Deck 1: Understanding the Financial Planning Process

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

The need for financial planning declines as your income increases.

Question 6

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

Question 7

Current consumption effects future consumption.

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

Current consumption is inversely related to saving for the future.

Question 13

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

Question 14

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

Question 15

Financial planning is a continuing,life-long process.

Question 16

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

Question 17

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 18

Financial planning can improve your standard of living.

Question 19

Most families find it difficult to discuss money matters.

Question 20

Mutual funds are examples of financial assets.

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

Debt is another word for liability.

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

Financial assets include investments such as stocks and bonds.

Question 31

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

Question 32

Financial planning is a dynamic process.

Question 33

Insurance provides a way to make money on unfortunate events.

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

Your house is an example of a tangible asset.

Question 40

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

Question 41

A strong economy leads to higher levels of employment.

Question 42

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 43

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

Question 44

Government controls consumers and businesses by regulation and taxation.

Question 45

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 46

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 47

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

Question 48

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

Question 49

Accumulating wealth for later years is called estate planning.

Question 50

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

Question 51

Inflation means price levels have declined.

Question 52

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

Question 53

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

Question 54

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

Question 55

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

Question 56

The term most closely associated with quality of life is

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

Question 57

An economic contraction usually begins after a trough is reached.

Question 58

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

Question 59

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

Question 60

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

Question 61

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 62

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 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

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 65

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 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

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 68

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 69

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 70

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 71

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.

Question 72

Employee benefits may include

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

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

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 75

The most important financial planning for young people concerns

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

Question 76

While you are still working,you should be managing your finances for retirement planning.Which of the following is not a goal of your retirement planning?

A) maintaining your standard of living
B) effectively passing wealth on to heirs
C) a vacation home or boat
D) travel

Question 77

Generally,as income rises,the average propensity to consume

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

Question 78

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 79

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 80

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.