Consumer Economics Pre-Test

Front

Which of the following is the BEST way to avoid running out of money?
Options:
Invest in a variety of stocks and bonds.
Avoid making any purchases for 30 days if you think you are getting close to running out.
Make it a habit to plan and set goals for your money.
Save money regularly by putting it in a safe place, like a bank savings account.

Back

Save money regularly by putting it in a safe place, like a bank savings account.

Answer explanation

Saving money regularly in a bank savings account helps build a financial cushion, ensuring you have funds available when needed. This proactive approach is more effective than temporary measures like avoiding purchases.

Front

To know your net worth, ______ your ______ from your ______!

Back

Subtract liabilities from assets!

Answer explanation

To know your net worth, subtract your liabilities from your assets. This calculation gives you the total value of what you own after accounting for what you owe.

Front

Which of the following signs of cognitive bias is Jeremy falling victim to in this scenario? E. Fear of Missing Out (FOMO), D. Attributing other peoples success to luck, C. Only tuning in to news and stories that confirm your opinions, A. Sunken Cost Fallacy, B. Assuming that you are always correct

Back

Assuming that you are always correct

Answer explanation

Jeremy is falling victim to the cognitive bias of assuming he is always correct. This bias leads him to disregard alternative viewpoints and evidence, reinforcing his own beliefs without considering other possibilities.

Front

Which of the following do you MOST need to know in order to manage your personal finances? How earning, budgeting, saving, spending, and giving affect your money.

Back

How earning, budgeting, saving, spending, and giving affect your money.

Answer explanation

To effectively manage personal finances, understanding how earning, budgeting, saving, spending, and giving impact your money is crucial. This knowledge forms the foundation for making informed financial decisions.

Front

If your assets total more than your liabilities, you will have a(n) ______ net worth.

Back

Positive

Answer explanation

If your assets exceed your liabilities, it means you have more resources than debts, resulting in a positive net worth. Therefore, the correct answer is 'Positive'.

Front

Which of the following is the first step to overcoming cognitive bias? Making different choices than what your first thought is., You do not need to overcome cognitive bias., "Trusting your gut" when making a decision., Acknowledging that they exist and that you have them.

Back

Acknowledging that they exist and that you have them.

Answer explanation

The first step to overcoming cognitive bias is acknowledging that they exist and that you have them. This awareness is crucial for recognizing and addressing biases in your decision-making process.

Front

Which of the following is an example of a Cognitive Bias that some people apply when making financial decisions? It Won't Be That Bad (IWTBT), Fear of Missing Out (FOMO), Cross Your Fingers and Hope (CYFH), No Fun, Only Save (NFOS)

Back

Fear of Missing Out (FOMO)

Answer explanation

Fear of Missing Out (FOMO) is a cognitive bias where individuals make financial decisions based on the fear of missing potential opportunities, often leading to impulsive actions. This makes it the correct choice.

Front

Which of the following lists the BEST reasons for saving your money? A. Buy gifts, donate to charities, and build up a college fund for your kids. B. Afford to pay for your dream home, buy your dream car, and go on your dream vacation. C. To pay for emergencies, pay cash for large purchases, and build wealth. D. To Invest, indulge, and influence others.

Back

To pay for emergencies, pay cash for large purchases, and build wealth.

Answer explanation

Choice C is the best because it emphasizes practical reasons for saving money: preparing for emergencies, making significant purchases without debt, and building long-term wealth, which are essential financial goals.

Front

The first thing that Michael should do is set up a monthly___________.

Back

Budget

Answer explanation

The correct choice is 'Budget' because setting up a monthly budget is essential for managing finances, tracking expenses, and ensuring that income is allocated effectively. Other options are not practical for initial financial planning.

Front

Michael needs to set up an emergency fund that will eventually grow to be at least _______________ of his total income.

Back

3-6 months

Answer explanation

An emergency fund should ideally cover 3-6 months of total income to provide a sufficient safety net for unexpected expenses. This range balances security without being overly burdensome.