Budgeting & Saving
What is it called when your monthly expenses are greater than your monthly income?
Budget deficit.
What is the original amount of money borrowed on a loan called?
Principal.
What does owning a share of stock in a company represent?
Partial ownership in a company.
What is the regular payment made to keep an insurance policy active called?
Premium.
What economic problem exists because resources are limited but human wants are unlimited?
Scarcity.
How many months of essential expenses should you generally have saved in an emergency fund?
3–6 months.
What is the term for property pledged to secure a loan?
Collateral.
What is the primary difference between a stock and a bond?
A stock represents ownership in a company, while a bond represents a loan made to a company or government.
What type of insurance helps replace a portion of your income if an illness or injury prevents you from working?
Disability insurance.
What is a trade-off, and why are trade-offs necessary?
A trade-off is something you give up when choosing another option. Trade-offs are necessary because resources are limited.
What type of savings account typically offers a fixed interest rate in exchange for keeping your money deposited for a specific period?
Certificate of Deposit (CD).
How can having a higher credit score affect the interest rate you receive on an auto loan?
A higher credit score can help you qualify for a lower interest rate, reducing the total cost of borrowing.
What is an employer 401(k) match, and why is it beneficial?
An employer contributes additional money to an employee's retirement account based on the employee's contributions, helping increase retirement savings.
Identify TWO differences between federal and private student loans.
Federal student loans are provided through government programs and generally offer standardized borrower protections and repayment options. Private student loans are issued by private lenders, and interest rates and repayment terms vary based on the lender and borrower's creditworthiness.
A natural disaster destroys a large portion of a state's wheat crop. What happens to the supply curve for wheat?
The supply curve shifts to the left because less wheat is available for producers to sell at each price.
A student earns $2,500 per month but spends $2,750. What is their monthly budget deficit, and what is ONE strategy to eliminate it?
$250 deficit. They could reduce monthly expenses by $250 OR increase income by $250.
Identify TWO strategies someone could use to pay off credit card debt faster.
Reduce unnecessary spending, increase income, and/or make more than the minimum monthly payment.
Why is it financially beneficial to start saving for retirement in your early 20s rather than waiting until your 40s?
Starting earlier gives your investments more time to grow through compound returns, potentially resulting in significantly greater retirement savings.
Why might a job offering a $55,000 salary be financially better than a job offering $60,000?
The lower-paying job might offer more valuable employee benefits, such as health insurance, retirement matching, or paid time off, resulting in a better total compensation package.
Give ONE example of expansionary fiscal policy and explain its intended effect on the economy.
Increasing government spending or lowering taxes. The goal is to stimulate economic activity by increasing demand, potentially creating jobs and encouraging consumer spending.
You earn $3,200 per month after taxes. Your rent is $1,500, car expenses are $500, food is $450, and entertainment is $350. How much money remains, and why should you allocate some of it toward savings?
$400 remains. Saving helps prepare for emergencies, avoid unnecessary debt, and reach future financial goals.
Two people borrow $20,000 for five years. One has a credit score of 750, and the other has a score of 590. Assuming all other factors are equal, who will likely pay more in interest, and why?
The borrower with a 590 credit score will likely pay more because lenders may charge higher interest rates to borrowers with lower credit scores.
A 23-year-old plans to retire in approximately 40 years. Recommend an investment allocation between stocks and bonds (using percentages) and explain why your recommendation makes sense.
85% stocks and 15% bonds. The long investment timeline allows the investor to accept more short-term risk for potentially higher long-term returns. Accept other reasonable allocations with explanations.
Someone has paid for renters insurance for eight years without filing a claim. Explain TWO reasons why canceling their insurance could be a poor financial decision.
Renters insurance can protect personal belongings against covered losses such as theft or fire. It can also provide liability protection if someone is injured and the renter is legally responsible.
During a recession, the federal government increases spending on infrastructure projects. Identify the type of economic policy being used and explain how it could affect employment and consumer spending.
Expansionary fiscal policy. Government infrastructure spending can create jobs, increase workers' incomes, and encourage consumer spending, helping stimulate economic growth.