Personal Finance Chapter 10

John saved $2,000 from his summer job mowing yards. Which of these savings vehicles would work best for him if he doesn't need access to the money for a number of years AND wanted to earn the highest interest rate?

• Regular savings account

• Money Market account

• Checking account

• Certificate of Deposit

Which of these statements about savings is INCORRECT?

• People often believe they are saving when they buy products at a listed discount, even if they didn't need the product in the first place

• It is extremely difficult to open a savings account, as you typically need at least $10,000 for your initial deposit

• Without a separate savings account to pay yourself first, it's more likely that you'll spend all of your income each month

• Billions of dollars are spent on marketing to persuade consumers to spend money instead of saving.

When a bank says their savings account earns 1% interest, that typically means you will earn 1% interest over what period of time (Note: this is not referring to the compounding frequency or frequency of interest payment)?

• Daily

• Monthly

• Quarterly

• Annually

Which of the following is an effective strategy for personal saving?

• Wait until the end of the month and save whatever is left in your checking account

• Save a certain percentage of each paycheck and deposit it directly in a savings account

• Cover all of your wants and needs and save whatever is left over

• Take out a payday loan so you can save before you receive your paycheck

Joe wants to have an emergency fund to cover 3 months of his expenses. Her monthly gross pay is $3,000 and her monthly expenses are $1,200. If she plans to save 10% of her gross pay each month, how long will it take her to build her emergency fund?

• 4 months

• 6 months

• 1 year

• 3 years

Which of the following statements about banks is FALSE?

• If it is FDIC-insured, your money is safe even if the bank fails

• Many banks pay interest on the money you deposit with them

• Historically, savings accounts earn higher returns than investments in the stock market

• Money in a bank is usually easy to access via ATM, debit card or check

Which of the following is NOT a good reason to create an emergency fund?

• Provides peace of mind

• Keeps you out of debt by giving you money to cover unexpected expenses

• Pays for big ticket items like a vacation or designer clothing

• Covers your expenses if you should lose your job

You are developing a savings plan and using short-, medium-, and long-term goals to motivate you. Which represents possible goals from short-term to long-term? Save for…

• Retirement, a house down payment, college tuition

• A new cell phone, college tuition, a house down payment

• A new cell phone, dinner with friends this weekend, a new bike

• Retirement, college tuition, a vacation

Fill in the blanks with the correct responses. If you follow the 50-20-30 rule of budgeting, you'll be putting 50% of your monthly income toward _______________, 20% of your monthly income toward _____________, and 30% of your monthly income toward ______________.

• Needs, wants, savings

• Savings, needs, wants

• Needs, savings, wants

• Wants, savings, needs

Which statement best describes the difference between saving and investing?

• Saving is done with small amounts of money, and investing is done with large amounts of money

• Saving protects your money from inflation while investing does not protect your money from inflation

• Saving is for low-income people, while investing is for rich people

• Saving goes into an FDIC insured bank while investing typically goes into stock or bond markets