Deck 1: Understanding the Financial Planning Process

Question 1

Accumulating wealth for later years is called estate planning.

Answer 1

False

Question 2

The need for financial planning declines as your income increases.

Answer 2

False

Question 3

You should discuss your financial goals and attitudes toward money with your partner.

Answer 3

True

Question 4

For employees of large firms, managing employee benefits is an important part of financial planning.

Question 5

Mike's annual income is $45,000, and he spends $30,000 for current needs. Mike's average propensity to consume is 80 percent.

Question 6

It is easy to change your partner's financial style, so there is no need for financial planning to resolve conflicts regarding money matters.

Question 7

Two people with significantly different incomes can have equal average propensities to consume because of differences in their standard of living.

Question 8

Short-term planning should include creating and maintaining an emergency fund with at least 6 months' worth of income.

Question 9

You should limit your spending to no more than 20 percent more than what you earn.

Question 10

When you get your first job, you should make a good financial plan that you can follow without making changes until you retire.

Question 11

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

Question 12

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

Question 13

Financial planning can improve your standard of living.

Question 14

The support of philanthropic organizations is a material item that contributes to our quality of life.

Question 15

Most people tend to be more liberal about their expenditures during a recession or crisis.

Question 16

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

Question 17

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

Question 18

Saving $400 for a large, flat-screen TV within the next 4 months is an example of a short-term goal.

Question 19

The average propensity to consume is commonly viewed as a key determinant of standard of living.

Question 20

Tax plans are closely tied to investment plans.

Question 21

An individual's quality of life is closely tied to his or her:

A) political orientation.
B) charitable contributions.
C) pollution control efforts.
D) standard of living.
E) educational qualifications.

Question 22

Your purchase, saving, investment, and retirement plans and decisions are not influenced by the present state of the economy.

Question 23

Commission-based financial planners charge fees for the financial products they sell.

Question 24

Setting long- and short-term career goals helps in career planning.

Question 25

Living costs are constant throughout the country.

Question 26

The best way to achieve your financial objectives is to:

A) have a luxurious standard of living.
B) spend your money at once to reach your objectives swiftly.
C) develop a sound financial plan.
D) create a good tax deferment strategy.
E) monitor your spending.

Question 27

Personal financial planning is important because it:

A) controls inflation.
B) limits consumption.
C) reduces social disparity.
D) results in an improved standard of living.
E) reduces economic differences among individuals.

Question 28

Geographic factors affect your earning power.

Question 29

Retirement planning includes taking advantage of and managing employer-sponsored benefits.

Question 30

The federal government delegates its regulation of economic activity function to businesses and consumers.

Question 31

Fee-only financial planners charge commissions for the products they sell.

Question 32

Career plans should not be changed after long- and short-term career goals are set.

Question 33

The decisions you make in career planning are independent of the decisions you make in financial planning.

Question 34

A key determinant of an individual's quality of life is his or her:

A) tax bill.
B) financial goals.
C) wealth.
D) motivation.
E) growth potential.

Question 35

Marital status affects the income level of individuals.

Question 36

_____ plans are most  helpful in making decisions regarding retirement.

A) Personal financial
B) Insurance
C) Estate
D) Business
E) Spending

Question 37

In the United States, salaries tend to be higher in the Northeast and West than in the South.

Question 38

Recessions and financial crises will always result in job loss.

Question 39

Financial planning takes place in a dynamic economic environment created by the actions of the government, business, and consumers.

Question 40

Financial planning helps us:

A) control inflation.
B) have flexibility to handle job loss.
C) control unemployment rates.
D) obtain a Social Security number.
E) decrease national debt.

Question 41

_____ is an important part of the conflict resolution process when there are disputes relating to money matters in families.

A) Life-cycle analysis
B) Personality development
C) Financial planning
D) Personal counseling
E) Stress management

Question 42

Which of the following financial goals 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.
D) Purchase a $40,000 boat.
E) Join the county club upon retirement in 20 years.

Question 43

Which of the following statements about money and relationships is true?

A) It is highly possible to change a partner's financial style.
B) One of the most important aspects of marriage is financial compatibility.
C) Money does not cause emotional issues in any relationship.
D) The best way to resolve a money dispute is to avoid such a discussion.
E) Financial planning does not help in resolving conflicts related to money.

