Chapter 1 Test

Banks got into the credit business before 1920 because charging exceptionally high interest rates was legal.

• True

• False

Answer explanation

True. Before 1920, banks could legally charge high interest rates, which incentivized them to enter the credit business.

You should always make sure you have a…

• Budget

• Credit line

• Direct deposit

• Credit card

Answer explanation

A budget is essential for managing finances effectively. It helps you track income and expenses, ensuring you live within your means and plan for future needs, making it the most important choice.

To gain an understanding of your personal finances, you should know . . .

• Your financial goals

• Where you stand financially, how much income you have, what goals you want to set, and how you’ll reach those goals

• How much income you have

• Your investment portfolio and your financial advisors’ contact information

Answer explanation

The correct choice encompasses a comprehensive understanding of personal finances, including your current financial status, income, goal setting, and strategies to achieve those goals.

What is The First Foundation?

• Pay cash for college.

• Build wealth and give.

• Save a $500 emergency fund.

• Open a checking account.

Answer explanation

The First Foundation is to have $500 set aside as an Emergency Fund. Emergencies will happen this make dealing with them much easier.

Being a spender has many more positives than being a saver.

• True

• False

Answer explanation

Being a spender can lead to enjoying life experiences, fostering relationships, and stimulating the economy. While saving is important, the positives of spending often enhance personal happiness and social connections, making the statement true.

Personal finance is all the financial decisions a(n) ____________ must make in order to earn, budget, save, spend, and give money over time.

• Individual or family

• Company or organization

• Individual or company

• Bank

Answer explanation

Personal finance involves the financial decisions made by an individual or family regarding earning, budgeting, saving, spending, and giving money. The other options do not accurately represent this personal aspect.

Avoiding debt can give you financial peace and a sense of hope for the future.

• True

• False

Answer explanation

True. Avoiding debt can lead to financial stability, reducing stress and anxiety about money, which contributes to a sense of peace and hope for a better future.

After World War I, the demand for products increased, and people began getting credit without loan sharks. Because of this, credit...

• Started to become more socially acceptable

• Increased so rapidly, loan sharks became obsolete

• Was offered at even higher interest rates by loan sharks

• Was devalued in the marketplace

Answer explanation

After World War I, credit became more accessible and socially acceptable. This shift indicates that credit started to gain acceptance and increased rapidly.

A money principle to keep in mind is to live on ___________ you make.

• Exactly 20% below what

• More than

• The same as

• Less than

Answer explanation

The correct choice is 'Exactly 20% below what' because living on less than your income helps ensure savings and financial stability, promoting responsible money management.

To know your net worth, subtract your liabilities from your ______.

• Other liabilities

• Net income

• Previous net worth

• Assets

Answer explanation

To determine your net worth, you need to subtract your liabilities from your assets. Assets represent what you own, while liabilities are what you owe. Therefore, the correct answer is 'Assets'.