Budgeting
What is financial planning?
A fundamental belief or practice about what is desirable and worthwhile
A process used to achieve financial success based upon financial goals
An investment plan that includes stocks, bonds, and mutual funds
A set of financial documents including net worth, a will and insurance policies
2. A process used to achieve financial success based upon financial goals
A need is best defined as:
the end result of something a person intends to acquire, achieve, do, reach, or accomplish in the near or distant future
something thought to be a necessity or essential items required for life
fundamental belief or practice about what is desirable, worthwhile, and important to an individual
something unnecessary but desired or items which increase the quality of living
2. something thought to be a necessity or essential items required for life
Individuals with more formal educational training usually have:
higher estimated lifetime earnings
lower personal satisfaction
greater amounts of leisure time
more comfortable work environments
1. higher estimated lifetime earnings
To increase his net worth, Jackson could:
Increase his liabilities
Decrease his assets
Increase his market value
Increase his assets
4. Increase his assets
Leah is trying to explain the difference between open‐end and closed‐end credit to her roommate. Which statement should she include in her description of closed‐end credit?
It is a continuous loan the borrower must repay with a revolving balance.
Equal payments are required on a regular basis until the loan is repaid.
Credit limits vary depending on the loan balance.
Interest rates vary depending on the repayment history.
2. Equal payments are required on a regular basis until the loan is repaid.
Electronic banking allows the consumer to:
eliminate the need to reconcile their bank account
correct fraud or identity theft as soon as it occurs
have 34 days of float time after a check is written
have 24/7 access to banking transactions
4. have 24/7 access to banking transactions
Before a renter is allowed to take possession of a rental property, they will be expected to:
pay the utility bill and give notice of moving date
receive a mortgage and pay the down payment
acquire renters’ insurance and pay property taxes
pay a security deposit and sign a lease
4. pay a security deposit and sign a lease
Most of the assistance programs available through the government are funded by:
small fees proportional to income of clients
fees that are charged to some, but not all, clients using the programs
taxes at the local, state, and federal levels
donations from large corporations
3. taxes at the local, state, and federal levels
If expenses were to exceed income on a spending plan, what would be a financially smart solution?
Decrease expenses
Use a credit card more often
Earn less income
Increase purchases
Decrease expenses
A co-signer is a person who is:
applying for a loan
paying for a major purchase with cash
loaning money to a consumer
guaranteeing a loan repayment for the original borrower
4. guaranteeing a loan repayment for the original borrower
Which statement best reflects the philosophy of “pay yourself first”?
An individual should save whatever money is left over after paying monthly bills.
An individual should pay all fixed expenses before paying flexible expenses.
An individual should set aside a predetermined amount of money for saving before using any money for spending.
An individual should spend money on the items and activities enjoyed in life before paying any other expenses
3. An individual should set aside a predetermined amount of money for saving before using any money for spending.
Amber has been asked to set 3 academic goals for this semester. These goals are MOST LIKELY to be accomplished if:
Amber discusses her goals with her parents.
Amber lets her friends set her goals.
Amber writes her goals down.
Amber thinks about her goals weekly.
3. Amber writes her goals down.
Lora is a high school computer and technology teacher. She enrolls in a computer class at least twice per year to stay current on recent technology changes and updates. By continuing her education, Lora is investing in her:
salary
human capital
family
interest inventory
2. human capital
Wealth is defined as:
A debt or obligation owed to others
Personal property that was purchased to create a lifestyle or improve your life
A measurement of how much a person or household owns once all debts have been paid
Money received
3. A measurement of how much a person or household owns once all debts have been paid
When Bryce attempted to borrow money at the bank, he learned that his credit score is low. Which statement best describes what this is likely to mean for Bryce?
The interest rates on his loan will be lower, since his credit score is low.
The purchase price of the item he needs the loan for will be higher due to his low credit score.
The monthly loan payments will be lower due to his lower credit score.
The interest rates on his loan will be higher, since his credit score is low.
