Understanding Income Types

What is an example of earned income?

• Winning the lottery

• Getting an allowance for doing chores

• Receiving a gift from a relative

• Finding money on the ground

Answer explanation

Earned income is money received for work performed. 'Getting an allowance for doing chores' is an example of earned income, as it involves completing tasks for payment, unlike the other options which are not earned.

Which of the following is an example of passive income?

• Babysitting for a neighbor

• Mowing lawns on weekends

• Earning interest from a savings account

• Washing cars for money

Answer explanation

Earning interest from a savings account is passive income because it generates money without active work. In contrast, babysitting, mowing lawns, and washing cars require ongoing effort.

Why is it important to earn money?

• To buy things you need and want

• To waste on unnecessary items

• So you don’t have to go to school

• So you can spend everything immediately

Answer explanation

Earning money is essential to buy things you need and want, ensuring you can meet your basic needs and enjoy some comforts. The other options do not reflect the practical importance of earning money.

Samuel is a high school student looking to earn some extra money. What is a common way for him to achieve this?

• Investing in stocks

• Getting a part-time job or doing chores

• Taking out a loan

• Receiving a credit card

Answer explanation

A common way for teens to earn money is by getting a part-time job or doing chores. This allows them to gain work experience and earn income, unlike options like investing or loans, which are less accessible for them.

Evelyn works at a company and receives a regular paycheck. Which of the following best describes her salary?

• Money given as a gift

• A fixed amount of money earned for work

• Extra money earned from tips

• The amount paid for a single task

Answer explanation

A salary is defined as a fixed amount of money earned for work, typically paid on a regular basis. This distinguishes it from gifts, tips, or payments for single tasks.

Aria is planning her monthly expenses. What is the purpose of her budget?

• To help plan and control spending

• To spend as much money as possible

• To avoid making money

• To spend only on wants

Answer explanation

The purpose of a budget is to help plan and control spending, ensuring that resources are allocated effectively. This choice emphasizes financial management, unlike the other options which suggest poor financial practices.

James is planning his monthly finances. What should be included in his budget?

• Only his savings

• Only his spending

• His income, savings, and expenses

• Only how much money he wants to spend

Answer explanation

A comprehensive budget should include your income, savings, and expenses to provide a complete financial picture. This helps in planning and managing your finances effectively.

Ava earns $50 from her part-time job and wants to save 20% of her earnings. How much should she save?

• $5

• $10

• $20

• $50

Answer explanation

To save 20% of $50, calculate 0.20 x 50 = $10. Therefore, you should save $10.

Ava is planning her monthly budget. Which of the following is NOT part of her budget?

• Needs

• Wants

• Impulse spending

• Savings

Answer explanation

Impulse spending is not part of a budget, as it refers to unplanned expenses that can disrupt financial planning. In contrast, needs, wants, and savings are essential components of a budget.

Ethan is a college student who spends more money than he makes from his part-time job. What happens to Ethan?

• Ethan starts saving more

• Ethan goes into debt

• Ethan's income increases

• Ethan doesn’t need a budget

Answer explanation

If you spend more money than you make, you will go into debt as you are using borrowed funds to cover your expenses. This leads to financial obligations that must be repaid.