Question 1

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

The statement is false. As an investment, it is typically better to buy a smaller home in an area where homes are more expensive, as these areas tend to appreciate in value more quickly. Buying a larger home in a less expensive area may not yield as high of a return on investment.

Question 2

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

Accepted Answer

The path to success in a capitalist system is to have capital (money) to invest.

Question 3

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 helps to avoid accruing interest charges and accumulating debt over time. It also helps to maintain a good credit score.

Question 4

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

This statement is false. Stocks have historically outperformed savings accounts and CDs in terms of generating long-term financial gains. While savings accounts and CDs may offer more stability and security, they generally provide lower returns compared to stocks.

Question 5

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

Accepted Answer

This is true. A contrarian investor believes that going against the crowd and buying stocks during periods of market downturns can lead to long-term gains.

Question 6

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 7

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 8

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

Accepted Answer

Despite short-term fluctuations, the stock market has historically provided strong returns over the long term.

Question 9

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

Accepted Answer

This statement indicates that more than 50% of those seeking help with debt at the National Foundation for Credit were aged between 18 and 32, indicating that a significant number of young adults are struggling with debt.

Question 10

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

Accepted Answer

Excessive debt is a problem for individuals of all ages, including young consumers. It is important for people of all ages to manage their finances responsibly to avoid falling into excessive debt.

Question 11

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

Accepted Answer

A good manager of personal finances will aim to avoid borrowing funds whenever possible and instead focus on budgeting, saving, and investing to achieve their financial goals. Borrowed funds often come with interest and fees, which can add up over time and increase the overall cost of the purchase or investment. While businesses may use borrowed funds to finance growth and expansion, personal finances generally do not require the same level of borrowing to achieve success.

Question 12

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

Accepted Answer

This is true under the current tax laws in many countries including the United States. Interest paid on a mortgage loan for a primary residence is typically deductible on Schedule A of the tax return, subject to certain limitations. However, it is always advised to consult a tax professional for specific guidance regarding your individual situation.

Question 13

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

This is because credit cards often come with interest charges and other fees that can accumulate over time if the balance is not paid off in full. In contrast, paying with cash means there are no interest charges or fees involved.

Question 14

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 financial experts predict that the stock market may experience lower growth rates in the future due to factors such as demographic changes, geopolitical instability, technological disruption, and financial imbalances. However, it is important to note that stock market performance is subject to various economic, social, and political factors that are difficult to predict or control, so it is not possible to guarantee any specific growth rate.

Question 15

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 16

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 17

The federal government discourages home ownership through high tax rates.

Accepted Answer

The federal government promotes home ownership through various policies and incentives such as tax deductions on mortgage interest payments, FHA loans, and grants for first-time homebuyers. High tax rates may affect the affordability of purchasing a home, but it is not a deliberate effort to discourage home ownership.

Question 18

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 a common phenomenon known as "credit card spending effect." Studies have shown that consumers tend to spend more when using credit cards compared to cash because credit cards create a sense of detachment from the money being spent.

Question 19

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

Accepted Answer

Many credit cards offer online tools that allow customers to categorize their purchases and track their spending. This can be useful for budgeting and identifying areas where expenses can be reduced.

Question 20

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.

Quiz 24: Appendix: Managing Personal Finances