Study Guide: Chapter 3 Independent Living

Front

What is the relationship between interest rates for savings accounts and inflation?

Back

Savings accounts earn a negative real return because interest rates are lower than inflation.

Front

What happens to the money deposited in a savings account at a bank?

Back

The bank lends out the money at a higher interest rate than what they are paying you.

Front

What does it mean to 'pay yourself first' in personal finance?

Back

It means to set aside part of every paycheck for savings before spending.

Front

What is the 50/30/20 budgeting plan?

Back

It recommends that 50% of your budget goes to needs, 30% to wants, and 20% to savings or debt repayment.

Front

What is a disadvantage of saving for retirement in a traditional savings account?

Back

Savings accounts earn very little interest, and your growth may not keep pace with inflation.

Front

Define 'real return' in the context of savings accounts.

Back

Real return is the return on an investment after adjusting for inflation.

Front

What is the purpose of a savings account?

Back

To safely store money while earning interest.

Front

How do banks use the money deposited in savings accounts?

Back

Banks lend out the money to borrowers at higher interest rates.

Front

What is the importance of budgeting in personal finance?

Back

Budgeting helps manage income and expenses, ensuring savings and financial goals are met.

Front

What is the impact of inflation on savings?

Back

Inflation reduces the purchasing power of money, affecting the real return on savings.