most people, even seniors in high school, have some idea of what they want their lives to be in terms of career, education, marriage, children and so on. This means that they have a rough idea of a lifetime financial plan. What most haven't yet done is to look carefully at the plan to see whether it will work. It is better to have a plan and change it as needed than to coast along like Chris until you have some very big and very bad problems.

Government aid to families in need, such as welfare benefits, is considered to be a transfer payment. In recent years, the government has been trying to reduce this type of transfer payment by helping people become self-sufficient. Pensions are retirement income paid by an employer for whom you have worked. Years ago, it was common for a company to pay pension income to a retired employee for the employee's life. Even though the employee earned this pension through his or her work, however, the pension is still considered to be a type of transfer payment income since the work was not done during the current year. Today, many regular pensions have been replaced by employee retirement savings accounts (most commonly 401(k) accounts). The amount that an employee puts aside is often matched by contributions from the employer. The entire account, with money contributed by both the employee and the employer, is held in the name of the employee. When the employee retires, the amount that he or she takes from the 401(k) is not considered to be a transfer payment. That's because the money does not come from the company, but rather from the employee's own retirement account. It is like taking money from your savings account. Since you own the account, the money you take from it (aside from interest) is not considered income. If you work for a company and have a 401(k) retirement account, the account contains money you contributed to your retirement and money contributed by your employer. When you retire, which of the following will these payments be? A. Transfer payments B. Welfare payments C. Pension D. None of the other answers is correct

D. None of the other answers is correct The money you take from your 401(k) account is your own money that you earned and put away for your retirement. It is not a transfer payment since you are taking it out of your own account. It is not a pension payment since the company for whom you worked does not pay it.

Most working people in the United States pay state income tax in addition to federal income tax. In fact, 41 of the 50 states charge some type of tax on income. Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming have no state income tax and New Hampshire and Tennessee don't tax wages but do tax interest and dividends. Most of the states that have income taxes use progressive tax rates that go up with income. California, for example, charges up to 13.3 percent for taxpayers with incomes of $1 million or more. There are even cities, such as New York, which charge a local income tax in addition to federal and state income taxes. We have estimated (in our example) that Joey will pay two percent of his gross income for state income tax, which comes to $8 per week ($20,800 gross income x 2% = $416/52 weeks = $8 per week). Taxes that are paid to state and local governments are deductible items when figuring federal income taxes. That means that if Joey pays $416 per year in state income tax, he can deduct that from his gross income when he calculates his taxable income. The catch, for someone like Joey, is that he can only use his actual deductions, such as state income tax, or his standard deduction, which is $12,200 in 2019. Unless he has more than $12,200 in actual deductions, he is better off using his standard deduction. Since we found that he has no other deductions to itemize, he gets no federal tax advantage from deducting his state income taxes. For whom is it beneficial to deduct the amount paid in state income tax from their income for purposes of computing federal income tax? A. No one. B. Everyone who must pay state income tax. C. Only those who have total itemized deductions (including state income tax) below their standard deduction. D. Only those who have total itemized deductions (including state income tax) above their standard deduction.

D. Only those who have total itemized deductions (including state income tax) above their standard deduction. Only those with itemized deductions above their standard deduction can benefit from deducting state income taxes from their income in computing federal income tax. Otherwise, they are better off using their standard deduction because they can subtract a larger amount from their gross income in calculating their taxable income.

In 2016, 13.9 percent of American families owned stocks directly (others owned them indirectly through mutual funds or in retirement accounts). One reason to own stock is to receive the dividend income paid to shareholders. In addition, investors tend to buy stocks for the possible profit they can make if the stock's price goes up. This profit is called a capital gain. Unfortunately, while most stocks tend to go up in value over long periods of time, they can go down in value as well. Stock prices fell roughly 50 percent from October 2007 to March 2009. For this reason, stocks are not considered to be good investments if you'll need your money in a short period of time. For young people who are saving for retirement in 40 to 50 years, however, stocks are generally considered an excellent investment because they have almost always gone up in value over longer periods of time, such as 20 years. Mutual funds and exchange-traded funds ("ETFs") are companies that pool investor money to invest in stocks and bonds. Many individual investors buy shares in these companies, which hire managers to oversee the pools of money provided by the investors. When you buy shares in a mutual fund or ETF, you are buying ownership in the whole package of stocks and bonds owned by these pooled funds. This provides the buyer with "diversification" which means that if one of the companies owned by the mutual fund or ETF goes out of business, the owner of these funds won't lose all of his or her money since the funds own many other businesses that are still operating. In 2016, 10.0 percent of American families owned pooled investment funds such as mutual funds or ETFs. Over half (52.1 percent) of all of American families save for their retirement by holding financial assets in retirement accounts. These assets consist largely of stocks, bonds and mutual funds. People hold assets in retirement accounts rather than holding them directly for two reasons. First, the federal government encourages people to save for their retirements and gives tax advantages to those who do so. Second, many employers offer retirement accounts to their workers and encourage them to save for their retirement by matching part or all of the savings that employees put into these accounts. Which of the following types of financial assets can be held in retirement accounts? A. Stocks only B. Mutual funds only C. Bonds only D. Stocks, bonds or mutual funds.

