Deck 1: Overview of a Financial Plan

Question 1

Using a credit card to cover an unexpected expense is an example of using an emergency fund.

Answer 1

False

Question 2

Many people who believe they have strong personal finance skills do not really understand some basic personal finance concepts.

Answer 2

True

Question 3

The Financial Planning Standards Council (FPSC)is a profit-oriented organization created to benefit the public with regards to financial planning.

Answer 3

False

Question 4

The per capita debt of Canadians has multiplied by more than five times since 1981.

Question 5

Financial advisers are in demand because most people lack understanding or are not interested in making their own financial decisions.

Question 6

The Financial Planning Standards Council (FPSC)sets out the steps needed to earn the Certified Financial Planner (CFP)designation.

Question 7

A complete financial plan consists of budgeting,tax planning,financing,and investing.

Question 8

You must be employed before you can establish a credit rating.

Question 9

Money management decisions include deciding what credit limit you should apply for on your credit card.

Question 10

An emergency fund is not a component of a long-term financial plan.

Question 11

If you do not have access to money to cover your cash needs,you may have insufficient liquidity.

Question 12

The first step in budgeting is to evaluate your current financial position by determining your net worth.

Question 13

An example of an opportunity cost is the cost of tuition while attending college or university instead of the hourly rate you could earn from being employed.

Question 14

A good example of a personal financial goal would be planning to purchase a home one day.

Question 15

Your financial plan should include a plan for protecting your assets and income through insurance coverage.

Question 16

An understanding of personal finance is necessary to judge the quality of advice that a financial adviser may give.

Question 17

A car accident which is not fully covered by your insurance is an example of an unexpected expense you cannot plan for.

Question 18

A thorough understanding of this personal finance textbook qualifies you to become a financial adviser.

Question 19

Credit should be used only when necessary,since it involves borrowed funds that you will need to pay back with interest.

Question 20

The value of what you own minus the value of what you owe is called your "net assets."

Question 21

Personal finance does not include the process of planning your

A)insurance.
B)financing.
C)liquidity.
D)net worth.

Question 22

Key components of a financial plan include

A)saving,spending and investment planning.
B)liquidity,credit and tax planning.
C)insurance,financing,and investment planning.
D)liquidity,retirement and estate planning.

Question 23

One of the considerations in determining your investment choices is evaluating the level of risk you are willing to take.

Question 24

According to a 2011 study,75 percent of youth carry debt.

Question 25

The savings for a short-term goal will usually earn more interest than long-term investments such as in a retirement plan.

Question 26

As long as you stay within your budget of spending $100 per month on eating out,there is no opportunity cost.

Question 27

Jim's plan to reduce his spending on junk food by $20 per month and save those funds until he has a $2000 emergency fund is an example of a 'SMART' goal.

Question 28

For each dollar of personal income received in 1982,Canadians saved 17 cents.

Question 29

Only the wealthiest 10 percent of the population need to be concerned with estate planning,since estate tax has been almost eliminated for most people.

Question 30

For each dollar of personal income received in 2012,Canadians saved 33 cents.

Question 31

Death and disability are examples of controllable events in financial planning.

Question 32

Which of the following best describes the level of per capita debt for Canadians?

A)Canadian per capita debt is improving for those under age 20.
B)The per capita bankruptcies have increased 3.9 times between 1990 and 2011.
C)Debt has increased 3.9 times between 1982 and 2012.
D)Canadian debt as a percentage of disposable income has increased to 39 percent in 2012.

Question 33

If prepared properly,financial plans are set for life and will only need minor adjustments each year.

Question 34

Saving too much for short-term needs does not limit your opportunity for long-term growth.

Question 35

If you spend $20 for your dinner,an opportunity cost is that you have forgone the possibility of using that money to buy gasoline for your car.

Question 36

Jane's goal to save $200 per month for two years so she can take a trip to Europe is a 'SMART' goal.

Question 37

An example of a 'SMART' goal is: Jack plans to save to buy a car in three years.

Question 38

There are four key steps in developing a financial plan: 1.Establishing goals;2.Considering your current financial position;3.Selecting the best options to reach your goals and 4.Revising your plan annually.

