Personal Financial Literacy Study Guide

Personal Financial Literacy Study Guide

Take notes as needed to prepare for your test.

Your test will cover 3 topics:

1) Simple vs. Compound Interest

2) Net Worth

3) Personal Budgets​

Simple v. Compound Interest

Compound interest is earned on the principal AND on any earned interest.

Compound Interest

Simple interest is interest that is only earned on the initial investment or amount borrowed (principal).

Simple Interest

What's the difference?

Calculating SIMPLE interest

To calculate simple interest use the formula:

I=PRT​ (interest = principal x rate x time)

This formula will calculate the amount of interest earned. To find the total after interest, add the interest to the principal.​

If you are looking for the other variables, you have to move the formula around.​

For example, when looking for the P, divide the interest by RxT​.

When looking for the T, divide the interest by PxR.​

Multiple Choice

The simple interest formula is I=Prt.  What does the t represent?

• Principle
• Interest
• Time, in hours
• Time, in years

Multiple Choice

I = Prt where r represents the rate.  Rates must be converted into ____ before multiplying.

• fractions
• mixed numbers
• decimals
• integers

Multiple Choice

What does the "I" in the interest formula stand for?

• Important
• Interest
• Internet
• Igloo

Multiple Choice

What does the "r" in the interest formula stand for?

• Principal
• Interest
• rate
• time

Multiple Choice

Principal = $500
Interest rate =5%
Time = 5 years
What is the interest earned?

• 95
• 105
• 125
• 135

Multiple Choice

Emilio borrows $1200 from a bank with 8% simple interest per year.  How much will he have to pay back total in 2 years?

• $150
• $192
• $1350
• $1392

This formula will calculate the total amount after interest.

If interest is compounded annually, n=1. If it is monthly, n=12. ​If it is quarterly, n=4.

Calculating Compound Interest

Multiple Choice

In the compound interest formula A=P(1+r)^t what does the A stand for?

• The amount of interest

• The total amount

• The interest rate

• The time

Multiple Choice

In the compound interest formula A=P(1+r)^t what does the P stand for?

• The time

• The total amount

• The principal amount (original amount)

• The interest rate

Multiple Choice

Jacob borrows $500 from Abraham and agrees to have the loan compounded annually for 5 years with an interest rate of 2.5%. How much will the total amount be that Jacob owes?

• $565.70

• $262609.38

• $65.70

• $630.20

Multiple Choice

Annually means how many times a year?

• 4

• 2

• 1

• 6

Multiple Choice

Semi-Annually means how many times a year?

• 4

• 2

• 1

• 6

Multiple Choice

Monthly means how many times a year?

• 4

• 12

• 52

• 365

Multiple Choice

the time has to be in _____________

• years

• months

• days

• seconds

Multiple Choice

Which is better to have when you invest money?

• Compound Interest

• Simple Interest

• Good interest

• Simpound Interest

Net Worth

What is net worth?

Net worth = Assets- Liabilities

Net worth is a calculation of everything you own (assets) minus everything you owe (liabilities).

Remember, assets are things that have a positive value (like a car you own or a stamp collection) and liabilities (like a car loan or a mortgaage) have a negative value.​

Multiple Choice

Property owned by a person or company, regarded as having value is an __________

• asset

• liability

• net worth

• pizza

Multiple Choice

What is another word for house payment?

• Wages

• Net Worth

• Mortgage

• Book

Multiple Choice

The difference of what you own and what you owe (the difference between assets and liabilities)

• asset

• liability

• net worth

• coconut

Multiple Choice

Assets-Liabilities=

• assets

• expenses

• net worth

• savings

Multiple Choice

Assets=$20,000

Liabilities=$50,000

What is the net worth?

• $80,000

• - $80,000

• $30,000

• - $30,000

Multiple Choice

Which of the following is an asset?

• mortgage

• school loan

• jewelry

• credit card bill

Multiple Choice

You can have negative Net Worth.

• True

• False

Multiple Choice

A thing for which someone is responsible, especially a debt or financial obligation is a _____.

• asset

• liability

• net worth

• bacon

Multiple Choice

Bills and Loans are examples of ________?

• Assets

• Liabilities

• Net worth

• Pickles

Multiple Choice

Net worth is found by

• subtracting expenses from income
• dividing monetary assets by current liabilities
• subtracting liabilities from assets
• dividing monthly debt by monthly income

Multiple Choice

Jin's total assets are $8,794.  Her liabilities are $2,670 in credit card debt and $3,622 for a student loan.  What is her net worth?

• $6,124
• $15,086
• -$4,328
• $2,502

Multiple Choice

Nomar's net worth is $15,354.  Which of the following is true?

• He has a positive net worth which means his assets are greater than his liabilities. 
• He has a negative net worth which means his liabilities are greater than his assets.
• He has a positive net worth which means his liabilities are greater than his assets.
• He has a negative net worth which means his assets are greater than his liabilities.

Personal Budgets

Personal Budgets:

A personal budget is a plan for anticipated expense that a person or a family might have.

Circle graphs are often used to show the percentages of a budget that are spent on different expenses.​

When solving problems involving budgets, there are two types of problems. Let's look at each one. ​

Tyler makes $4,000 each month. He spends $1,000 on his mortgage. What percent of his income is this?

1000 divided by 4000 = 0.25​

​0.25 x 100 = 25%

Example

To calculate percent of the budget spent on specific expenses, divide.

Part / Whole. Then, multiply by 100 to turn the decimal to a %.

Calculating Percent

Problem Type #1

Multiple Choice

A plan for spending

• income
• expenses
• sales tax
• budget

Multiple Choice

If transportation costs include a car payment and gas, and Ryan's car payment is $350 and he pays $100 for gas, what percentage is Ryan paying for transportation costs each month if his take home pay is $9,000?

• 5 %

• 3.8 %

• 1.1 %

• 28 %

Multiple Choice

If Ryan's take-home pay is $3600, what percentage does he pay for rent if rent is $900.

• 25%

• 4%

• 0.04 %

• 0.25 %

Calculating Minimum Income

The second type of problem you'll be asked to solve is problems involving calculating minimum income.

One way to do this is to look at the answer choices, calculate the amount of tax that will be removed (Turn % into decimal and multiply. Subtract your answer from the amount of income.) Find the answer choice that will cover all expenses after the taxes are subtracted.

Example

Find 20 of each answer choice and subtract the answer:

4250.75 x 0.2 = ​850.15

4250.75-850.15 = 3400.60 (NOT ENOUGH)​

​

4375 x 0.2 = 875

4375-875=3500 (ENOUGH)

The correct answer is B​

A) $4250.75 B) $4375.00

Tyler has expenses that total $3,500 each month. If he has 20% of taxes taken out of each check, what is the minimum income he can make to cover his expenses?

Multiple Choice

Maria has total monthly expenses that equal 4,200. What is the minimum amount per month that she must make if she pays 20% in taxes each month.

• $3700

• $4899

• $5,250

• $5146