Saving & Investing Unit Test Review

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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 vehicle to save (like a savings account), it's much easier to spend and harder to keep track of finances
• Billions of dollars is spent on marketing to persuade consumers to spend money instead of saving it

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

What would be a good time to spend money from your Emergency Fund?

• You lose your job but still have bills to pay
• Your friend tells you that you should buy as much Bitcoin as possible
• Your favorite artist releases a new album and you just have to buy it
• Your friends are going on an expensive trip an you would like to go with them

You are developing a savings plan and using short-, medium- and long-term goals to motivate you. Which of the following might you pick as the most long-term goal?

• Saving for retirement
• Saving for a down payment on a home
• Saving to buy a car
• Saving to go on vacation

All of the following are good strategies to develop savings habits EXCEPT...

• Start with a small goal and gradually get more ambitious
• Take a percentage of your paycheck and deposit it directly into a savings account
• Avoid spending money that you don't have and running up credit card debt
• Request to be paid in cash so you can save a certain percentage of your money in a shoebox in your room every month

If you used the 50-30-20 rule of budgeting, how much money would you be saving?

• 20%
• 30%
• 50%
• 100%

How does investing in the stock market differ from putting money in a savings account at a bank?

• Investing is always a less risky option than saving
• Investing is best for short-term situations like emergency funds; saving is best for the long-term
• Investing typically earns between 1-2% while saving generally earns between 5-7%
• Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies

Which of the following statements is TRUE about compound interest?

• Compound interest is difficult to calculate, so those who use it earn higher profits for their efforts
• Compound interest means you have a fund manager who is compounding your returns without charging a fee
• Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned
• Compound interest directly impacts how much you will be charged in fees

Why is diversification a recommended investment strategy?

• Investing in a diversified portfolio guarantees that you won’t lose money with your investments
• If you tell your fund manager to use diversification, they’ll charge you lower fees
• Diversifying your portfolio helps reduce risk
• If you diversify your portfolio, you will definitely earn a high return