Foundations in Personal Finance- Chapter 1 Study Guide

Key components of financial planning include all of the following except:

a) Replace money myths with money truths

b) Regularly monitor and reassess your financial plan

c) Write out a detailed plan for accomplishing your goals

d) Allow your financial planner to make all of your major money decisions

D

The widespread financial insecurity of Americans is primarily because:

a) Most Americans save a high proportion of their income

b) The saving rate of Americans is low and many borrow in order to spend more than they earn

c) Government programs are unavailable to help people when they are disabled or experience unemployment

d) The incomes of Americans are low

B

Which of the following best explains why students should learn about personal finance?

a) Personal finance skills are highly complex and require a great deal of time to learn.

b) Learning to manage money at this stage can eliminate financial mistakes and promote huge financial benefits for the future.

c) Personal finance skills are better learned through trial and error.

d) Learning to manage money will help you achieve a profitable career.

B

When it comes to personal finance, the math is easy. What's challenging is managing your ____.

behavior

When it comes to managing money, success is about _____% knowledge and _________% behavior.

20,80

Which of the following is not a reason credit is marketed heavily to consumers in the United States?

The use of credit is not socially accepted in the United States

Which of the following is not a factor in becoming money smart?

Learn how to read your credit card statements

Which of the following statements best describes how Americans are being outsmarted by banks and other lenders?

Credit is marketed so well that we desire to have it while completely dismissing the fact of interest rates and fees continue to destroy our financial well-being.

Personal financial success is primarily the result of:

Managing your money behavior

Which of the following is not a benefit of understanding your own money personality?

Knowing your money personality allows you to excuse excessive spending because it is simply part of nature

During the Great Depression, New Deal policy makers came up with mortgage (home loans) and consumer lending policies that convinced commercial banks that:

Consumer credit could be profitable

Which of the following is a consequence of spending more than you make?

a) A cycle of Debt

b) Missed opportunity to save and invest

c) stress

d) all the above

D

Which of the following statements best explains why income alone does not determine wealth?

How much money a person makes does not dictate his or her spending and saving behavior

Which of the following is not a true statement?

The credit industry in America has not changed much since 1917.

Why was the use of credit uncommon prior to 1917?

a). Laws prevented lenders from charging high interest rates

b). Borrowing money was generally not socially acceptable

c). Lending money to other was not profitable

d). All the above

D

Having debt keeps you from building wealth.

True

True financial security is achieved when your money begins to generate an income-your money starts working for you.

True

Most Americans today are wealthy and will have financial security when they retire.

False

The credit system today is structured to accommodate a state of uncertain employment and income stability, utilizing high interest rates and fees to turn huge profits.

True

Everyone should have the same financial plan. A budget that works for one person should be sufficient for everyone.

False

Learning the language of money is not that important because you will be able to depend on financial planners to manage your money.

False

Expensive houses and new cars are a true indication of wealth.

False

Most Americans avoid the use of credit when it comes to buying big-ticket items like a car or furniture for their home.

False

When developing a personal financial plan, one of the first things you should do is assess your current financial situation. This includes your income, assets and liabilities.

True

Since you are a teenager, what you do now with money will have little effect on your financial future.

False

An obligation of repayment owed by one party to a second party

debt

A person or business that offers loans at extremely high interest rates

loan shark

A fee paid by a borrower to the lender for the use of borrowed money

interest

A person or organization that uses a product or service

consumer

The granting of a loan and the creation of debt; any form of deferred payment

credit

The knowledge and skillset necessary to be an informed consumer and manage finances effectively

financial literacy

A period of temporary economic decline during which trade and industrial activity are reduced; generally identified by a fall in a gross domestic product

recession

A debt evidenced by a ʺnote,ʺ which specifies the principal amount, interest rate and date of repayment

loan

A system by which goods and services are produced and distributed

economy

All of the decisions and activities of an individual or family regarding their money, including spending, saving, budgeting, etc.

personal finance