Financial Literacy Review

Ms. Kohl 2012-13Answer in True or False format

Budgeting

1. Budgeting only deals with matters of personal spending

False – Budgeting is a plan to manage income, spending and saving.

2. There is gross income and net income. The difference between the two is that net income is gross income minus payroll deductions.

True - Net income is what is left over after various payroll deductions, including insurance, taxes, etc.

3. Dave makes $400/week. After deducting $60 for federal taxes, $25 for state taxes, and $25 for FICA (Social Security), Dave’s net pay is $300.

False - Dave’s total deductions = $110. $400 - $110 = $290

4. Centoria has a mortgage payment, a car payment, and insurance payments for both every month. These are examples of variable expenses.

False - These are examples of “fixed” expenses.

5. Variable expenses are items such as restaurant expenses, going to the movies, and food.

True - These are expenses that can be “trimmed” to better fit a budget

6. A good example of a long-term goal is saving to take your “special someone” out for a nice dinner for their birthday.

False - A good example of a long-term goal is saving for your child’s education.

7. “Net worth” is determined by your gross income minus taxes.

False - Your “net worth” is your total assets minus your total liabilities.

8. Mr. Ursa pays $1160 total for car insurance for a period of 8 months. This is an example of a periodic expense.

True - Items such as insurance payments can be considered “periodic” as long as they aren’t set by the terms of the policy to be monthly payments.

9. Some good rules to follow for your financial life are get an education, spend less than you earn, and create a budget that includes savings and sound financial investments.

True – Makes sense, doesn’t it?

10. If you are saving for a down payment on a condo and want to do it within a three-year span, it is considered a minimum payment.

False – Saving for a down payment on property is considered a good short-term goal to achieve.

11. When you have a budget, you are spending as little as possible all the time.

False - When you are budgeting you are planning how to manage your income, saving, and spending.

12. A good example of a liability is a financial obligation that must be paid.

True - PAY YOUR BILLS!!!!

13. A good example of an asset is a $200 pair of shoes.

False - Nah, I don’t think so. A good example of an asset that has good economic value as collateral.

14. What is left after you subtract your liabilities from your assets is known as net income.

False - After you subtract your liabilities from your assets, you have your “net worth.”

Economic Questions

15. A good example of “human capital” is knowledge and skills.

True - The knowledge and skills you can contribute to the workplace are good “human capital.”

16. FICA deductions are contributions to Social Security. Only the employee makes FICA contributions.

False - Both the employer and employee make FICA contributions.

17. When enough resources are not available to provide all the goods and resources people want, this is a good example of scarcity.

True - Scarcity, by definition, means there is a finite amount of something available.

18. The term PACED means Problems Are Certain Excruciating Death.

False - PACED means develop a Plan, Align goals, Compare goals and plan, Evaluate, and Decide.

19. A good example of a human resource is a computer.

False – An excellent example is a computer programmer.

20. Ms. Kohl loves to play volleyball and read but has a ton of homework to grade, so she does that. Her “opportunity cost” is that she fulfills her obligations and gets her work done instead of relaxing.

True - You don’t get something for nothing. In this case, she gives up the opportunity to relax to work instead.

21. The largest part of income earned is interest.

False - The largest part of income earned is wages.

22. Scarcity comes about when people want more goods and services than are available.

True - Again, the word “scarcity” means there is not an infinite amount of anything available, whether it’s goods, services, or manpower.

23. When problem solving, the first three steps are identify goals, list criteria, and list alternatives.

False - The first three steps in the Problem-Solving Model are identify the problem, list alternatives, and evaluate.

24. The opportunity cost for saving for the future is the goods and services you can purchase now.

True - Again, you don’t get something for nothing. If you want to save for the future, you have to give up some spending in the present.

Banking Services

25. When you use your debit card for a purchase, it is most like using a loan.

False - Using your debit card is most like using cash.

26. If you want to cash your paycheck, the best place to cash it would be at a 7-11.

False - The best place to cash your paycheck would be at a bank where you have an account.

27. The FDIC (Federal Deposit Insurance Corporation) insures accounts such as your checking and savings accounts.

True - The FDIC will not insure accounts such as a mutual fund or stock portfolio.

