Unit 5 Test - Saving

First Name

Why should people save money for an "emergency fund"? Which is an example of an unexpected expense for it?

• A new cell phone if yours is stolen

• Valentine's Day gifts

Answer explanation

An emergency fund is crucial for unexpected expenses, like replacing a stolen cell phone. Other options listed are planned expenses, not emergencies, making the cell phone the correct example.

What does it mean to "pay yourself first"?

• Spend on yourself first, then family, then others

• Set aside some savings before any spending

Answer explanation

"Pay yourself first" means to prioritize savings by setting aside a portion of your income before any other expenses. This approach helps build financial security and ensures you are saving consistently.

TJ is in 7th grade and wants to set one short-term and one long-term savings goal. Which option best matches these goals?

• Short-term = a pack of gum // long-term = 3 packs of gum

• Short-term = expensive new sneakers // long-term = a car

Answer explanation

The correct choice is 'Short-term = expensive new sneakers // long-term = a car' because it sets a realistic short-term goal (sneakers) and a significant long-term goal (car), aligning with typical savings strategies.

TJ earns $20 per lawn and spends money on snacks, games, and video games, ending each month with little savings. What change can help TJ save more?

• Spend money on a better lawn mower so he can cut more grass

• Before he spends, set aside $5 to save out of every $20 payment

Answer explanation

Setting aside $5 from each $20 payment ensures TJ saves consistently before spending, helping him build savings over time. This proactive approach is more effective than other options.

Ro wants to attend a school trip to Washington DC that costs $500. How much does she need to save per month over 20 months to afford it?

• $10,000 per month

• $25 per month

Answer explanation

To find out how much Ro needs to save per month, divide the total cost of the trip ($500) by the number of months (20). $500 ÷ 20 = $25. Therefore, Ro needs to save $25 per month.

Diamond earns $200 per month babysitting. She wants to buy her dad a special Father's Day gift in 10 months. What's the best saving strategy?

• Figure out the cost, divide by 10, and save that amount monthly

• Save all $200 each month without spending

Answer explanation

The best strategy is to determine the gift's cost, divide it by 10 months, and save that amount each month. This ensures Diamond can afford the gift without financial strain.

Which statement best describes what it means if your bank is "FDIC insured?"

• If your bank goes out of business, you get your money back up to a certain limit

• If you lose your wallet, your bank will replace the cash up to a certain amount

Answer explanation

FDIC insurance means that if your bank fails, the government will reimburse you for your deposits up to a certain limit, ensuring your money is safe.

What is one BENEFIT of using a savings account instead of a checking account?

• Savings accounts charge lower ATM fees

• Savings accounts earn interest, growing your money

Answer explanation

One key benefit of a savings account is that it earns interest, which helps grow your money over time. In contrast, checking accounts typically do not offer interest, making savings accounts a better choice for accumulating funds.

What is one downside of using a savings account instead of a checking account?

• Savings accounts limit 6 withdrawals per month, checking accounts do not

• Fewer banks offer savings accounts, more offer checking accounts

Answer explanation

One downside of a savings account is that it limits withdrawals to 6 per month, while checking accounts allow unlimited withdrawals. This can restrict access to funds when needed.