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Personal Financial Literacy, 2e (Madura/Casey/Roberts)
Chapter 2 The Financial Plan
2.1 What Is a Financial Plan?
1) A(n) ________ involves specifying financial goals and describing in detail the spending, financing, and
investing plans needed to reach those goals.
a. individual retirement savings plan
b. personal financial plan
c. personal debt management plan
d. individual investment strategy
2) Which of the following is the best description of a financial plan?
a. A good financial plan is like a user's manual for a cell phone.
b. A good financial plan is like a registration guide for college classes.
c. A good financial plan is like a blueprint for a builder.
d. A good financial plan is like a to-do list for a busy student.
3) Which of the following is NOT one of the seven key components addressed by a solid financial plan?
a. protecting assets and income
b. budgeting and taxes
c. personal investing
d. goal setting
2.2 The Components of Your Financial Plan
4) Which of the following is an accurate financial statistic about teens age 12-17?
a. The majority of teenagers have an individual checking account.
b. About 40% of teenagers have a savings or checking account in their own name.
c. More than two-thirds of teenagers have an ATM card.
d. Teens in this age range are not allowed to have credit cards in their own name.
5) The purpose of a budget is to plan your spending and saving, considering your income level, so that
you can meet your ________.
a. needs and wants
b. immediate needs only
c. long-term dreams only
d. medium-term financial goals
6) The first step in creating a budget is ________.
a. determining net worth
b. identifying expenses
c. prioritizing financial goals
d. establishing your income
7) Which of the following is NOT a step in creating a budget?
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a.
b.
c.
d.
determining net worth
identifying expenses
prioritizing financial goals
considering the effect of taxes
8) The process of forecasting future expenses and incomes is called ________.
a. personal financial planning
b. equity assessment
c. liability analysis
d. budgeting
9) Which of the following questions would you answer while establishing your net worth in the budgeting
process?
a. How much income can I expect each month?
b. How much money do I usually spend in a month?
c. How much money do I have in the bank now?
d. How can I decrease the amount of income tax I owe?
10) Net worth is determined by subtracting an individual's liabilities from his or her ________.
a. income
b. equity
c. assets
d. liquidity
11) ________ are anything we own, such as a car or a home.
a. Liabilities
b. Equities
c. Assets
d. Liquidities
12) ________ are anything we owe, or our debts.
a. Liabilities
b. Equities
c. Assets
d. Liquidities
13) Which of the following refers to the amount of an asset that a person owns?
a. liability
b. equity
c. liquidity
d. income
14) You can increase your net worth by increasing your ________ and/or decreasing your ________.
a. assets; equities
b. liabilities; equities
c. equities; assets
d. assets; liabilities
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15) Wages earned and allowance are two types of ________.
a. equity
b. liabilities
c. income
d. interest
16) Having a(n) ________ is the major means by which an individual saves money, builds wealth, and
acquires assets.
a. net worth
b. income
c. equity
d. asset
17) For most U.S. consumers, the biggest expense is ________.
a. housing
b. health care
c. food
d. transportation
18) For U.S. consumers under 25 years of age, which of the following is the smallest annual expense?
a. housing
b. health care
c. food
d. transportation
19) If you find that you don't have enough money to cover your immediate needs, then you need more
________.
a. liquidity
b. net worth
c. assets
d. liabilities
20) People without enough ________ often use ________ to cover immediate shortfalls, but this approach
can be very costly.
a. assets; interest
b. equity; assets
c. liquidity; credit
d. income; equity
21) Buildings and land that an individual owns are examples of ________.
a. liabilities
b. liquid assets
c. real estate
d. income
22) A good way to think about ________ is as rent on money borrowed.
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a.
b.
c.
d.
equity
debt
liabilities
interest
23) When you use ________, you are borrowing money.
a. assets
b. liabilities
c. liquidity
d. credit
24) Taking a loan out to pay for a portion of a major purchase, such as a car or house, is known as
________ the purchase.
a. managing
b. financing
c. investing
d. stabilizing
25) Payment terms for a loan for a major purchase would be LEAST likely to contain which of the
following?
a. the interest rate charged
b. the down payment amount
c. the monthly income
d. the time period for paying back the loan
26) Payment schedules for most long-term loans involve ________ payments.
a. weekly
b. monthly
c. daily
d. yearly
27) Credit-card financing is usually available ________ a borrower than longer-term financing for a major
purchase is.
a. at a lower cost to
b. at a higher cost to
c. at the same cost to
d. with a greater down payment from
28) When a lender analyzes how likely you are to pay back a loan, the lender is determining your
________.
a. creditworthiness
b. insurance
c. equity
d. consumption pattern
29) Without insurance on a major purchase, the owner assumes all of the ________.
a. equity
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b. asset
c. risk
d. investment
30) Which of the following is NOT a type of insurance that people typically purchase?
a. life insurance
b. home insurance
c. car insurance
d. entertainment insurance
31) Stocks, bonds, mutual funds, and real estate are all common types of ________.
a. liabilities
b. liquid assets
c. investments
d. insurance
32) Why do people invest money?
a. to insure their assets
b. to make more money
c. to increase their liquidity
d. to increase their equity in major purchases
33) In the typical budget, money for ________ tends to be money remaining after paying necessary bills.
a. insurance
b. liquidity
c. equity
d. investment
34) Retirement planning involves determining how much to save for retirement every year ________ and
how to invest that money.
a. as early as possible
b. after you turn 30
c. after you turn 40
d. after you turn 50
35) When you calculate your net worth and file your taxes, good ________ is particularly important.
a. communication
b. credit management
c. insurance
d. record keeping
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