Deck 1: Understanding the Financial Planning Process

Question 1

Defining financial goals is an important first step in personal financial planning process.

Answer 1

True

Question 2

Current consumption is inversely related to saving for the future.

Answer 2

True

Question 3

Tangible assets are earning assets that are held for the returns they promise.

Answer 3

False

Question 4

Financial assets are paper assets,such as savings accounts and securities.

Question 5

A good financial plan completed when one is in their 30s will typically last a lifetime.

Question 6

Financial planning is a continuing,life-long process.

Question 7

Your propensity to consume is the percentage of each dollar of income,on the average,that is spent for current needs rather than savings.

Question 8

Average propensity to consume refers to how much of your money you plan to save in your financial plan.

Question 9

Two persons with equal average propensities to consume will not necessarily have equal standards of living because of differences in income.

Question 10

The cost of raising a child from birth to age 18 is now more than $300,000.

Question 11

Most families find it difficult to discuss money matters.

Question 12

Financial planning can improve your standard of living.

Question 13

About 20% of Americans say retirement planning is their most pressing financial concern.

Question 14

A person who has $2,000 monthly income and spends $1,800 monthly has an average propensity to consume of 90%.

Question 15

Your corporate stock is an example of a real asset.

Question 16

Current consumption effects future consumption.

Question 17

Standard of living is defined as the necessities,comforts,and luxuries desired by an individual or group.

Question 18

The need for financial planning declines as your income increases.

Question 19

The most effective way to achieve financial objectives is through financial planning.

Question 20

A person making $35,000 and spending $30,800 has an average propensity to consume of 80%.

Question 21

A successful financial plan will be based on a person's goals.

Question 22

Financial assets include investments such as stocks and bonds.

Question 23

Short-term goals include things one wants to achieve in a year or less.

Question 24

Money can be an emotional factor that may affect a person's financial plans.

Question 25

Real assets are part of your wealth.

Question 26

Wealth can be defined as the total value of all the things you own.

Question 27

Wealth is the key consideration is establishing financial goals as it is the measure of value in financial transactions.

Question 28

Saving $3,000 for a large,flat-screen TV within the next 3 years is an example of a short-term goal.

Question 29

Your personal value system will shape your attitude toward money and wealth accumulation.

Question 30

Mutual funds are examples of financial assets.

Question 31

Your house is an example of a tangible asset.

Question 32

Employee benefits can typically be transferred to a new job when one changes employers.

Question 33

Spending for your child's private-school education is an example of deferred consumption.

Question 34

Insurance provides a way to make money on unfortunate events.

Question 35

It is possible to draw up one financial plan that will work for most people.

Question 36

Financial planning is a dynamic process.

Question 37

The first step in the financial planning process is to develop financial plans and strategies to achieve goals.

Question 38

Long-term goals are typically for periods of over 6 years.

Question 39

Debt is another word for liability.

Question 40

Utility refers to the amount of satisfaction a person gets from buying certain items.

Question 41

Personal financial management is important because it

A) controls inflation.
B) limits consumption.
C) uses money as an end.
D) makes personal financial goals easier to achieve.
E) lessens economic differences among individuals.

Question 42

A primary determinant of your quality of life is

A) a tax bill.
B) tangible property.
C) wealth.
D) motivation.
E) income potential.

Question 43

Government controls consumers and businesses by regulation and taxation.

Question 44

A personal computer can be very useful in assisting one with their financial planning.

Question 45

For most people working in large firms,employee benefits are an important part of their financial planning.

Question 46

A financial goal that would be important in all stages of the life cycle is creating and maintaining an emergency fund.

Question 47

GDP refers to the total earnings of American workers during a year.

Question 48

The last step in the financial planning process is to

A) develop financial plans and strategies to achieve goals.
B) use financial statements to evaluate results of plans and budgets,taking corrective action as required.
C) implement financial plans and strategies.
D) redefine goals and revise plans and strategies as personal circumstances change
E) periodically develop and implement budgets to monitor and control progress toward goals.

Question 49

Accumulating wealth for later years is called estate planning.

Question 50

Inflation means price levels have declined.

Question 51

The longer you wait to begin retirement planning,the less you will likely have in your retirement fund.

Question 52

Consumers affect businesses by their choices of what goods and services to purchase and by choosing whether they will spend or save their incomes.

Question 53

Consumer choices ultimately determine the kinds of goods and services businesses will provide.

