Financial Literacy Review

What is the purpose of creating a budget?

• To track and manage income and expenses, prioritize spending, and work towards financial goals.

• To have no financial goals

• To overspend and go into debt

• To ignore income and expenses

Explain the difference between short-term and long-term savings goals.

• Short-term savings goals are achieved within a month, while long-term savings goals take more than 5 years to achieve.

• Short-term savings goals involve saving for a specific purchase, while long-term savings goals involve saving for retirement.

• Short-term savings goals require a higher amount of money to achieve, while long-term savings goals require a smaller amount of money.

• Short-term savings goals are achieved within a year, while long-term savings goals take more than a year to achieve.

What is the importance of having a good credit score?

• It is important for getting approved for loans, credit cards, and mortgages, as well as for obtaining favorable interest rates.

• It has no impact on loan approvals or interest rates

• A good credit score leads to higher taxes

• It is only important for renting an apartment

How can you avoid getting into debt?

• Borrow money for unnecessary purchases

• Ignore your bills and expenses

• Spend more than you earn

• Create a budget, live within your means, and save for emergencies.

List three sources of income for a typical household.

• 1. Lottery winnings 2. Inheritance 3. Social security benefits

• 1. Employment income 2. Investment income 3. Rental income

What are fixed expenses? Provide examples.

• One-time expenses like buying a new phone or laptop

• Regular, predictable costs that remain constant each month. Examples include rent or mortgage, insurance, car payments, and subscription services.

• Variable costs that change every month, such as groceries and entertainment

• Expenses that are only paid once a year, like property taxes

Explain the concept of 'paying yourself first' when it comes to saving money.

• Spending all your income on luxury items

• Putting off saving until you have extra money

• Setting aside a portion of your income for savings before paying any other expenses

• Borrowing money to cover your expenses

What is the 50/30/20 rule in budgeting?

• Allocating income to needs, wants, and savings/debt repayment

• Investing 50% of income, saving 30%, and spending 20%

• Putting 50% of income into savings, 30% into wants, and 20% into needs

• Spending 50% on entertainment, 30% on groceries, and 20% on bills

What are the benefits of having an emergency fund?

• Limited access to funds in case of emergency

• No need for financial planning

• Increased debt and stress

• Financial security and peace of mind

How can you differentiate between wants and needs when it comes to spending money?

• By considering whether the item is essential for survival or simply desired for comfort or pleasure.

• By asking a friend to make the decision

• By choosing the most expensive option

• By flipping a coin to decide