Question 44

The purchase of a car is an example of:

A) consuming.
B) investing.
C) saving.
D) deferring.
E) distributing.

Question 45

When setting financial goals, you should typically start by setting:

A) short-term goals.
B) intermediate goals.
C) long-term goals.
D) goals that are not time-bound.
E) goals that are unrealistic.

Question 46

Which of the following statements about setting long-term goals is true?

A) The goals should be very ambitious.
B) The goals should be realistic.
C) The goals should be attained in 6 months to a year.
D) The goals should be easy to meet.
E) The goals should be set and remain unchanged.

Question 47

Personal _____ is a systematic process that considers important elements of an individual's financial affairs in order to fulfill financial goals.

A) conflict resolution
B) financial planning
C) standard of living
D) legal counseling
E) wealth monitoring

Question 48

The purchase of  _____  is an example of the purchase of a financial asset.

A) a home
B) stocks
C) a car
D) jewelry
E) a vacation home

Question 49

The average propensity to consume refers to:

A) the dollars of income spent on luxury goods.
B) the dollars of income saved by an individual.
C) expenditures on the basic necessities of life.
D) the percentage of income spent for current needs.
E) the fact that people with higher propensity to consume earn lower income.

Question 50

Which of the following is a reason for a decrease in the average propensity to consume with an increase in income?

A) The amount of savings decreases, and the consumption of necessities increases.
B) The expenditure on luxury goods increases, and the amount of savings decreases.
C) The expenditure on luxury goods represents only a small portion of income.
D) The amount of savings represents only a small portion of income.
E) The cost of necessities represents only a small portion of income.

Question 51

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 52

The best way for a family to resolve money disputes is to:

A) ensure that only one person in the family makes decisions regarding money.
B) consistently communicate openly about money matters with family members .
C) ensure that individuals do not interfere in other family members' financial matters.
D) use a third party, who is not a part of the family, to settle disputes .
E) maintain confidentiality regarding the reasons behind specific decisions.

Question 53

Financial plans include setting goal dates, which are:

A) dates in the future when the goals are expected to be achieved.
B) dates in the future when the goals will be compared with other goals that have already been achieved.
C) dates in the past when the goals were revised and redefined.
D) dates in the past when the goals were set.
E) dates in the future when the goals will be discussed with family members.

Question 54

One trend with a profound effect on people's standard of living is the _____, which requires greater responsibility to manage money wisely.

A) single-income family
B) two-income family
C) investment family
D) retirement-income family
E) government

Question 55

Stocks, bonds, and mutual funds are _____ assets.

A) physical
B) earning
C) fixed
D) tangible
E) real

Question 56

Which of the following is one of the most emotional issues in any relationship, including that with a partner, parents, or children?

A) Career choices
B) Hobbies
C) Friends
D) Money
E) Retirement planning

Question 57

Money is an important motivator of personal behavior due to its strong effect on:

A) self-image.
B) productivity.
C) relationships.
D) attitude.
E) self-esteem.

Question 58

Becky graduated with a master's degree in personal financial planning. After working for 2 years in a small financial planning firm, Becky earns $85,000 annually and saves $5,000 a year after spending on her current needs. What is her average propensity to consume?

A) 5 percent
B) 25 percent
C) 60 percent
D) 88 percent
E) 94 percent

Question 59

_____ is the net total value of all the items that an individual owns.

A) Wealth
B) Propensity to consume
C) The consumer price index (CPI)
D) Purchasing power
E) Credit debt

Question 60

A carefully developed financial plan should set aside a portion of _____ for deferred, future spending.

A) retirement funds
B) investment funds
C) current income
D) future income
E) tangible assets

Question 61

The financial planning process helps in:

A) increasing assets.
B) increasing debts.
C) reducing utility.
D) reducing financial flexibility.
E) increasing financial risk.

Question 62

Which of the following is an example of a liquid asset?

A) A mutual fund
B) Stocks
C) An automobile
D) Land
E) A savings account

Question 63

Martha is 60 and has a very high net worth. Her most pressing financial concern is probably:

A) asset acquisition planning.
B) liability planning.
C) estate planning.
D) insurance planning.
E) savings planning.

