personal finance exam - multiple choice questions

making the right choices with your money—managing your money—involves knowing how . . .

earning, budgeting, saving, spending, and giving affect your money

t/f: banks got into the credit business before 1920 because charging exceptionally high interest rates was legal.

false

you should always have a . . .

budget

to gain an understanding of your personal finances, you should know . . .

where you stand financially, how much income you have, what goals you want to set, and how you'll reach those goals.

what is the first foundation?

save a $500 emergency fund

t/f: being a spender has many more positives than being a saver.

false

personal finance is all the financial decisions a(n) _______________ must make in order to earn, budget, save, spend, and give money over time.

individual or family

t/f: avoiding debt can lead to financial freedom and hope.

true

after world war 1, the demand for products increased, and people began getting credit without loan sharks. because of this, credit . . .

started to become more socially acceptable

a money principle to keep in mind is to live on __________ you make.

less than

to know your net worth, subtract your liabilities from your __________.

assets

what is financial literacy?

the knowledge and skill base necessary for people to be informed consumers and manage their finances effectively.

savers have a tendency to be . . .

strict with their money and not spend any of it

what is the best way to avoid running out of money too quickly?

you can put your money in a safe place, like a bank, and not spend it.

t/f: it is possible to pay for college with cash.

true

franklin d. roosevelt passed the new deal because of the great depression in the 1930s. what was the purpose of this program?

to promote economic recovery and social reform

an important money principle to consider is that you should __________ and _________ your money.

save; invest

if your assets total more than your liabilities, you will have a(n) _____ net worth.

positive

what are the five foundations?

a personal financial action plan

your money personality impacts . . .

how you handle money

what does living paycheck to paycheck mean?

living paycheck to paycheck occurs when a person's income is devoted to expenses, which means that little to no money is put in savings.

t/f: you are either only a natural saver or a natural spender. you cannot have a balance of both.

false

In 1972, what association made borrowing money to attend college much easier than it had been?

the student loan marketing association (SLMA)

without any debt, you can be outrageously _________.

generous

when you set financial goals, they should be . . .

specific, measurable, time-sensitive, yours, and written

as a single adult, you should . . .

keep managing money as a priority

personal finance is 20% ___________ and 80% ___________.

head knowledge; behavior

using credit has not always been a socially accepted practice, but it has become . . .

normal in american culture

a _______ financial goal takes up to two years to reach.

short-term

what is the fifth foundation?

build wealth and give

although the majority of americans think budgeting is important, about _____% of americans actually use a budget.

23%

which of the following is NOT a component of a budget?

credit score

t/f: online budgeting apps are more effective than budgeting with pen and paper.

false

what are the four walls?

food, utilities, shelter, and transportation

how many categories should you have in your budget?

no limit; use as many as you need to keep your budget accurate!

how often should you create a budget?

monthly

t/f: if you get married, only one person is responsible for budgeting.

false

what does a budget show you?

how much money you plan to come in and go out during the month

t/f: detailed categories on your budget will help you make better spending decisions.

true

t/f: a budget says what will happen with your money, while a cash-flow statement shows what already happened.

true

how many months does it usually take for your budget to start working as a budget should?

three

your money personality can affect your ________.

attitude toward budgeting

research shows that nearly half of americans (46%) feel stress and anxiety about the amount of _________ they have.

personal debt

going to the movies is an example of what types of expense?

discretionary and variable

t/f: net income is the amount you get paid before taxes.

false

why is tracking your expenses throughout the month important?

it gives you insight into whether you're sticking to the budget you set

what kind of money counts as income?

all money that you receive, including money from your job and gifts like birthday money

what is a way to stay accountable to reaching your financial goals?

finding a person you trust to help keep you on track with your money goals

a common misconception is that budgeting will keep you from having fun, when in reality a budget . . .

gives you permission to spend

the first priority in your budget should be _________.

saving

when is the right time to start creating and living by a budget?

right now - it's never too early!

what should you do if you overspend in one category of your budget?

adjust your budget by removing money from other spending categories

commission is when you make money based on the percentage of __________.

