Deck 1: Understanding the Financial Planning Process

Question 1

Current consumption is inversely related to saving for the future.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

The need for financial planning declines as your income increases.

Answer 3

False

Question 4

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

Question 5

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

Question 6

Most families find it difficult to discuss money matters.

Question 7

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

Question 8

Financial planning is a continuing,life-long process.

Question 9

Mutual funds are examples of financial assets.

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

Current consumption affects future consumption.

Question 17

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

Question 18

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

Question 19

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

Question 20

Financial planning can improve your standard of living.

Question 21

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

Question 22

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

Question 23

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

Question 24

Government controls consumers and businesses by regulation and taxation.

Question 25

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

Question 26

Financial planning is a dynamic process.

Question 27

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

Question 28

Insurance provides a way to make money on unfortunate events.

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

Debt is another word for liability.

Question 37

Your house is an example of a tangible asset.

Question 38

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

Question 39

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

Question 40

Financial assets include investments such as stocks and bonds.

Question 41

Typically,higher level of education is rewarded with higher income over the lifetime.

Question 42

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

Question 43

Accumulating wealth for later years is called estate planning.

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 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 46

Inflation means price levels have declined.

Question 47

Gross domestic product (GDP)refers to the total earnings of American workers during a year.

Question 48

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

Question 49

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 50

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

Question 51

An economic contraction usually begins after a trough is reached.

Question 52

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

Question 53

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

Question 54

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

Question 55

The term most closely associated with quality of life is:

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

Question 56

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

Question 57

The consumer price index (CPI)is the amount of goods and services each dollar buys at a given time.

Question 58

A strong economy leads to higher level of employment.

Question 59

Consumers affect businesses by their choices of what goods and services to purchase and by whether they will spend or save their incomes.

Question 60

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 61

The three key groups in the economic environment are:

A) government,regulation,and business.
B) government,consultants,and business.
C) consumers,economists,and business.
D) consumers,business,and managers.
E) government,consumers,and business.

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
D) Purchase a $40,000 boat
E) Join the country club when retired in 20 years

Question 63

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 64

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 65

Employee benefits may include:

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

Question 66

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 67

A primary determinant of your quality of life is:

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

Question 68

Generally,as income rises,the average propensity to consume:

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

Question 69

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 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

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 72

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 73

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 74

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 75

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
E) Visiting children

Question 76

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 77

Employee benefits may include:

A) health insurance.
B) disability insurance.
C) life insurance.
D) a and b
E) a,b,and c

Question 78

The most important financial planning for young people concerns:

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

Question 79

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 80

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