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

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

Answer 2

False

Question 3

Financial planning is a continuing,lifelong process.

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

Mutual funds are examples of financial assets.

Question 9

Nearly 35% of Americans say retirement planning is their most pressing financial concern.

Question 10

The heart of sound financial planning is improved standard of living.

Question 11

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

Question 12

Current consumption affects future consumption.

Question 13

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

Question 14

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 15

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

Question 16

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

Question 17

One good way to save money is to purchase a new car every eight years to avoid high maintenance costs.

Question 18

The need for financial planning declines as your income increases.

Question 19

Most families find it difficult to discuss money matters.

Question 20

The average American has less than $50,000 in savings.

Question 21

Eliza's employer gives her a certain amount of money each year to spend on benefits of her choice.Eliza has a cafeteria plan.

Question 22

About 65% of Americans believe that money is freedom.

Question 23

Financial planning is a dynamic process.

Question 24

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

Question 25

Your house is an example of a tangible asset.

Question 26

The length of time you keep your money invested is less important than the rate of return you earn on your investments.

Question 27

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

Question 28

Insurance provides a way to make money on unfortunate events.

Question 29

By saving $3,000 a year,Manny should have enough to send his newborn son to college by the time his son turns 18.

Question 30

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

Question 31

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

Question 32

Over the long run,gaining an extra two percent on an investment makes little difference in earnings generated.

Question 33

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

Question 34

Personal financial planning involves translating financial goals into action plans.

Question 35

Wealthy people have a higher average propensity to consume.

Question 36

The key input for a cash budget is long-term financial goals.

Question 37

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

Question 38

Effective financial plans are both economically and psychologically sound.

Question 39

Financial assets include investments such as stocks and bonds.

Question 40

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

Question 41

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

Question 42

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

Question 43

Inflation means price levels have declined.

Question 44

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

Question 45

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

Question 46

The government employs monetary and fiscal policy to ensure the level of economic activity always remains stable.

Question 47

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

Question 48

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

Question 49

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 50

Government controls consumers and businesses by regulation and taxation.

Question 51

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

Question 52

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

Question 53

Inflation generally has little effect on personal financial planning.

Question 54

Decreasing taxes stimulates the economy.

Question 55

Accumulating wealth for later years is called estate planning.

Question 56

An economic contraction usually begins after a trough is reached.

Question 57

Which of the following contributes to quality of life?

A)House
B)Clothing
C)Education
D)Music
E)All of these

Question 58

The median income of a person with a master's degree is more than double that of a person with only a high school diploma.

Question 59

Reducing the money supply stimulates the economy.

Question 60

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 61

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 62

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 63

Maria started a successful business in college and has grown it to millionaire status.Maria would be considered to have predominantly which type of attitude toward money?

A)Spender
B)Giver
C)Saver
D)Builder
E)None of these

Question 64

Generally,as income rises,the average propensity to consume

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

Question 65

Saving for a child's education is an example of

A)accumulating wealth.
B)a tangible asset.
C)estate planning.
D)deferred spending.
E)propensity to consume.

Question 66

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 67

Effective financial plans should

A)consider your wants and needs.
B)consider your financial resources.
C)reflect your personality.
D)reflect your emotional reactions to money.
E)do all of these.

Question 68

Employee benefits may include

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

Question 69

A primary determinant of your quality of life is

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

Question 70

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 71

Becky graduated with a master's 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 72

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 73

Which of the following questions should you ask yourself when developing your financial goals?

A)How important is money to me?
B)Am I a risk taker?
C)What do I like to buy?
D)Does money make me feel secure?
E)All of these

Question 74

Rob requests that a GPS system be added to his new care at an additional cost.The GPS system provides Rob

A)propensity to consume.
B)wealth.
C)additional utility.
D)a financial asset.
E)none of these.

Question 75

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 76

The primary reason people use financial advisors is

A)unhappiness with results of managing their own finances.
B)saving for their children's college education.
C)tax issues.
D)estate and inheritance planning.
E)retirement needs.

Question 77

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 78

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 79

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 retirement.

Question 80

The most important financial planning for young people concerns

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