Question 39

As of 2012,Canadians were saving

A)about 3.9 percent of income received.
B)about 17 percent of income received.
C)about 3.3 percent of income received.
D)about 33 percent of income received.

Question 40

From 1990 to 2011,consumer bankruptcies increased 122 percent.

Question 41

Opportunity cost represents

A)short- versus long-term financial decisions.
B)what you give up as a result of making a decision.
C)the financial cost of any opportunity.
D)evaluating different alternatives for financial decisions.

Question 42

Key components of a financial plan do not include

A)financing.
B)budgeting and tax planning.
C)investing.
D)goal setting.

Question 43

Which of the following is an example of an opportunity cost?

A)Renting an apartment near school instead of living with your parents
B)Saving money instead of taking a vacation
C)Saving for an emergency fund instead of maximizing your RRSPs
D)They are all examples of opportunity cost.

Question 44

What is first step in budgeting?

A)Determining your net worth
B)Establishing good money management habits
C)Assessing your current financial position
D)Establishing a good credit rating

Question 45

John earns $3000 monthly income and he decides to set aside 10 percent as savings.In his savings,John wants to reserve 20 percent in his emergency fund.What amount would John accumulate in his emergency fund annually?

A)$600
B)$300
C)$360
D)$720

Question 46

Your net worth will be increased by which of the following actions?

A)Changing your savings from 15 percent to 10 percent of your earnings
B)Investing a $500 birthday present from your grandmother
C)Buying a new stereo system and putting the entire amount on your credit card
D)Purchasing a lottery ticket

Question 47

Which of the following is a decision that you would make during estate planning?

A)How you will minimize taxation and probate
B)How much money you should allocate to retirement plans
C)How your wealth will be distributed before and after your death
D)How to enhance your net worth

Question 48

Which of the following is not part of your assets?

A)The house you rent
B)Your car you financed
C)Your coin collection given to you by your grandfather
D)Your furniture

Question 49

Which of the following is an example of investment risk in financial planning?

A)Loss of income due to short-term disability
B)Loss of liquidity by locking in to a fixed-term deposit
C)Loss of property by not buying insurance
D)Loss of capital in a particular mutual fund

Question 50

What is the best way to describe liquidity?

A)Positive cash flow
B)Access to credit
C)Access to ready cash
D)Effective money management

Question 51

Which of the following would not be a factor in evaluating your current financial position?

A)Income
B)Expenses
C)Budgeting
D)Assets

Question 52

Budgeting helps set goals by estimating on a monthly basis which of the following?

A)Assets and income
B)Liabilities and expenses
C)Income and expenses
D)Net worth and income

Question 53

Which of the following is required to access funds to cover any short-term cash deficiencies?

A)Investments
B)Money
C)Liquidity
D)Credit

Question 54

What is the process of forecasting future expenses and savings called?

A)Budgeting
B)Planning
C)Predicting
D)Forecasting

Question 55

How much money to retain in a liquid form and how to allocate funds among short-term investment instruments is called

A)investment management.
B)money management.
C)credit management.
D)liquidity management.

Question 56

Which of the following will not affect your ability to manage your liquidity?

A)Deciding how much money to keep in savings
B)Choosing between credit cards
C)Determining how much money to save versus how much to spend
D)Maintaining a monthly budget with allocations for expenses and investments

Question 57

Credit is commonly used to cover both large and small expenses.What is the best way to think about credit?

A)Most Canadian are overextended on credit.
B)It is a better source of liquidity than an emergency fund.
C)It is an important part of liquidity but needs to be managed.
D)It should never be used for liquidity.

Question 58

Which of the following items is not a liability?

A)The balance due on your credit card
B)Your college or university loans
C)The wages you give up to take a class
D)An IOU to your roommate

Question 59

An emergency fund is required in financial planning to

A)maintain credit rating.
B)maintain your standard of living.
C)manage risk.
D)maintain adequate liquidity.

Question 60

What is the best measure of a person's or family's net wealth?

