Module 1.3 Financial Management/Managing Assets

Select the correct term for the following definition: Fee charged when an account does not have enough money to cover a purchase and the financial institution loans money to complete the payment. A. Overdraft Fee B. Stop Payment Fee C. NSF Fee D. Service Fee

(A) Overdraft Fee Overdraft fees are fees charged when an account does not have enough money to cover a purchase and the financial institution loans money to complete the payment. This creates a negative loan to repay and interest will be charged on the balance. Incorrect Answers: (B) Stop Payment Fee, (C) NSF Fee, and (D) Service Fee

Select the correct term for the following definition: Fee charged to invalidate a check before it is cashed. A. Overdraft Fee B. Stop Payment Fee C. NSF Fee D. Service Fee

(B) Stop Payment Fee Stop payment fees are fees charged to stop payment on a check before the check is cashed. Clients may not want a check to be cashed when they are suspicious of a scam, have lost a check, or have realized that there are insufficient funds in their account. Incorrect answers: (A) Overdraft Fee, (C) NSF Fee, and (D) Service Fe

Which of the following information would be relevant to ask Richard in the session to determine if he is eligible for any of the tax credits outlined in this module? A. Where does he live? B. How is he submitting his taxes? C. Does he spend money on childcare? D. What is his credit limit?

(C) Does he spend any money on childcare? This determines the eligibility of clients for the "Child and Dependent Care" tax credit. Those who are working, or are actively looking for work, may be eligible for this credit if they are paying a service to take care of a dependent (child or adult). Also, a client may claim additional tax credits for any qualifying child under the age of 17. Incorrect answers: (A) Where does he live? (B) How is he submitting his taxes? (D) What is his credit limit? - None of this information determines the eligibility of clients for tax credits.

Carlos is likely eligible for all of the following tax credits, except: A. Earned Income Tax Credit (EITC) B. Child and Dependent Care Credit C. Educational Credit

(C) Education Credit Only clients who are in a post-secondary educational program, or who are supporting children in a post-secondary program, may qualify for an educational credit. Carlos does not appear to meet either of these criteria. Incorrect answers: (A) Earned Income Tax Credit (EITC) - Individuals or families with low to moderate income levels may be eligible for this tax credit. The specific amount of the tax credit is based on a recipient's income, marital status, and number of children. Since Carlos works at minimum wage, he may be eligible for the EITC. (B) Child and Dependent Care Credit - Those who are working, or are actively looking for work may be eligible for this credit if they are paying a service to take care of a dependent (child or adult). Also, a client may claim additional tax credits for any qualifying child under the age of 17. Since Carlos has children in day care, he may be eligible for this tax credit.

All of the following arguments will be valuable to share with Jill to help her understand the importance of an emergency fund, except: A. Emergency funds can be used to cover living expenses while Jill looks for a new job, if she is laid off. B. Emergency funds placed in a liquid account can be retrieved when needed without taxes or penalties. C. Emergency funds will be available to use to purchase an electronic game for her daughter when Jill finds a great sale. D. It is ultimately cheaper to pay for emergency expenses from an emergency fund rather than on credit.

(C) Emergency funds will be available to use to purchase an electronic game for her daughter when Jill finds a great sale. Savings for any large expenses should be used if and only if an essential expense that cannot be anticipated arises. Incorrect answers: (A) Emergency funds can be used to cover living expenses while Jill looks for a new job, if she is laid off—This reason supports the importance of establishing an emergency fund. A good rule of thumb is to build up 3 to 6 months' worth of regular life expenses in the fund. This fund will be essential during unexpected unemployment or after emergencies with financial repercussions; (B) Emergency funds placed in a liquid account can be retrieved when needed without taxes or penalties—This reason supports the importance of establishing an emergency fund. A liquid account is one from which money can be retrieved quickly and without taxes or penalties. Clients should not invest emergency funds, because there could be a cost incurred for withdrawing the investment. The idea is to be able to access the money as soon as the emergency occurs; (D) It is ultimately cheaper to pay for emergency expenses from an emergency fund rather than on credit—This reason supports the importance of establishing an emergency fund. If Jill is laid off and pays for living expenses on credit instead of from an emergency fund, the amount of the expense could ultimately cost double the original amount or more.

