Chapter 8 Review: Financial Pitfalls

In which of the following situations would it be MOST beneficial to hire a financial adviser?

• I’m a senior in college, am about to graduate, and need to create a plan for paying off my student loans

• I have a car loan, a large student loan, and a backlog of unpaid medical bills that I’m struggling to keep up with.

• I’m having a hard time tracking my expenses and income, and want to establish a solid monthly budget to better manage my money.

• I have a $1,250 credit card bill with a 22% interest rate that I’m trying to pay off..

Which is TRUE about the Habit Cycle?

• It's relatively easy to identify the cue and reward for a habit you have.

• The first step of the habit cycle is to identify the reward you're trying to satisfy.

• The habit cycle includes a "reflection" step for you to determine why you developed the habit in the first place.

• Knowing what reward your habit is satisfying is an essential step to replacing your habit routine with a new one.

Why can it be MORE difficult to think rationally and make wise decisions when you have LESS money?

• You have a false sense of financial security when, in reality, you don’t have enough to make ends meet.

• When you have less money, you are not able to handle stress and pressure well.

• Having less money may make you focus only on the present situation and prevent you from making decisions that lead to a healthier financial future.

• Having less money makes you extremely emotionally reactive, so you are more likely to make decisions that are financially sound.

Identify which of the following statements about financial advisers is TRUE.

• All financial advisers are licensed and certified in their field.

• Their services are offered for free to anyone who qualifies by opening a bank account.

• Their financial compensation may NOT be tied to providing the best solution for their customers.

• They’ll be able to reduce your debt substantially by applying for loan forgiveness from creditors that you yourself wouldn't be eligible for

Failing to invest your money is a financial pitfall, because...

• The interest rate you can earn on your investments decrease with age, so the longer you wait, the less you'll be able to grow it.

• Financial brokers may be less inclined to work with you in the future, because they use your investment history to decide whether or not to work with you.

• You have less time to put in money on a regular basis and you lose the power of compounding.

• Your employer may decide not to match the money you put in if you never invested any money before the age of 30.

Jeremiah wants to use his retirement savings, which have an average return of 7%, to help pay off his debts that have an average interest rate of 22%. What do you say?

• "You should avoid doing this, because you're not only going to lose the money you would've made in interest, but you're likely to get hit with fees!"

• "This is really financially smart, because you'll actually get to save the difference in interest!"

• "Don't do it, because financial institutions will be less likely to let you open another retirement account in the future."

• "Good idea - you'll likely be able to make up the money you lost by depositing larger amounts into a new retirement account in a few years."

What does it mean if a financial planner is a "fiduciary"?

• Their license was revoked in the past and they earned it again by taking the certification exam.

• Their standards are typically less than those of a certified financial planner.

• They are working primarily on behalf of a bank, so their advice may be skewed to make more money.

• They will make sure that what they are recommending is not just suitable for your situation, but is in your best interest.

All of the following explain why fraud is so prevalent EXCEPT...

• Fraudsters can send the same message to multiple people anonymously at the same time.

• Fraudsters often work alone and target a small number of people in their local regions.

• Fraudsters can use many different types of fraud to get your money.

• Fraudsters can be difficult to trace because they can be located anywhere.

Which of the following contact methods used by fraudsters would be MOST effective in getting your money?

• Phone Call

• Mail

• Text Message

• Email

Which of the following is TRUE about fraud?

• You are guaranteed to get your money if you report the fraud within 24 hours.

• If you take steps to protect your personal information, fraudsters cannot steal your money.

• Dealing with fraud can affect both financial and personal aspects of your life.

• Fraud is always committed by people you don't know.