Question 54

The term most closely associated with quality of life is

A) wealth.
B) consumption.
C) education.
D) standard of living.
E) money.

Question 55

Businesses are a key part of the circular flow of income that sustains our free enterprise system.

Question 56

How long you invest is not nearly as important as the rate of interest you can earn on your investments.

Question 57

Liquid assets are stocks,bonds,and mutual funds.

Question 58

The Consumer Price Index (CPI)is the amount of goods and services each dollar buys at a given point in time.

Question 59

Cities with higher costs of living also experience higher rates of inflation.

Question 60

Typically,higher levels of education are rewarded with higher income over the lifetime.

Question 61

Bryon's assets include his furniture,clothing and an automobile.His assets are in which of the following asset classes?

A) tangible
B) financial
C) liquid
D) a and b
E) b and c

Question 62

Employee benefits may include

A) retirement plans
B) health insurance
C) employee discounts
D) tuition reimbursements
E) all of the above

Question 63

Family financial goals should be

A) very general in nature.
B) realistically attainable.
C) individually determined.
D) set once for a lifetime.
E) reserved for retirement planning.

Question 64

The amount of money we set aside for future consumption will be determined by

A) our level of current wealth.
B) how much we currently earn and spend.
C) our education level.
D) the current needs of our family.
E) the cost of life's necessities.

Question 65

Money is

A) the reason for all transactions.
B) a medium of exchange.
C) the purpose of our economy.
D) a medium of consumption.
E) a measure of propensity to consume.

Question 66

A ____ is an example of a real asset.

A) stock
B) bond
C) mutual fund.
D) savings account
E) stamp collection

Question 67

Which of the following goals is stated in a way that is most useful for developing a financial plan?

A) Make a $12,000 down payment on an automobile in 4 years
B) Retire with a comfortable lifestyle in 25 years
C) Buy a $125,000 house in 6 years
D) Purchase a $40,000 boat
E) Join the country club when retired in 20 years

Question 68

Utility refers to

A) the satisfaction you receive from purchasing something.
B) how much money you receive during the year.
C) the total of your spending for the year.
D) the value of your investments at any given time.
E) none of these.

Question 69

Generally,as income rises,the average propensity to consume

A) stabilizes.
B) drops to zero.
C) increases.
D) becomes erratic.
E) decreases.

Question 70

Martha is 80 and has a very high net worth.Her most important financial concern is probably her

A) career.
B) employee benefits.
C) estate.
D) insurance.
E) savings.

Question 71

An example of a liquid asset is:

A) stock
B) cash
C) automobile
D) mutual funds
E) retirement fund

Question 72

Investments are distinguished from savings on the basis of

A) length of time held.
B) initial dollar outlay.
C) depreciation.
D) voting rights.
E) level of risk and expected return.

Question 73

The main reason to do personal financial planning is to

A) minimize overall costs.
B) minimize overall utility.
C) assign monetary value to consumption.
D) maximize overall utility.
E) stabilize overall utility.

Question 74

When setting financial goals,one should typically start by setting

A) short-term goals.
B) Intermediate-term goals.
C) long-term goals.
D) a and b
E) b and c

Question 75

Employee benefits may include

A) health insurance
B) disability insurance
C) life insurance
D) only a and b above
E) all of the above

Question 76

Sam and Lele are in their late 20s with 3 young children.Their most important financial planning concerns would probably include all of the following except

A) asset acquisition planning.
B) liability and insurance planning.
C) retirement and estate planning.
D) savings and investment planning.
E) employee benefit planning.

Question 77

Tax planning is most commonly done to

A) reduce debt balances.
B) change income patterns to avoid taxes.
C) minimize taxes.
D) pay extra taxes.
E) learn the tax code.

Question 78

Becky graduated with a master degree in Personal Financial Planning.After working two years in a small financial planning firm,Becky earns $60,000 annually and saves $10,000 a year.What is her average propensity to consume?

A) 16.7%
B) 25.5%
C) 75.7%
D) 83.3%
E) 95.5%

Question 79

The average propensity to consume refers to the

A) dollars of income spent for current consumption.
B) percentage of income saved.
C) expenditures for the minimum necessities of life.
D) percentage of income spent for current consumption.
E) fact that people with higher incomes spend more for the necessities of life.

Question 80

The most important financial planning for young people concerns

A) career.
B) insurance.
C) investment.
D) taxes.
E) retirement.