When advising Patrice, you tell her she needs an account with all of the following fee structures and features, except: A. Mobile Banking B. Free Checks C. Free Wire Transfers D. Low Monthly Service Fee

(C) Free Wire Transfers None of the notes in Patrice's file indicate that she will need to frequently use wire transfers. Wire transfers are a fast and secure method of transferring money. Common examples of wire transfer uses include sending money to family overseas or transferring money to open a new account. Incorrect answers: (A) Mobile Banking—Since Patrice does not have access to a Module 1.3Page 25 of 28 Last Update: 9/2020 computer, she will need to view her account information using mobile banking. She needs to select an account that offers mobile banking for free; (B) Free Checks—Since Patrice has to pay all of her bills with checks, she needs to select an account that offers her free checks; and (D) Low Monthly Service Fee—Since Patrice receives paper checks and cash tips, she will not be able to set up direct deposit to get the service fee waived. So she will want to look for a bank that offers her a low monthly service fee.

Select the correct term for the following definition: Fee charged if there is not enough money in an account to cover a check payment or other purchase. A. Overdraft Fee B. Stop Payment Fee C. NSF Fee D. Service Fee

(C) NSF Fee Non-sufficient funds/returned item fees are fees charged if there is not enough money in an account to cover a check payment or other purchase. In addition to a fee, the returned item (or bounced check) may result in additional charges from the creditor. Incorrect Answers: (A) Overdraft Fee, (B) Stop Payment Fee, and (D) Service Fee

To explain the importance of establishing a retirement fund to Alexis, you can present all of the following arguments, except: A. Her company might "match" a portion of the retirement funds that she contributes. B. She could benefit from certain tax incentives. C. She could borrow against the retirement investment if she has an immediate need for cash. D. Her investment could grow more if she begins investing earlier.

(C) She could borrow against the retirement investment if she has an immediate need for cash. Borrowing against a retirement fund is not encouraged due to the penalties. Incorrect answers: (A) Her company might "match" a portion of the retirement funds that she contributes - Future contributions could be matched by her employer if it offers this benefit (B) She could benefit from certain tax incentives - Most retirement fund contributions have tax benefits (D) Her investment could grow more if she begins investing earlier - This is generally a good reason to invest in early to a retirement fund. However, it is important to know that while retirement funds are often invested in stocks and bonds with positive returns, this is not guaranteed.

Which is the most appropriate use of Jill's emergency funds? A. Contributing to a mutual fund B. Upgrading a refrigerator C. Establishing a retirement fund D. Repairing the transmission on a car

(D) Repairing the transmission on a car Though some car maintenance should be expected, emergencies that need immediate attention may arise, especially in situations that may affect a client's ability to commute to work. Incorrect answers: (A) Contributing to a mutual fund; (B) Upgrading a refrigerator; (C) Establishing a retirement fund—There are many large purchases or account contributions that she can anticipate. If she prepares for these purchases by establishing a fund for them, she will be less likely to use her emergency funds for these predictable purchases.

Select the correct term for the following definition: Fee charged by a financial institution for account maintenance. A. Overdraft Fee B. Stop Payment Fee C. NSF Fee D. Service Fee

(D) Service FeeAccount Maintenance/Service Fees are fees charged by a financial institution for account maintenance. Though typically a monthly fee, it can be charged annually. Frequently, fees can be waived under certain circumstances. For example, banks may waive fees when a client's direct deposit exceeds $500, minimum daily balance exceeds $1,500, or average balance exceeds $5,000. Incorrect Answers: (A) Overdraft Fee, (B) Stop Payment Fee, and (C) NSF Fee

Examine the bank comparison chart and consider Patrice's banking needs. Then select one of the following accounts to recommend to Patrice.

Credit Union Share Draft Account The Credit Union Share Draft does not require a monthly service fee, offers free checks, and has mobile banking features. If Patrice selects this account, she meets all of her banking needs without being charged additional fees. Incorrect answers: Bank 1, Checking—If Patrice selects this account, she will be charged $12 a month in service fees and $10 for every box of checks that she needs. The best account will be the one that offers all of the services she needs and charges the least amount of fees for those services. Bank 2, Checking—If Patrice selects this account, she will be charged $8 a month in service fees and will not have access to mobile banking. The best account will be the one that offers all of the services she needs and charges the least amount of fees for those services.