Deck 1: Understanding the Financial Planning Process

Question 1

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

Answer 1

True

Question 2

Financial planning can improve your standard of living.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

Current consumption effects future consumption.

Question 5

The need for financial planning declines as your income increases.

Question 6

Financial planning is a continuing,life-long process.

Question 7

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

Question 8

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

Question 9

Current consumption is inversely related to saving for the future.

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

Mutual funds are examples of financial assets.

Question 16

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

Question 17

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

Question 18

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

Question 19

Most families find it difficult to discuss money matters.

Question 20

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

Question 21

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

Question 22

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

Question 23

Insurance provides a way to make money on unfortunate events.

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

Debt is another word for liability.

Question 30

Financial assets include investments such as stocks and bonds.

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

Your house is an example of a tangible asset.

Question 39

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

Question 40

Financial planning is a dynamic process.

Question 41

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 42

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 43

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

Question 44

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

Question 45

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

Question 46

Financial planning can help us to

A) control inflation.
B) spend wisely.
C) control unemployment rates.
D) a and b.
E) a, b, and c.

Question 47

The government employs monetary and fiscal policy to ensure the economy always remains stable.

Question 48

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

Question 49

Government controls consumers and businesses by regulation and taxation.

Question 50

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

Question 51

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

Question 52

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

Question 53

The financial crisis of 2008 and 2009 was the first depression the U.S.has experienced in 75 years.

Question 54

A strong economy leads to higher levels of employment.

Question 55

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 56

Accumulating wealth for later years is called estate planning.

Question 57

Inflation means price levels have declined.

Question 58

High interest rates after the financial crisis of 2008-2009 reflect the Federal Reserve's efforts to tighten,or reduce,the money supply.

Question 59

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

Question 60

An economic contraction usually begins after a trough is reached.

Question 61

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 62

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 63

Generally,as income rises,the average propensity to consume

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

Question 64

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 65

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 66

A primary determinant of your quality of life is

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

Question 67

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 68

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 69

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 70

Employee benefits may include

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

Question 71

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 72

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 73

The most important financial planning for young people concerns

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

Question 74

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 75

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 76

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 77

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 78

The term most closely associated with quality of life is

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

Question 79

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 80

Estate planning involves

A) considering how your wealth can be most effectively passed on to heirs.
B) payment of all back taxes.
C) dissolution of all privately held corporations.
D) valuation and auctioning of your valuables.
E) planning retirements.