Review 1
Imagine that you stop at a nearby coffee chain and purchase a $5 coffee every morning on your way to work. You do this 5 days a week for 50 weeks out of the year. While it may seem like a small expense each day, this habit can add up and affect your personal finances. How much would this habit cost you over the next five years?
A. 6,250, B. 3, 750 C. 1,250 D. 12, 500
6,250
You decide to get a loan for a new house. You choose to lock in your loan with an interest rate of 5.25 percent. You buy your house and are happy with the purchase. Five months later, the interest rates drop to 3.5 percent. You realize that you could have waited to get a better deal. What does this scenario BEST demonstrate? A. Inflation Risk B. Personal Risk C. Interest Rate Risk D. Income Risk
Interest Rate Risk
Years ago, your grandfather gave money to a friend who wanted to start a grocery store. As the grocery store earns profits, this friend gives a share of the profits back to your grandfather. Your grandfather has nothing to do with the grocery store, but he still earns money as a silent partner in the business. What type of income is this known as? A. Inheritance Income, B. Investment Income C. Passive Income D. Earned Income
Passive Income
Families should avoid using shared decision-making at all times. True or False
False
Renee and Daniel, who are currently both working full-time jobs, are preparing for Daniel’s mother to move in. As his mother will require a great deal of care, they are trying to decide if they are both going to keep working. What benefit will they MOST LIKELY experience if they choose a single-income option?
They will have more time to manage his mother's care.
Interest rate risks would be most relevant to what purchase?
a house
Miguel choose to save for a car instead of traveling around Europe with friends. Though he was sad to miss the trip, he knew it was necessary if he wanted the car. What does this scenario BEST demonstrate?
opportunity cost
Roberta thinks that she should store all of her savings under her mattress. Her son Micah wants her to invest the money. He tells her that when money is invested or saved in an account earning interest, that sum increases in value over time without the owner doing anything. What concept is Micah trying to teach Roberta?
the time value of money
As we age, the number and complexity of the financial decisions we make increases
True
What is likely to be TRUE about making financial decisions as people get older?
Financial decisions become bigger and more complex.
Adalaide is considering switching cell phone plans. Though the new plan is slightly more each month, she’ll be able to get a new phone sooner. When making this financial decision, what should Adalaide keep in mind?
Both small and large financial decisions can influence your financial health.
Caroline bought a fancy new car. Within six months, she had to take the car in for repairs four times, each repair costing more than $1000. What type of risk does this BEST represent?
personal risk
Mark and Trina just got married. They both struggle to manage money and have decided to start taking more responsibility when it comes to their finances. They want to start financial planning. What is the FIRST step they should take in the financial planning process?
Look honestly at their current financial situation.
What is generally TRUE about earning an income?
Someone with greater skills in a particular area will often command a bigger income than those with less experience.
Which type of financial risk happens when the prices of things rise and fall?
inflation risk
When using the process of shared decision-making, what strategy should families be sure to include?
discussion
What is a disadvantage of shared decision making?
creating competition between individuals who want to “win” the decision
Yolanda and Chris have been doing well developing their financial plan. They have looked at their current resources, identified short- and long-term financial goals, and identified potential goals. They are not sure what they need to do next. What is the BEST action for them to take in order to continue the financial planning process?
Decide on a course of action and begin implementing their chosen paths to the goal.
When making a financial decision, what should be left out of the process whenever possible?
emotion