28. When funds are channeled through an intermediary from savers to borrowers, this is done through institutions such as stock markets, banks, and credit unions.

True - These institutions take from a pool of funds for a variety of financial services.

29. Salih has a balance in his checking account of $25. He uses his debit card to purchase a Snickers bar and a Red Bull, the purchase totaling $4.50. The balance in his checking account is now $19.50

False - $25.00 - $4.50 = $20.50

Let’s Talk About Credit

30. The annual percentage rate (APR) is the amount of credit a customer has for a period of one year.

False - The APR is the amount of interest charged, expressed as a % per year, for the use of the credit card.

31. If you are applying for a credit card with an APR of 14%, this means you have to pay 14% interest per year for use of the credit.

True - You are paying 14% interest per year for the use of the credit. The higher the balance at the end of the term year, the more APR you will be paying.

32. If Norberto lends Juan Carlos $200 for a period of six months and, at the end of the term, Juan Carlos is supposed to pay the amount, then Juan Carlos is the lender and Norberto is the borrower.

False - When you lend someone money, you are the lender and the person who receives the money is the borrower.

33. If you choose a 15-year mortgage instead of a 30-year mortgage, your monthly payment is higher but the interest is lower.

True - The longer you take to pay off a loan, the more interest you will pay.

34. Credit bureaus exist to track the bill-paying habits of consumers.

True - Credit bureaus such as Equifax track your spending and bill paying records.

35. If someone wants to obtain credit to buy a car or loan, things such as number of credit cards, occupation, and income are important when deciding whether to loan them the money.

True - The amount of money you do or do not owe, along with your income and occupation, are important when creditors are deciding on lending you money.

36. A written record exists of a borrower’s bill paying habits. Another name for this is a collection report.

False - This is what is known as a credit report.

37. A high FICO score means a person is highly likely to repay borrowed funds.

True - A high FICO score means you have a good credit rating and have a good record of paying your debts.

38. A credit card is an example of an installment plan.

False - A credit card is an example of revolving credit.

39. The price associated with using someone else’s money is known as borrowing.

False - The price associated with using someone else’s money is known as interest.

40. If you have an open-ended credit account, the smallest payment you can make in any given month is known as the minimum payment

True - Every open-ended credit account, if you have a balance, has a minimum monthly payment on the balance.

41. The interest paid on unpaid credit balances is the installment payment.

False - The interest paid on unpaid credit balances is the finance charge.

42. A payday loan company would likely charge the highest interest rate for a loan.

True - Better off going to a savings and loan or a commercial bank.

43. One of the benefits of credit is that it helps people increase their liabilities.

False - Nothing beneficial about that. It helps people but a good or service now and pay for it later.

44. Your FICO score is a password that helps you access a credit agency to find out your credit rating.

False - Your FICO score is a number procured from your credit history that tells a lender if you will be reliable in paying borrowed funds.

45. Some of the factors that determine your credit score are whether bills are paid on time, the amount owed on all accounts, the number of credit cards, and number of years a person has had credit.

True - Your ability to pay bills on time, how much you owe, the amount of years you have credit, and how many credit cards all affect your credit score.

46. If you are shopping for a credit card, it is best to look for things such as a low annual percentage rate, low penalty fees, no annual fee, and interest calculated on the average daily balance.

True - You want to pay a low APR, as few fees as possible, and as little interest as possible.

Stocks and Bonds

47. Some of the differences between stocks and bonds are that bonds are a riskier investment but stocks could possibly pay a higher return on investments.

False - Stocks are a much riskier investment than bonds, but it is true that stocks could possibly pay a higher return on investment.

48. Bonds that pay you interest in increments are known as coupon bonds.

True - “Coupon” is an indicator that interest is paid in increments as opposed to at the end of the bond’s maturity.

49. The value of a stock can change due to price and demand as well as economic conditions.

True - Economic conditions, both in this country and worldwide, along with price and demand, all affect a stock’s value.

50. Municipal bonds are a loan to banks so they can lend that money to their clients.

False - Municipal bonds are a loan to a local government for the purpose of civic improvements, such as road repairs and development projects.

51. The rules to follow when “playing” the stock market are “buy low, sell high.”

True - The object is to make money. The best way to do that is buy a stock when the price is low, then sell it for a profit when it reaches a high point in value.