SFL 260 Final Exam Review

What are the three things that the textbook wants everyone to remember?

Life is hard! But you can do hard things!

When things don’t go as planned don’t get frustrated, make the best of it!

TTT: Things take time

The primary purpose of SFL 260: Family finance is to teach you to

Magnify your financial stewardship

Use prudent financial management to bless yourself, your family, and others

Family Finance can generally be viewed in two ways, either from an eternal perspective or from the world’s __________ perspective

Materialistic

Which is NOT one of the 4 why’s when it comes to studying family finance?

1. community: to contribute to the economic development of your community

2. Family: To return with your family back to Heavenly Father’s presence

3. Individual: To accomplish your divine mission

4. Spiritual: To bring you to Christ

5. Temporal: To help you become a wise steward

1. Community: To contribute to the economic development of your community

True or false: According to the principle of ownership, everything you have is jointly owned by you and by God.

False

Everything which we own is fully owned by God.

According to the principle of Stewardship, attaining material success is _______

A blessing which should be seen as a responsibility to bless others

What is the name of the excellent website developed by the Marriot School of Management that has lots of great information about personal and family finance?

personalfinance.byu.edu

According to Robert D. Hales, what are the four most caring words?

We can’t afford it

True or false. According to the teachings of the Church, it is best to finance your education through loans rather than paying as you go.

False

True or False, as a faithful member f the Church, you should account for tithing when considering how large a house payment you can afford. You may not be able to afford as much of a house payment as someone who does not pay tithing.

True

True or false. Generally, using a home equity loan to finance an exotic family vacation that will make memories to last a lifetime is a good use of your hard-earned credit

False

True or false. It is not wise to invest in 401K retirement plan early in your career. Even if your company offers a match, because retirement is so far away.

False

True or false Term life insurance is less expensive per month than whole life insurance.

True

True or false. You should generally be transparent in your financial communication with your spouse. Both you and your spouse should have knowledge of family income, expenses, investments, and debt. You should not hide significant assets or liabilities from one another.

True

Which of the following is important to teach our children to help them become responsible stewards?

1. How to create a budget

2. Hard work

3. Obtaining as much education as possible

4. Saving and sacrificing for what they need (and want)

All of the above

According to our text, what was the effect of inflation compared to?

Clothes moth

What was the annual rate of inflation in 2017

2.1%

Assuming similar returns to the past few decades, what would be the value of $10,000 invested for 50 years in a safe government bond mutual fund vs. a broadly diversified stock market fund?

$100,000 (bond mutual fund); more than $1,000,000 (stock market fund)

According to the statement attributed to Albert Einstein, what is the eighth wonder of the world?

Compound interest

True or false. The nominal return is the return on an investment after the impact of inflation and taxes is taken into account,

False

What is the formula for interest earned or interest paid?

I = P*R*T

In Time Value of Money calculations on your calculator, “PV” stands for:

Present Value

In Time Value of Money calculations with a financial calculator, “I” stands for:

Annual interest percentage rate expressed as a whole number (e.g., 7.5% = 7.5)

TVM problems with recurring payments utilize which function on the financial calculator?

PMT

True or false. Opportunity cost is the potential loss or gain that occurs when one financial option is chosen over another. It applies to more than just finances.

True

Which of the following are examples of family financial statements which should be used?

Budget

Income and expense statement

True or false. Even though almost all financial transactions are electronic, you should print off and keep a paper trail of all financial statements.

False

True or false. According to this chapter, passports, even expired passports, should be kept forever.

True

All of the following records except ________ should be kept for at least seven years.

ATM receipts

income tax returns

medical receipts

tithing receipts

ATM receipts

Where is a safe deposit box generally located?

In the vault at your bank.

True or false. An income and expense statement is a forward-looking record of your family’s projected cash inflows and outflows for some period of time, usually the upcoming month or year.

False

All of the following expenses except ______ are considered variable expenses.

Food

Clothing

Entertainment

House payment (principal and interest)

House payment (principal and interest)

True or false. The formula for family net worth is the current market value of family assets MINUS family liabilities (usually debt)

True

On the family net worth statement, assets (such as clothing, automobile, furniture, electronics) should be valued at:

Current market value

On the family net worth statement, what part of a credit card balance should be included under liabilities?

The current outstanding balance on that day

What is the “bottom line” of a family balance sheet (or net worth statement)?