4. The interest rates on his loan will be higher, since his credit score is low.
Funds deposited in a federally insured account (FDIC) or national credit union association (NCUA) are protected against loss for up to:
$50,000.00
$1,000,000.00
$250,000.00
$10,000.00
3. $250,000.00
In which scenario below should renters’ insurance be considered?
Stacy and Ashley have purchased a home in a rural area.
Jo and Joe are living with his parents in the basement of their home for six months while flood damage is being repaired in their home. They are paying rent to his parents during the time they are living in their home.
Zach has rented an apartment in an urban area.
Sean and Dean are landlords for several rental properties.
3. Zach has rented an apartment in an urban area.
The government uses money collected from taxes to:
finance the Internal Revenue Service
encourage private enterprise
establish food networks
provide goods and services for the public
4. provide goods and services for the public
How can a cardholder avoid paying interest on a credit card?
Pay the minimum balance every month
Pay the balance in full every month
Only use a credit card for balance transfers
Interest is always paid on a credit card
2. Pay the balance in full every month
Medicare is provided by the Federal Government for individuals in specified circumstances. In which of the situations below would the individual most likely be receiving Medicare funds?
Jim is a 37 year old man who lost his job and is unable to afford health insurance for himself or his children.
Ivan is 60 years old and was injured at work. His employer needs to provide temporary income for him.
Rachel is a seventeen year old high school student who is pregnant and needs assistance with her medical expenses.
Rosie is 65 years old and in need of a health insurance program.
4. Rosie is 65 years old and in need of a health insurance program.
Chase has decided to work with a spending plan so he can build up an emergency fund for when he is in college. He learned in class that he could probably reduce his spending the most by looking at his non-contractual (flexible) expenses. Which of his expenses best fit that category?
Cell phone bill, gasoline, and car payment
Internet bill, entertainment, and clothing
Motorcycle payment, food, and cell phone bill
Gasoline, food, and entertainment
4. Gasoline, food, and entertainment
Jenna is wondering how she can improve her financial wellbeing. Which of the following would contribute the most to her financial well‐being?
Take a personal finance class to learn how to manage her money.
Pay her grandma back the money she borrowed to take a school trip last year.
Talk to her friends about how to manage her money better.
Open another checking account to help her organize her money.
Take a personal finance class to learn how to manage her money.
When taking advantage of the time value of money, which of the following is most likely to result in the largest return?
Invest a large principal amount of money and then make no additional investments.
Invest as long as possible and at the highest interest rate possible.
Invest a small amount of money for a short period of time at the highest interest rate possible.
Invest at a high interest rate because interest is the only factor that affects return.
2. Invest as long as possible and at the highest interest rate possible.
Jenny is 21 years old and has applied for credit for the first time. Her credit application was declined because she has no credit history. What would you recommend Jenny do to begin to build a positive credit history?
Jenny should acquire several credit cards to establish that she can manage them responsibly.
Jenny should obtain a secured credit card or have a cosigner for a credit card.
Jenny should re‐apply for the same credit but include a letter of recommendation from someone who knows her well and can vouch for her character.
Jenny should ask her mother to borrow her credit card.
2. Jenny should obtain a secured credit card or have a cosigner for a credit card.
Hannah needs a savings tool to help her manage her everyday purchases. The savings tool needs to be very liquid and accessible. Which of the following savings tools should Hannah choose?
Certificate of deposit
Checking account
Money market deposit account
Any of the above savings tools would help Hannah
2. Checking account
Which of the following best describes the benefits of having insurance?
The policyholder may become better off financially if an accident occurs
Insurance combined with emergency savings provides a sense of financial security and peace of mind
The policyholder no longer has to worry about paying for financial losses resulting from an accident because all risk of financial loss is transferred to the insurance company
It is required by law to purchase insurance so the benefits do not matter
2. Insurance combined with emergency savings provides a sense of financial security and peace of mind
A dependent is a person who:
relies on the taxpayer for financial support
relies on the government for their Social Security benefit check
pays the taxes for all the members of the family
depends on their job for needed financial support to pay their expenses
1. relies on the taxpayer for financial support
Which of the following statements correctly describes the security level of savings tools?
