Unit B Study Guide

What would be a good time to spend money from your Emergency Fund? (13) You lose your job but still have bills to pay Your friend tells you that you should buy as much Bitcoin as possible Your favorite artist releases a new album and you just have to buy it Your friends are going on an expensive trip and you would like to go with them

You lose your job but still have bills to pay

If you deposit $200 into a CD (Certificate of Deposit) with an interest rate of 1% for 3 years, how much simple interest will you earn after THREE years? $1 $5 $6 $25

$6

If you used the 50-30-20 rule of budgeting, how much money would you be saving? 20% 30% 50% 100%

20%

Joelle wants to have an emergency fund to cover 6 months of her expenses. Her monthly gross pay is $4,000 and her monthly expenses are $2,000. If she plans to save 10% of her gross pay each month, how long will it take her to build her emergency fund? (14) 3 months 9 months 24 months 30 months

30 months

The highest yielding savings accounts are paying historically low interest rates, so Maria is only about to get a 1% annual interest rate for her savings account. Assuming interest rates do not change, use the Rule of 72 to approximate how many years will it take for her to DOUBLE her money in this account? 1 year 5 years 10 years 72 years

72 years

Which of the following statements about banks is FALSE? (15) If it is FDIC-insured, your money is safe even if the bank fails Many banks pay interest for the money you deposit with them Historically, savings accounts earn higher returns than investments in the stock market Money in a bank is usually easy to access via ATM, debit card or check

Historically, savings accounts earn higher returns than investments in the stock market

Zola just secured her first job after college, and she's heard that it's important to start investing for her retirement. She can afford to put 5% of her monthly salary toward retirement. What type of account should she choose for this goal? IRA CD MMA HSA

IRA

Which of the following individuals is the wealthiest? Maria owns a $15,000 car and owes $45,000 in the student loan debt. Keith owns a $500,000 home and has a $460,000 mortgage. Elyse owns a $25,000 car that is entirely paid off but has $10,000 in credit card debt. Karina owns a $50,000 car and has $5,000 remaining on her car loan.

Karina owns a $50,000 car and has $5,000 remaining on her car loan.

Which of the following is an example of delayed gratification as it pertains to saving? Using your credit card to afford a fancy vacation now, but not feeling happy about it until you pay off the entire debt in 5 years Not buying a muffin or breakfast sandwich every morning during the workweek so you can buy a really nice breakfast for your family once every few weeks Postponing your mall shopping trip to Sunday, rather than Saturday, so there are fewer crowds. Using your credit card so that you can get points on your purchases

Not buying a muffin or breakfast sandwich every morning during the workweek so you can buy a really nice breakfast for your family once every few weeks

Which list includes the most important factors to consider when opening a savings account? (11) The fees, the interest rates, and the minimum deposit to open the account. The fees, the interest rates, and the bank's brand recognition The fees, which bank your friends uses, and the minimum deposit to open the account The fees, which bank your friends uses, and the bank's brand recognition

The fees, the interest rates, and the minimum deposit to open the account.

Which of the following statements is TRUE? The interest rate on your savings account will remain the same as long as you keep the account open. You can choose the interest rate on your savings account, but only once per year. The interest rate on your savings account will vary over time and be set by the bank. The interest rate on your savings account will vary over time and be set by the government.

The interest rate on your savings account will vary over time and be set by the bank.

Jeremy is a 17-year-old junior in high school and just started his first job. He wants to open a savings account. Which of these will he need to bring to the local bank branch in order to start an account? A letter from his school. A letter from his parents. An adult cosigner because he is under 18. An adult cosigner because he is still a student.

An adult cosigner because he is under 18.

When a bank says their savings account earns 1% interest, that typically means you will earn 1% interest over what period of time? Daily Monthly Quarterly (three months) Annually (a year)

Annually (a year)

You are 18 years old, opening your first savings account, and are considering three options: All three have fees competitive with other banks. Which is the best option? Bank A Bank B Bank C All 3 banks are equally good options.