Net Worth

True or false. Monthly rent is always considered a liability when calculating one’s net worth.

False

True or false. A family budget is a spending plan to meet future needs and wants in harmony with available family income

True

Which is the first step for the ongoing and interactive process of effective budgeting?

Set goals to address family needs and wants

What is the acronym that describes good family financial goals?

SMART

What important category is often overlooked in a budget? (In fact, you should avoid NOT having this category like the plague.)

Miscellaneous

What is “MAD money?”

A certain amount of money allocated to each spouse each month that they can spend however they want, without accounting to the other spouse.Ac

According to the acronym H.A.L.T., you should avoid making financial decisions when you are:

Hungry, Angry, Lonely, or Tired

The best way to budget is to:

Pay the Lord first and then pay yourself

Monetary assets refer to:

Financial resources that are legal tender (cash) and/or can be converted to legal tender very quickly (liquid assets)

The general rule of thumb for a family emergency fund is to have sufficient liquid assets to cover ________ of family expenses.

3-6 months

William read in SFL 260 that he should avoid bouncing checks like the plague. He learned the hard way just how true this is. When he wrote a $7.50 check to Subway he only had $6.00 in his checking account and his check bounced. He was astounded at the total cost of this first bounced check, If this cost was the same as the national average, what did William pay for bouncing his first check?

About $30

True or false. Credit Unions are owned by their members, rather than stockholders.

True.

What type of savings account is a very safe time deposit for a specific period of time (generally 3 months to 5 years), has guaranteed rate of return, generally has a higher interest rate the longer the time period, and has an interest penalty if you withdraw early?

Certificate of Deposits (CDs)

Some advantages to using a commercial bank include:

Face-to-face contact

Free cookies

Onsite services

Please match the following questions with their corresponding criteria for comparing financial institutions.

Consideration

Does the institution offer personalized financial advice and give attention to detail?

Please match the following questions with their corresponding criteria for comparing financial institutions.

Security

Are accounts insured by the FDIC or NCUA?

Please match the following questions with their corresponding criteria for comparing financial institutions.

Convenience

What is the availability of branches and ATMs?

Please match the following questions with their corresponding criteria for comparing financial institutions.

Cost

Are there minimum balances required?

In today’s economy, what is/are perhaps the most important criteria in choosing a bank?

Number and proximity of the bank’s ATMs (Convenience)

As joint depositors, you and your spouse have two savings accounts (one with a balance of $250,000, and one with a balance of $350,000) deposited in the federally insured Hill-Mulford Family Bank. This bank has failed and has nothing left because it paid interest rates that were too high. Altogether how much money will you and your spouse receive from the Federal Deposit Insurance Corporation (FDIC)?

$500,000

True or false. Credit unions are owned by their members and do not need to make a profit. Therefore, they offer higher rates on savings accounts and lower rates on loans then commercial banks.

True

President J. Reuben Clark Jr. once warned that “Once in debt, _______ is your companion every minute of the day and night, you cannot shun it or slip away from it … and whenever you get in its way or cross its course or fail to meet its demands, it crushes you…”

Interest

According to Church leaders, what are potentially legitimate reasons for which debt may be incurred?

Loans to purchase a basic automobile

Mortgage to purchase a modest home

What is the name of a three-digit numerical evaluation of your credit that has a lot to do with whether or not you will qualify for a loan and/or what the interest rate will be on that loan?

Credit Score

Which is NOT one of the five “C’s” of credit?

1. Capital

2. Character

3. Conditions

4. Collateral

5. Consideration

Consideration

When you combine the total personal debt in the United States with the national debt of the United States, how much debt is there for each person in the United States?

About $120,000

True or false. It may be useful to obtain and use a credit card in order to build a credit history and raise your credit score to enable you to qualify for a home mortgage at the best interest rate when the time comes to buy a home.

True

True or false. One advantage of a credit card is that consumers tend to purchase less than they would if paying cash.

False

What is (are) cardinal (rule)s when using credit cards?

Paying off the credit card on time, every month.

Keep track of spending as you go.

For a grace period to apply on a credit card:

The statement balance must be paid in full every month.

True or false. Secured loans use one of your assets, such as a car or boat, as collateral to guarantee that the lending institution will get their money back even if you fail to make payments.

True

True or false. It is usually advisable to use some savings to pay off high-interest debt (e.g., credit cards). However, you should also retain sufficient money for a basic emergency fund.

