Question 1

A person using a credit card to make a purchase may end up paying much more than if he or she had paid cash.

Accepted Answer

Using a credit card often involves paying interest charges and potential fees if the balance is not paid in full each month, which can result in paying more than if the purchase was made with cash.

Question 2

From an investment viewpoint, it is a good idea to buy a large home in an area of town where homes are less expensive.

Accepted Answer

Buying a large home in an area where homes are less expensive may seem like a good deal at first, but from an investment perspective, it may not be the best idea. The value of the property may not appreciate as much as it would in a more desirable location, and it may also be harder to sell in the future. Additionally, the cost of upkeep and maintenance for a larger home may be higher in the long run.

Question 3

When young people decide to buy a house, the best approach is to buy a house in an inexpensive part of town so they can get a larger house for less money.

Accepted Answer

The key to success when investing in housing is location. It is usually better from a financial standpoint to buy a small home in a great part of town rather than a larger home in a not-so-great setting.

Question 4

If you use a credit card to make purchases, you should make a strong effort to pay off the balance in full each month.

Accepted Answer

Paying off the balance in full each month can help you avoid high interest charges and improve your credit score.

Question 5

Buying an attached home and living in one side, while renting the other side, generally turns out to be more trouble than it is worth, since you have to satisfy not only your own needs, but also the needs of the renters.

Accepted Answer

For many young investors, buying two attached homes has proven to be a very attractive investment. The rental income from the attached unit will help cover the mortgage payment, the mortgage interest and real estate taxes are tax deductible, and the values of the attached homes usually appreciate over time.

Question 6

Credit cards can be used to categorize and track your purchases.

Accepted Answer

Credit cards often provide itemized statements that categorize your purchases, allowing you to track your spending habits and identify areas where you may be overspending.

Question 7

A good manager of personal finances, like a good businessperson, uses borrowed funds whenever possible.

Accepted Answer

A good manager of personal finances understands the risks and costs associated with borrowing funds and only uses them when necessary and when they can afford to pay them back. It is important to avoid high-interest debt and to have a solid plan for repayment. Being overly reliant on borrowed funds can lead to financial instability and difficulty in the long term.

Question 8

The three keys that have the greatest influence on how the value of your home increases over time are: (1) size (square feet), (2) age, and (3) design features.

Accepted Answer

While size and design features significantly influence a home's value, its location is often considered more impactful than age, affecting desirability, demand, and price appreciation.

Question 9

One danger of a credit card is that consumers often buy items they wouldn't normally buy if they had to pay cash.

Accepted Answer

This is known as "credit card debt" - where individuals tend to overspend using their credit cards as they don't feel the immediate impact of the purchase on their bank accounts. This can lead to accumulating high-interest debt which becomes difficult to pay off.

Question 10

The federal government discourages home ownership through high tax rates.

Accepted Answer

The federal government encourages home ownership through tax incentives such as the mortgage interest deduction and capital gains exclusion for home sales.

Question 11

Most financial experts believe that the stock market is likely to grow more slowly in the future than it did in the last 50 years.

Accepted Answer

Many factors such as an aging population, slower economic growth, and increased global competition suggest that the stock market may grow at a slower rate in the future.

Question 12

Excessive debt is as much a problem of young consumers as it is of other age groups.

Accepted Answer

Young consumers, especially college students, often take out loans and credit cards without fully understanding the consequences of their actions, leading to excessive debt. However, this issue is not limited to young consumers and can affect individuals of all age groups who do not properly manage their finances.

Question 13

Funds invested in savings accounts and certificates of deposit (CDs) have traditionally outperformed stocks as a means of generating long-term financial gains.

Accepted Answer

Stocks, over the long-term, have historically provided higher returns than savings accounts and CDs. While savings accounts and CDs are generally considered safer options, they also offer much lower rates of return compared to the potential gains from investing in the stock market.

Question 14

Historically, the best place to invest has been in U.S. government savings bonds.

Accepted Answer

Historically, while U.S. government savings bonds are considered safe investments, they typically offer lower returns compared to other investments like stocks, mutual funds, or real estate.

Question 15

House payments tend to rise at a faster rate than do rent payments on a similar sized house.

Accepted Answer

Other than taxes and utilities, house payments on a fixed-interest rate mortgage are relatively fixed. As your income rises, the house payments get easier to make, but renters often find that rents tend to go up as fast as or faster than income.

Question 16

Though stock prices do sometimes go down, investing in the stock market has generally provided very attractive returns over the long run.

Accepted Answer

While there are periods of volatility and potential losses in the stock market, historically it has provided strong returns over the long term.

Question 17

Interest paid on a home loan is deductible from taxable income.

Accepted Answer

Interest paid on a home loan for a qualifying property is deductible from taxable income, subject to certain limits and conditions. This deduction is known as the mortgage interest deduction and is available for taxpayers who itemize their deductions on Form 1040 Schedule A.

Question 18

Accumulating money through savings allows you to participate in the growth of a capitalist society.

Accepted Answer

By accumulating savings, individuals can invest in stocks, bonds, and other assets that help fuel the growth of the economy. This participation in the capitalist society can lead to potential wealth accumulation and financial independence.

Question 19

More than half of all debtors seeking help at the National Foundation for Credit were between the ages of 18 and 32.

Accepted Answer

According to the statement, more than half of all debtors seeking help at the National Foundation for Credit were between the ages of 18 and 32, indicating that the statement is true.

Question 20

A contrarian would advise you to buy stock when stock prices are falling and most other people are selling.

Accepted Answer

A contrarian philosophy suggests going against the popular opinion and betting on the opposite outcome, which means buying stocks when prices are falling and most people are selling them.

Quiz 24: Managing Personal Finances