Bank B

You are comparing two savings accounts based on the interest you would earn and the fees they charge. Assuming you have a savings account with an average balance of $500, which combination of interest rates and fees are a better deal? (Hint: Using a one year period, determine the balance that you would have at Bank A and Bank B). Bank A offers you a savings account with a 10% annual interest rate and $5/month in fees Bank B offers you a savings account with a 2% annual interest rate and no fees The two banks deals are equivalent Trick question - it's a bad idea to open a savings account with just $500

Bank B offers you a savings account with a 2% annual interest rate and no fees

Juan saved $1000 from his summer job cleaning pools. Which of these savings vehicles would work best for him if he doesn't need access to the money for a number of years AND wants to earn the highest interest rate? Regular savings account Money Market account Checking account Certificate of Deposit

Certificate of Deposit

All of the following are good strategies to develop savings habits EXCEPT... Start with a small goal and gradually get more ambitious. Take a percentage of your paycheck and deposit it directly into a savings account. Avoid spending money that you don't have and running up credit card debt. Request to be paid in cash so you can save a certain percentage of your money in a shoebox in your room every month.

Request to be paid in cash so you can save a certain percentage of your money in a shoebox in your room every month.

Which of the following is an effective strategy for personal savings? (12) Wait until the end of the month and save whatever is left in your checking account Save a certain percentage of each paycheck and deposit it directly in a savings account Cover all of your wants and needs and save whatever is left over Take out a payday loan so you can save before you receive your paycheck

Save a certain percentage of each paycheck and deposit it directly in a savings account

You are developing a savings plan and using short-, medium-, and long-term goals to motivate you. Which of the following might you pick as the most long-term goal? Saving for retirement Saving for a down payment on a home Saving to buy a car Saving to go on vacation

Saving for retirement

Malcom is working full-time and wants to make sure he's saving strategically for four specific goals: an emergency fund ($50000, a flight home to see his parents for the holidays ($450), a downpayment on a new car ($3000), and his retirement (2% of his monthly take-home pay). What's his best strategy? Put as much as he can every month into an investment, like shares of a company, so his money grows quickly Keep all the money in his checking account so that he can spend it in the different categories Set up 3 separate savings accounts for the first 3 goals and a retirement investment for the 4th Set up 4 separate savings accounts

Set up 3 separate savings accounts for the first 3 goals and a retirement investment for the 4th

Assume Sid the Saver is earning 0.5% interest on his savings account while inflation is running 2% per year. Which statement below is TRUE? Sid's purchasing power is increasing by 0.5% per year Sid's purchasing power is increasing by 2.0% per year Sid's purchasing power is decreasing by 1.5% per year Sid's purchasing power is decreasing by 2.0% per year

Sid's purchasing power is decreasing by 1.5% per year

Stanley deposits $1,000 into a savings account that pays 1% interest per year. At the end of the first year, he's earned $10 in interest and there is $1,010 in the account. If the account has simple interest, the 1% interest for year two would be based off ________. If the account has compounding interest, the 1% interest for year two would be based off ________. (NOTE: The first choice goes in the first blank, the second choice goes in the second blank). (9) The original deposit ($1,000); The year one account balance ($1,010) The original deposit ($1,000); The year one interest ($10) The year one account balance ($1,010); The year one interest ($10) The year one account balance ($1,010); The original deposit ($1,000)

The original deposit ($1,000); The year one account balance ($1,010)

You want to take earnings from your part-time job to pay for a new laptop. Your monthly take-home pay is $500 and the laptop costs $1,200. What percentage of your pay do you need to save in order to buy the laptop in 12 months. 5% 10% 15% 20%

20%

Which of these statements about savings is incorrect? People often believe they are saving when they buy products at a listed discount, even if they didn't need the product in the first place. It is extremely difficult to open a savings account, as you typically need at least $10,000 for your initial deposit. Without a vehicle to save (like a savings account), it's much easier to spend and harder to keep track of finances. Billions of dollars is spent on marketing to persuade consumers to spend money instead of saving it.

It is extremely difficult to open a savings account, as you typically need at least $10,000 for your initial deposit.

You open a new bank account at Eastside Savings. You see FDIC stickers around the bank, and the teller specifically mentions that Eastside Savings is "FDIC insured". A few months later, you hear on the radio that Eastside Savings is struggling to stay in business. Your savings balance is $500. What would happen to that money if Eastside Savings failed? (10) You would receive all the money you have deposited at Eastside Savings since FDIC insurance covers up to $250,000. You could lose $250 since FDIC insurance only covers 50% of the money you have deposited. You would lose all of your money. You would receive $250,000 since the FDIC insurance provides each account at the bank with $250,000 regardless of how much they have deposited.

You would receive all the money you have deposited at Eastside Savings since FDIC insurance covers up to $250,000.