A)The value of their assets
B)The amount of annual income
C)The value of what they own minus the value of what they owe
D)The value of their gross income minus the value of their expenses

Question 61

John is in the early earnings life stage of financial planning.Which of the following is most important for John to address?

A)The pay yourself first principle
B)Paying off debts
C)A will and power of attorney
D)Establishing a credit rating

Question 62

What is the term used to describe decisions on how much credit you need to support spending and which sources of credit to use?

A)Investment management
B)Money management
C)Credit management
D)Liquidity management

Question 63

Which of the following would be classified as a medium-term goal?

A)Saving a down payment to purchasing a house in three years
B)Buying new clothes to begin school this month
C)Retiring in 10 years
D)Paying for your two-year-old child's college education

Question 64

Regarding cash flow,which of the following is not correct?

A)Insurance payments are a cash outflow.
B)Investing in stock is a cash outflow.
C)Buying items on sale is a cash inflow.
D)Salary is a cash inflow.

Question 65

Which of the following goals would be 'SMART'?

A)Reduce debt payments.
B)Save funds for an annual vacation.
C)Save $100 per month to create a $4000 emergency fund.
D)Invest for a comfortable retirement.

Question 66

Which of the following is correct?

A)Saving part of your income will increase your net worth.
B)Increasing your income will increase your net worth.
C)Reducing junk food expenditures will increase your net worth.
D)All of the above will increase your net worth.

Question 67

Which of the following is included in risk management?

A)Determining your risk tolerance for investing in the stock market
B)Determining your credit risk for obtaining a $400 000 mortgage
C)Establishing a good credit rating
D)Insuring your home

Question 68

Which of the following is a credit management decision?

A)Purchasing a used car with cash
B)Putting money into an emergency fund
C)Obtaining a student loan to attend college or university
D)Putting money into short-term investments

Question 69

Which of the following would defeat the efforts made in developing a successful financial plan?

A)Establishing your financial goals
B)Considering your current financial position
C)Identifying and evaluate alternative plans that could achieve your goals
D)Evaluating your financial plan every five years

Question 70

Planning to pay off a car loan in three years' time is classified as

A)investment planning.
B)increasing cash flow.
C)a medium-term goal.
D)a short-term goal.

Question 71

One benefit of estate planning is

A)protecting your wealth against unnecessary taxes.
B)sheltering your wealth against all taxes.
C)ensuring that your wealth is distributed according to intestacy laws.
D)ensuring you have enough money to fund your retirement.

Question 72

Under which component of a financial plan would the following decision fall: determining how much you can afford to borrow,the length of the loan,and appropriate interest rate,when considering how to afford your car purchase?

A)Liquidity
B)Financing
C)Budgeting
D)Credit management

Question 73

What are the options on whether to or how to protect against risk?

A)Avoid it,insure it,accept it or share it
B)Avoid it,reduce it,accept it or share it
C)Self-insure,avoid it,reduce it,accept it or share it
D)Homeowner,car,life and health insurance

Question 74

Which of the following is an example of money management?

A)Putting your money in a savings account at your bank
B)Shopping around for the credit card with the best interest rate
C)Deciding to delay buying a car until you can pay for it with cash
D)Purchasing renters insurance

Question 75

Which of the following would be the primary objective of investing?

A)Earning a return
B)Understanding your risk tolerance
C)Acquiring an estate
D)Retiring

Question 76

In the early earnings life stage of financial planning,which of the following is the most important to address?

A)Maintaining job security
B)Considering when to have children
C)Understanding your pension and CPP
D)Figuring out the best balance of saving and liquidity

Question 77

Usually,people should first consider having a will and power of attorney in which life stage of financial planning?

A)Early earning
B)Retirement
C)Prime earning
D)Mid earning

Question 78

A type of insurance that protects assets is

A)home insurance.
B)self-insurance.
C)disability insurance.
D)health insurance.

Question 79

Retirement planning should take place

A)when you retire.
B)shortly before you retire.
C)well before you retire.
D)the day you start your first job.

Question 80

The ability of different people to manage their cash flow effectively can be strongly influenced by

A)the economic environment of the day.
B)their need for immediate gratification.
C)their income level.
D)their socio-economic status.