Savings tools are not secure because they have a high risk of losing money
Savings tools are secure because they are protected by the U.S. government against loss
Savings tools are very secure because there are no risks involved with saving or investing
None of the above is true. It would be safer to keep the money at home in a shoe box
2. Savings tools are secure because they are protected by the U.S. government against loss
If a credit card is used properly, what benefits does it have for the cardholder?
The cardholder will pay higher interest rates on other forms of credit
The cardholder will develop a positive credit history
The cardholder will develop a negative credit history
There are no benefits for the cardholder
2. The cardholder will develop a positive credit history
Michael wants to develop a spending plan for himself to use during his final year of high school. What will he need to do as his FIRST step?
Decide what income and spending categories would reflect his values, needs, and wants.
Decide how much money he can spend for each of the bills he pays each month.
Track his current income and expenses. If he has already created an Income and Expense Statement then he has completed this step.
Develop a control system that will work with his lifestyle.
3. Track his current income and expenses. If he has already created an Income and Expense Statement then he has completed this step.
Kaylee will save her allowance of $25 per month to purchase a $150 phone in six months. This is an example of what type of goal?
Short term goal
Long term goal
Education Goal
This is not an example of a goal
Short term goal
The most common relationship between risk and return in investing can be stated as:
higher risk indicates lower return
higher risk indicates higher return
lower risk indicates higher return
No relationship exists between risk and return
2. higher risk indicates higher return
Paying the minimum payment on a credit card every month will:
pay a large percentage of the total balance owed every month
make the final amount paid substantially higher than the amount initially charged to the card
help the cardholder create a plan for paying of a credit card in a decent amount of time
allow the cardholder to avoid paying any interest charges
2. make the final amount paid substantially higher than the amount initially charged to the card
When comparing and contrasting debit and credit cards, it could be said that:
debit cards allow for overspending and credit cards are limited to the amount in the designated bank account
a debit card withdraws money from a designated bank account for immediate payment instead of making purchases on credit
credit cards are not widely accepted by stores but debit cards are
debit cards and credit cards function in the same manner
2. a debit card withdraws money from a designated bank account for immediate payment instead of making purchases on credit
James received his first medical bill of the year. It was a total of $1000. His health insurance policy has a $500 deductible and a 20% co‐insurance. How much of the medical bill will Jade be responsible to pay?
$0, insurance will cover the entire medical bill
$500
$600
$700
3. $600
Bob is working for a bank. He earns $8.00/hr., works 40hrs/wk., and gets paid every two weeks. He pays $63.08 into federal withholdings, $33.21 into state withholdings, and $42.05 into FICA.
What is Bob’s gross income on his paycheck?
$181.66
$363.32
$576.92
$640.00
4. $640.00
Shelley’s net income is $1500 per month and her total expenses equal $1200. What is the minimum amount of money Shelley should keep in the form of liquid assets that are not used to pay for current consumption?
$3600
$4500
$7200
$14,400
1. $3600
Amenities in a rental unit may include which of the following?
Extra insulation
Internet service
Carpet in the bedrooms
Kitchen appliances
2. Internet service
Amanda and Marcus just finished their Income and Expense Statement for last month. They discovered that they have a net gain. What does this mean and what should they do?
Amanda and Marcus are spending more money than they are earning. They need to find a way to balance their income and expenses by spending less on non‐contractual expenses.
Amanda and Marcus are earning more money than they are spending. They could place additional money in savings and/or spend it on other expenses.
Amanda and Marcus are spending more money than they are earning. One of them should consider getting a second job for a time to help boost their income.
Amanda and Marcus are earning more money than they are spending. They should increase spending for non‐contractual items to bring their income into balance with the expenses.
