Financial Literacy (New Zealand Context)

Which is true about most millionaires?

• They inherit most of their wealth

• They work more than 40 hours a week

• They work in glamourous jobs like sports or entertainment

• They avoid investing in the stock market due to its riskiness

Answer explanation

Wealthy people work very long hours - it's hard work!

Which strategy is most likely to improve most people's financial situation over a lifetime?

• Using credit to spend more than a person earns

• Making financial decisions quickly based on intuition

• Saving early in life when a person begins earning an income

• Gaining work experience early instead of continuing in school

Answer explanation

Saving early - even when still at school - is the best financial decision you can make.

Hemi values three goods in this order: 1) an MP3 player; 2) a computer game, 3) a sweatshirt. Each item costs $60. Jarred bought the MP3 player, which he wanted most. His opportunity cost is:

• Sweatshirt

• MP3 Player

• Computer Game

• Sweatshirt and computer game

Answer explanation

Opportunity cost is the next best alternative given up when a decision is made.

If Jessica chooses to buy more motor vehicle insurance this year than she bought last year, then Jessica has probably decided that:

• the benefits of more motor vehicle insurance are greater than the costs

• more motor vehicle insurance will reduce her risk of an accident

• this added insurance will help her savings grow faster

• she will drive more safely in the future

The expression 'there is no such thing as a free lunch' means:

• free lunches are a scam but cannot be avoided

• scarce resources are rare and therefore expensive

• individuals, but not society, suffer from a lack of resources

• resources used for one purpose could have been used for another purpose

Answer explanation

Nothing is really free - there is always a cost, even if it's the cost of what was NOT done/chosen

Which of the following is typically true?

• Correct choices have no costs

• people do not respond to incentives

• voluntary trade between a willing buyer and a seller must cause winners and losers

• People's choices have consequences for the future

Answer explanation

The decisions we make today impact the choices we can make in the future.

Some people choose to stop attending high school before completing NCEA level 3 (year 13). What is the cost to the individual of dropping out of high school?

• The lower income earned in the job market

• The lower interest rates one is charged for credit

• The higher taxes one pays for leaving school early

• The cost to the government of the Youth Guarantee scheme for that individual

Answer explanation

Statistically those with lower education tend to have lower incomes.

One consequence of scarcity is that:

• there is full employment of resources

• the production of goods and services is constant

• people have to make choices between alternatives

• products which are plentiful have relatively high prices

Answer explanation

Because of scarcity (scarcity of resources, time, money and skills) we can't have everything we want. Therefore we must make choices how to spend our limited means

Which would be considered a human resource?

• Office Building

• Factory Worker

• Phone book

• Electricity

Answer explanation

This was not a trick question :D

The first three steps of economic decision-making are to:

• draw a conclusion, construct a model and make a generalisation

• Identify assumptions, make a policy, evaluate the policy

• gather facts, form a theory, and conduct a simulation

• define the problem, list the alternatives, state goals.

Answer explanation

To make a smart decision we must know the problem, consider the alternatives and determine the desired outcome / goal