Question 64

Income tends to _____  between the ages of 65 and 80.

A) increase
B) decrease
C) stabilize
D) fluctuate
E) decrease and then increase slowly

Question 65

Estate planning involves:

A) considering how your wealth can be most effectively passed on to your heirs.
B) determining the income you need to maintain.
C) the dissolution of all privately held corporations.
D) the valuation and auctioning of your valuables by hiring a professional tax planner.
E) planning for retirement.

Question 66

Which of the following age groups tends to have the highest income?

A) 18-24
B) 25-34
C) 35-44
D) 45-64
E) 65 and older

Question 67

Managing life, health, and disability insurance is an important part of _____ planning.

A) asset acquisition
B) tax
C) retirement
D) estate
E) employee benefit

Question 68

_____  would be considered real property.

A) Stocks
B) Land
C) Cash
D) Bonds
E) Clothing

Question 69

Which of the following are the three stages of the financial planning life cycle?

A) Wealth accumulation, wealth preservation, and wealth transfer
B) Wealth accumulation, wealth preservation, and wealth depletion
C) Wealth accumulation, wealth conservation, and wealth transfer
D) Wealth acquisition, wealth transfer, and wealth depletion
E) Wealth accumulation, wealth conservation, and wealth maturation

Question 70

Sarah starts investing in an individual retirement account (IRA) at the age of 30 and earns 10 percent for 35 years. At age 65, she will get less returns as compared to those returns if she:

A) starts investing at the age of 25.
B) invests at 12 percent.
C) invests for 45 years.
D) invests up to the age of 60.
E) earns 10 percent for 5 years and then 12 percent for 30 years.

Question 71

Which of the following practices helps an individual survive in a financial crisis?

A) Spending more than his or her earnings to maintain a good lifestyle
B) Investing small amounts regularly to achieve long-term financial goals
C) Establishing an emergency fund with 6 months' worth of income
D) Developing financial plans only after reaching the highest tax brackets
E) Hiring a noncertified financial planner

Question 72

Which of the following practices will help in dealing with unexpected negative "financial shocks"?

A) Purchasing low-utility products
B) Accumulating debt
C) Acquiring assets with low financial value
D) Setting up an emergency fund
E) Planning for retirement

Question 73

_____ is something we owe, which is measured by the amount of debt we incur.

A) An asset
B) An estate
C) A liability
D) Insurance
E) A goal

Question 74

Which of the following will legally reduce an investor's tax liability?

A) Tax evasion
B) Tax shelter
C) Tax penalty
D) Tax accounting
E) Tax portfolio

Question 75

Ben invests $10,000 at a rate of interest of 5 percent for 40 years. Which of the following statements about the return on the investment is true?

A) Ben will receive more money at the end of 30 years compared to the money received at the end of 40 years.
B) Ben will receive more money at a 3 percent rate of interest instead of the existing rate.
C) Ben will receive interest of $5,000 at the end of 10 years.
D) Ben will receive no interest on his investment at the end of the investment period.
E) Ben will receive a significant amount at the end of the investment period, due to the feature of compounding.

Question 76

Which of the following are included in employee benefit plans?

A) Career plans
B) Retirement plans
C) Tax deferment plans
D) Personal asset plans
E) Bankruptcy recovery plans

Question 77

Which of the following statements about investments is true?

A) As income increases, the need for investment planning decreases.
B) Keeping money idle is a form of investment.
C) Higher returns on investment will lead to the accumulation of less wealth.
D) Investment is measured by the amount of debt incurred.
E) The length of time for which money is invested is important.

Question 78

Tax planning is most commonly done to:

A) determine the tax penalty.
B) evade taxes.
C) minimize taxes.
D) pay taxes the person considers to be fair.
E) learn the tax code.

Question 79

In addition to discussing your financial goals with your partner, you must allocate responsibility for _____ tasks and decisions.

A) skill management
B) stress management
C) household management
D) money management
E) business-cycle management

Question 80

Employee benefits may include all of the following EXCEPT:

A) asset purchases.
B) life insurance.
C) child care assistance programs.
D) pension plans.
E) subsidized food services.