2. Amanda and Marcus are earning more money than they are spending. They could place additional money in savings and/or spend it on other expenses.
One element of a financial goal is missing in the example below. Which one is it?
“I will save $1500.00 by putting aside $150 each month for 10 months…”
Time Bound
Specific
Attainable
Measurable
2. Specific
Elliot’s stock broker is suggesting that he consider investing in a diversified portfolio. A diversified portfolio is desirable because it:
increases the risk/return ratio
limits investors choices to only one or two investment tools
indicates an investor is a good predictor of the return an investment will have
decreases risk by investing money in a variety of investment tools
4. decreases risk by investing money in a variety of investment tools
If a credit card number is used fraudulently, what is the cardholder’s personal liability for the unauthorized charges?
The cardholder has no liability for unauthorized charges
The cardholder’s liability is limited to $50.00 for unauthorized charges if they are reported within 60 days
The cardholder’s liability will vary depending on the amount that was fraudulently charged to the card
The cardholder is liable for all unauthorized charges to the card
1. The cardholder has no liability for unauthorized charges
Depository institutions offer a wide variety of services including:
Checking and savings accounts
Loans and investments
Financial counseling
All of the above
4. All of the above
Brett borrowed money to purchase a vehicle without making a down payment and now he owes more on the vehicle than it is worth. This situation is referred to as:
depreciation
being upside down on the loan
leasing
a hidden cost
2. being upside down on the loan
Bob is working for a bank. He earns $8.00/hr., works 40hrs/wk., and gets paid every two weeks. He pays $63.08 into federal withholdings, $33.21 into state withholdings, and $42.05 into FICA.
What is Bob’s net income on his paycheck?
$501.66
$320.00
$576.92
$640.00
$501.66
Harris is concerned about the effects of inflation on his investment returns. Which statement best describes inflation?
1. The rise in the general level of prices
2. The uncertainty about the return on an investment
3. The number of times something happens to money
4. The projected value of an investment at the end of a specified time frame
1. The rise in the general level of prices
Which of the following is a factor that influences automobile insurance rates?
Health practices
Driving record
Car contents
Car color
2. Driving record
The maximum amount an individual should pay for the purchase price of a home is:
the same amount as his/her annual household income
2 ½ times his/her annual household income
40% of his/her annual household income
there is no limit on the amount an individual should pay for a home
2. 2 ½ times his/her annual household income
Which statement is TRUE of mutual funds?
1. Mutual Funds are speculative investments
2. Mutual Funds are diversified investments
3. Mutual Funds are a form of real estate investment
4. Mutual funds are a collection of stocks from one industry
2. Mutual Funds are diversified investments
Which of the following is NOT included in an individual’s credit report?
Current and past addresses
Employment history
Bankruptcies and foreclosures
Medical information
4. Medical information
Dylan is preparing a presentation about saving and the presentation rubric says that he must include an explanation of compounding interest. Which of the following statements would be the best one for him to include to show that he understands compounding interest?
1. Interest earned on the principal investment
2. Any form of interest earned from saving or investing
3. Earning interest on interest
4. The effect interest has on the total return on investment
3. Earning interest on interest
Tiffany was recently involved in a vehicle accident. In order to get her car fixed, her insurance company is requiring her to pay the first $500 of the repair bill because:
she did not call her agent and report the accident quickly enough
her policy's deductible is $500
she will be reimbursed by the insurance company later
the cost of the repairs is higher than her policy covers
2. her policy's deductible is $500
An individual can decrease the risk of fraudulent use of their credit cards by:
carrying all credit cards in their wallet so they do not get lost
signing the back of card with a signature and “Please see ID”
giving out account numbers over the phone rather than on the Internet
share your credit card number with friends
2. signing the back of card with a signature and “Please see ID”
If a person drives an automobile, they are required by law to have which of the following types of insurance?
Automobile property insurance
Automobile liability insurance
Automobile property and liability insurance
No automobile insurance is required by law
2. Automobile liability insurance