True

True or false. Borrowing from friends and relatives can be less expensive than borrowing on the open market and may be appropriate if it is a good deal for both parties, everything is put in writing, and it is treated like a real loan (e.g., when overdue there is follow up).

True

True or false. Installment loans are also known as balloon loans. Normally, these loans are used for short-term lending of one year or less. This type of loan is repaid in one lump sum, including interest, at the end of the specified term.

False

True or false. If your credit score is in the top quartile you will usually pay less interest if you get a loan than if your credit score is in the lowest quartile.

True

Which FICO credit score would be evidence of excellent credit?

486

649

757

880

1000

757

True or false. The majority of individuals in the United States have a FICO score between 300 and 680.

False

Which of the following is the greatest contributor to your FICO score?

• Payment history

• Amount owed

• Length of credit

• New credit

• Net worth

Payment history

True or false. As far as your FICO credit score is concerned, it would be better to get a loan to buy a car than to pay cash for a car (as long as you are always on time with your payments).

True

What is the most ideal “amount owed” on credit cards in relation to the sum of your “credit limits” in order to maximize your FICO credit score?

15% or less

True or false. You can potentially improve your FICO credit score by paying off your credit cards several times a month (instead of just once a month).

True

In order to maximize your credit score, when you no longer need a credit card (without an annual fee) you should:

Leave the account open

Shred the credit card

True or false. If you are married and apply for a mortgage to a home, both your credit score and your spouse’s credit score are considered.

True

True or false. It is always true that you should pay off your smallest debt first as you embark on debt elimination through a debt-elimination calendar.

False

According to the textbook, what should be your goal as a taxpayer?

Minimize the amount of money you owe in taxes in order to maximize your resources to enhance financial stewardship.

How and when did the United States federal income tax become legal?

The passage of the 16th amendment to the United States Constitution in 1913.

An excise/quantity tax is associated with what kind of tax?

Tax on purchases

Taxes are typically the largest single annual expense for most families.

True

Social security and income taxes are considered taxes on:

earnings

Annual SALT expenses are limited to what amount?

$10,000

What is the first step in calculating one’s federal income tax?

Subtract adjustments to income from gross income to get adjusted gross income (AGI).

True or false. Wages, business income, dividends, alimony received, and gambling winnings are all included in one’s gross income.

True

True or false. To calculate taxable income, you subtract the sum of the standard deduction plus the itemized deductions from the adjusted gross income (AGI).

False

Which expenses are totally deductible as itemized deductions on your federal income tax form?

1. Charitable contributions (including tithing)

2. Qualified Home mortgage interest for first and second homes for mortgages less than $750,000

3. Medical expenses

Charitable contributions (including tithing)

Qualified Home mortgage interest for first and second homes for mortgages less than $750,000

True or false. Calculating your tax liability is easy! You always multiply the taxable income times one (and only one) tax rate and you’ll have the answer.

False

What is the marginal tax rate?

The rate at which the next dollar of income is taxed

True or false. Tax credits are of greater worth than tax deductions.

True

Which is (are) examples(s) of tax credit(s)

• Education tax credit

• Child tax credit

• Family tax credit

All of the above

Pam and Jim have been married happily for 30 years and have enjoyed a long, debt-free life together. As they approach retirement, they are grateful for a very important tax strategy once taught to them in their SFL 260 class which has allowed them to reduce their lifetime income tax burden more than any other. This wisdom came from Dr. Hill’s greatest financial mistake. Which tax strategy are they remembering?

Investing in a Roth 401K and/or Roth IRA instead of a traditional 401K and/or traditional IRA.

Which tax credit would yield the greatest financial benefit to a married BYU student earning $19,400 per year with three children?

Earned income tax credit

True or false. If your employer does not withhold sufficient taxes from your paycheck you could pay a penalty to the IRS.

True

True or false. As far as your final tax due or refund goes, it is advantageous for a baby to be born at 12:01 am. on January 1, 2017 rather than two minutes earlier at 11:59 pm on December 31, 2016

False

True or false. A tricky, but acceptable strategy to reduce your taxes (between $1,000 and $5,000 every other year if you are in a 22% marginal tax rate) is t itemize your deductions every other year. In this strategy, you pay double tithing in one year, and then no tithing the next.

True

On which income tax form do you report your itemized deductions?

1040 Schedule A