total sales

what is a good way to make sure you're creating a budget that's realistic?

check your calendar so you can plan for upcoming monthly expenses

t/f: the primary reason people don't budget is because they lack the behavior to stick to a budget.

true

t/f: your monthly rent payment is an example of a variable expense.

false

the best way to budget is . . .

the way that works best for you

what is the envelope system?

it's a method of budgeting that uses envelopes labeled with specific budget categories for your cash.

t/f: if you have an irregular income, budgeting won't work for you.

false

why is budgeting so important?

it gives you control of your money and sets you up for financial success in the future

47% of americans have less than $1,000 saved for a(n) ____________.

emergency

you'll have less freedom with your money if you . . .

are paying for things in your past

once you have a $500 emergency fund, you should . . .

save it until you have an emergency

the first step you should take when you want to make a large purchase is . . .

decide how much you'll need to save and the time frame you want to save it in

the best way to build wealth is to start investing early. you should start investing money . . .

once you're out of college, living debt-free, and have 3-6 months of living expenses saved

why do some accounts, like savings accounts at your local bank, earn interest?

because the bank pays you to use your money

it's not IF an emergency will happen, but _________.

when

if you really want to save money, you've got to . . .

live on less than you make

the only place you should keep your emergency fund money is . . .

a savings account or a money market account

t/f: if people saved the equivalent of a car payment each month for a year or two (instead of spending it on payments and interest), they could have enough money to buy a car with cash for much cheaper!

true

which two habits are the most important for building wealth and becoming a millionaire?

always paying off your credit card on time and putting away extra money into a retirement account

the interest rate on a savings account determines . . .

how quickly your money will grow over time

t/f: debt is a tool to use to make you wealthy.

false

t/f: you should budget in this order: giving, savings, spending.

true

__________ is a millionaire's best friend.

compound growth

the purpose of an emergency fund is to . . .

be able to cover an unexpected expense with cash and protect you from having to pile up debt when something goes wrong.

why do stores rarely advertise the full prices of big purchases like smartphones?

by showing you only the monthly payment, they make the product seem affordable

compound interest is earned at a fixed rate, while ______________ is an average based on an investment's past performance.

compound growth

what is the goal of an emergency fund?

to have cash on hand for unexpected events

the main reasons for saving your hard-earned money are . . .

emergencies, large purchases, and wealth building

once you're out of school, have started your career, and have zero debt, your emergency fund should have _________.

3-6 months of living expenses

what is the third foundation?

pay cash for your car

the top three careers reported among millionaires were ______________, _______________, and _____________.

accountants; engineers; teachers

t/f: in order to outpace inflation when investing, your investments need to have a lower rate of return than the rate of inflation.

false

while saving money isn't easy at first, it will make your life a lot ___________ in the future if you make it a habit now.

easier

t/f: most millionaires make over $100,000 a year.

false

which of these would count as a legitimate reason to use your emergency fund?

your car battery died

the amount of interest charged on a debt but not yet collected is called . . .

accrued interest

one of the main reasons we build wealth is so that we can

give to those in need

which principle says that a certain amount of money today is worth more than the same amount in the future?

the time value of money

something that credit card commercials don't show you is . . .

people making payments for months or years on those credit card purchases

t/f: when a homeowner takes out a home equity line of credit (HELOC), that loan can only be used for home repairs and renovations.

false

bank lenders use credit scores to determine . . .

the likelihood that someone is able to repay debt

making purchases with a credit card means that you're borrowing money with interest, and ____________ pay much higher interest rates.

young people

t/f: when you finance a new car, you will end up paying more than the sticker price.

true

t/f: while it may not always appear so, the majority of americans live paycheck to paycheck.

true

your greatest tool to building wealth is ___________.

your income

_______________ require the borrower to put up collateral for the loan.

secured loans

which of the following is part of the formula that determines a persons FICO score?

their history of payments made to lenders

t/f: there are certain things, like renting a car or booking a hotel room, that you cannot do without having a credit card.

false