D. Stocks, bonds or mutual funds. Retirement accounts can be held in the form of stocks, bonds or mutual funds (including money market funds), although some companies may restrict the types of assets that their employees may hold in their retirement accounts.

The amount you will be paid for a skill is based on the supply of workers with that same skill, as well as on the demand for that skill. Even if there is high national demand for nurses, a community that has an unusually large number of nurses will tend to pay less for their nurses than a community with few nurses. The supply of workers with a particular skill is based on many factors. A major factor is the number of people who really want to do this type of work. If the work is important or glamorous or appears to be fun, such as sports, acting, modeling or writing, it will attract far more people than work that is dirty, boring, dangerous or not important. For this reason, the average "actor" in New York or Hollywood, who is probably waiting tables or driving taxis or Uber to pay the rent, tends to make a fraction of what a plumber makes in these same cities. Why do young people who want to be actors often end up waiting tables or doing temp work rather than acting professionally full time? A. Taking temporary office jobs is a good way to be discovered as a young actor. B. Most young actors who wait tables want to own a restaurant. C. Many young actors feel that waiting tables will help improve their acting skills. D. There are many more people who want to be actors than there is full time paid acting work available.

D. There are many more people who want to be actors than there is full time paid acting work available. Acting is seen by many young people as a glamorous, high-paying field that is also a lot of fun. Therefore, there are many more aspiring actors than there are full-time paid jobs available in acting. This forces young actors to earn a living in another field while they wait for their big break. Waiting tables and temporary office jobs have low skill requirements and are relatively easy to leave and rejoin if a temporary acting gig becomes available.

The table shows the occupations that are expected to have high demand in the future. It is interesting to note that the highest job growth will be in a few fields that pay very well, such as nursing and management, but that more of the job growth will be in low paying fields, such as personal care and home health aides, which will be in great demand because of the aging of the population but will pay little because such workers don't need high skills or education. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod_3_q_8_2019.jpg Why are personal care aides expected to be paid so little in spite of being in such great demand? A. Few people will want to hire them. B. They are highly skilled. C. They are over-educated. D. They have relatively little education.

D. They have relatively little education. With the aging of the US population, there will be a huge demand for personal care aides to help take care of old people. However, the skills and education needed for such a job are not great, many workers will qualify, and as a result, the pay is not expected to be very high.

Andrew's mother reasoned that Chris probably took out a 30-year mortgage. Thirty years is a popular mortgage length because payments are lower than in a shorter mortgage. She felt that he probably paid about 6 percent interest per year although he could have paid a little less in interest each year if he had put down more than a 5 percent down payment. According to her calculations, a 30-year mortgage for $190,000 at 6 percent interest means that Chris has monthly payments of $1,139, which comes to $13,668 per year. Since home insurance, real estate taxes, utilities and repairs probably add another $10,000 to his housing costs, his total housing costs are close to $23,700 per year. If Chris had put down more money for his house, say 20 percent rather than five percent, what would have happened to his monthly housing expenses? A. They would have stayed the same because real estate taxes would have gone down. B. They would have stayed the same because the interest rate on his mortgage would stay the same. C. They would have increased. D. They would have decreased.

D. They would have decreased. If Chris had put down more money, the amount he borrowed would have been less, and he could probably have gotten a better interest rate. Both of these changes would have made his payments smaller, lowering his monthly housing expenses.

People with less education not only make less money, but also tend to have higher unemployment than those with more education. In the middle of 2015, while 5.3 percent of the entire U.S. population was unemployed, the table tells us that the unemployment rate of those without a high school diploma was 6.5 percent, falling to 4.6 percent for those with a high school diploma and 2.5 percent for those with a bachelor's (4-year) college degree. https://s3.amazonaws.com/moneyskillv2/storage/image/HS/Mod_3_q_4_2019.jpg Who is most likely to be unemployed? A. "Overeducated" people with graduate degrees. B. High school graduates. C. People with college degrees D. Those who never finished high school.

D. Those who never finished high school. People who have the least education also have the fewest skills to offer in the workplace. Therefore, they are often the first to be let go if a business is not doing well. What's more, they can apply only for a limited number of jobs because they have few skills. A person with education and skills can do jobs requiring those skills and can also do jobs that don't require skills. A person lacking in skills is limited to only unskilled work.

Employees can be paid by cash, check, payroll cards, or direct deposit to a bank account. These days, almost no employers pay regular employees in cash, although years ago, this was the most common type of payment. Most workers are now paid through direct deposit. Most employers prefer to pay their employees through direct deposit because it is cheaper than writing or "cutting," checks, distributing and mailing them to each employee. Direct deposit also saves them the problems of lost or stolen checks. Which of the following is the most likely way for an employee to be paid? A. By check B. By money order C. By cash D. Through direct deposit

D. Through direct deposit Most workers are now paid by direct deposit. A small proportion is still paid by check.