Personal Finance Chapter 1 and 2 TEST

When it comes to managing money, success is about _____ % knowledge and _____ % behavior.

20,80

What is not a key component of financial planning?

Allow your financial planner to make all of your major money decisions

(Vocab)The five steps to financial success

Five Foundations

What is not a key to saving money?

your income

(T/F)The first thing you should save for is your retirement fund.

False

(T/F)You should keep your emergency fund in the same account as your spending money

False

(T/F)Your income level greatly affects your saving habits

False

Why is having a fully funded emergency fund so important when it comes to your financial well-being?

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

(T/F)An interest-bearing account is an account that generates interest income on the available balance in the account.

True

(Vocab)Compares after-tax income to the money people spend on a variety of items

savings rate

(Vocab)Saving money over time for a large purchase

sinking fund

(Vocab)Save a $500 emergency fund

the First Foundation

(T/F)The credit industry in America has not changed much since 1917.

False

(Vocab)Percentage paid to a lender for the use of borrowed money, or the percentage earned on invested principal

Interest Rate

What is a reason that people donʹt save money?

1.Lack Discipline 2.Do not live on a budget 3.Lack Focus

Why was the use of credit uncommon prior to 1917?

1.Laws prevented lenders from charging high interest rates. 2.Borrowing money was generally not socially acceptable. 3.Lending money to others was not profitable.

What best explains why income alone does not determine wealth?

1.Missed opportunity to save and invest 2.Stress 3.A cycle of debt

What does it mean to have a negative savings rate?

1.Saving for something that is want rather than a need and 2.Having no savings at all

The saving habits of Ben and Arthur best illustrate what principles of saving?

1.The length of time money is invested matters and 2.Rate of return matters

What is not a factor in becoming money smart?

Learn how to read your credit card statement

What best explains why students should learn about personal finance?

Learning to manage money at this stage can eliminate financial mistakes and promote huge financial benefits for the future

What is not a reason your emergency fund should be kept in a separate savings account away from your spending money?

So that your emergency fund savings can earn a lot of interest

(Vocab)Money today has different buying power than the same amount of money in the future

time value of money

(Vocab)When a person intentionally invests money in a place where it can earn more money

wealth building

(Vocab)Money set aside and left alone for a ʺrainy day.ʺ

emergency fund

Why should you save?

1.Purchases 2.Wealth Building 3.Emergency Fund

When it comes to personal finance, math is easy. What's challenging is managing your ______.

Behavior

During the Great Depression, New Deal policymakers came up with mortgage (home loans) and consumer lending policies that convinced commercial banks that:_____

Consumer credit could be profitable

What best describes how Americans are being outsmarted by banks and other lenders?

Credit us marketed so well that we desire to have it while completely dismissing the fact that interest rates and fees continue to destroy our financial well- being.

(T/F)Americans typically maintain a very high savings rate.

False

(T/F)Everyone should have the same financial plan. A budget that works for one person should be sufficient for everyone

False

(T/F)Expensive houses and cars are a true indication of wealth

False

(T/F)Learning the language of money is not that important because you will be able to depend on financial planners to manage your money

False

(T/F)Most Americans avoid the use of credit when it comes to buying big-ticket items like a car or furniture for their homes

False

(T/F)Most Americans today are wealthy and will have financial security when they retire

False

(T/F)Since you are a teenager, what you do now with your money will have little effect on your financial future

False

(T/F)When it comes to saving money, the amount you save is determined by how much you have left at the end of the month once all of your spending is done.

False

What is not one of the three basic reasons for saving money?

Have money available to lend to friends

What is not a benefit of understanding your own money personality?

Knowing your money personality allows you to excuse excessive spending because it is simply part of your nature.

Personal finance success is primarily the result of:_______

Managing your money behavior

What is the First Foundation?

Save $500 for an emergency fund

Instead of borrowing money for large purchases, you should set money aside in a ________ overtime and pay with cash.

Sinking Fund

Why should interest earned not be a factor with your emergency fund?

The emergency fund is not intended to grow wealth

The wide spread financial insecurity of Americans is primarily because:______

The saving rate of Americans is low and many borrow in order to spend more than they earn.

What is not a reason credit is marked heavily to consumers in the United States?

The use of credit is not socially accepted in the United States.

(Vocab)The principle that suggests that a certain amount of money today has different buying power than the same amount of money in the future. This is due to both the opportunity to earn interest on the money and because inflation will drive prices up, thereby changing the ʺvalueʺ of the money.

Time value return

(T/F)Having debt keeps you from building wealth

True

(T/F)The credit system today is structured to accommodate a state of uncertain employment and income instability, utilizing high interest rates and fees to turn huge profits

True

(T/F)True financial security is achieved when your money begins to generate an income- your money starts working for you

True

(T/F)When developing a personal finance plan, one of the first things you should do is assess your current financial situation. This includes your income, assets, and liabilities

True

(T/F)When youʹre in high school, you wonʹt have the same emergency expenses as your parents.

True

(T/F)When youʹre older and out of school, youʹll need to grow your emergency fund into a full three to six monthsʹ worth of expenses.

True

(T/F)You should hold off on investing for retirement until you have college or other post-secondary education paid for.

True

(T/F)You should save money for three basic reasons: emergency fund, purchases and wealth building.

True

(Vocab)Interest paid on interest previously earned

compound interest

Saving is about:_____

contentment and emotion

(Vocab)The persistent rise in the cost of goods and services

inflation