Dollars And Sense Final Exam 3

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Dollars And Sense Final Exam 3 - Quiz

Questions and Answers
  • 1. 

    With all investments, as the risk goes up, the return goes down.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    The statement is incorrect. In the world of investments, there is generally a positive correlation between risk and return. This means that as the risk increases, the potential return also increases. Investors are typically rewarded for taking on higher levels of risk with the potential for higher returns. However, it is important to note that this relationship is not always linear and can vary depending on the specific investment and market conditions.

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  • 2. 

    The Roth IRA is an after-tax investment that grows tax free.

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    A Roth IRA is a type of retirement account where contributions are made with after-tax money. This means that the money you contribute to a Roth IRA has already been taxed. However, the growth and earnings within the account are tax-free. This makes the statement "The Roth IRA is an after-tax investment that grows tax-free" true.

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  • 3. 

    Never buy something you do not fully understand.

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    This statement suggests that it is not advisable to purchase something unless you have a complete understanding of it. This is because buying something without fully understanding it can lead to potential problems, such as wasting money on something that doesn't meet your needs or expectations. It is important to have a clear understanding of the product or service before making a purchase to ensure that it aligns with your requirements and preferences.

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  • 4. 

    Shelf positioning forces the buyer to associate a value with the product.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    Shelf positioning does not necessarily force the buyer to associate a value with the product. While shelf positioning can influence a buyer's perception and increase the likelihood of purchase, it does not guarantee that the buyer will assign a specific value to the product. Value is subjective and can be influenced by various factors such as price, quality, brand reputation, and personal preferences. Therefore, the statement that shelf positioning forces the buyer to associate a value with the product is false.

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  • 5. 

    Never roll over your 401(k) when you leave a company.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    Rolling over a 401(k) when leaving a company is a common and recommended practice. By rolling over the funds into an individual retirement account (IRA) or a new employer's retirement plan, individuals can continue to grow their savings tax-deferred and have more control over their investment options. This allows for better flexibility and the ability to avoid penalties and taxes associated with cashing out the 401(k) or leaving it behind. Therefore, the statement that one should never roll over their 401(k) when leaving a company is false.

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  • 6. 

    If we used a race analogy to describe building wealth, it would be most like a sprint.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    The statement suggests that building wealth is most similar to a sprint in a race analogy. However, this is not an accurate comparison. Building wealth is a long-term process that requires consistent effort, planning, and patience. It is more akin to a marathon, where endurance and pacing are crucial. Therefore, the correct answer is false.

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  • 7. 

    Rate of return matters when it comes to compound interest.

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    The statement is true because compound interest is calculated based on the initial principal amount and the accumulated interest from previous periods. The rate of return determines how quickly the interest grows over time. A higher rate of return will result in a larger amount of interest being added to the principal, leading to faster growth of the investment. Conversely, a lower rate of return will result in slower growth. Therefore, the rate of return is a crucial factor in determining the effectiveness of compound interest.

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  • 8. 

    Diversification means to spread around.

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    Diversification refers to the strategy of spreading investments across different assets or sectors to reduce risk. By diversifying, an investor can minimize the impact of any single investment's performance on their overall portfolio. Therefore, diversification does mean to spread around, making the answer "True" correct.

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  • 9. 

    Once you have a fully-funded emergency fund, put 10% of your income into retirement plans.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    The statement is false because once you have a fully-funded emergency fund, it is recommended to put more than 10% of your income into retirement plans. A fully-funded emergency fund typically consists of 3-6 months' worth of living expenses, which is meant to cover unexpected financial emergencies. After achieving this goal, it is advisable to increase the amount contributed towards retirement savings to ensure a secure financial future.

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  • 10. 

    Your first Baby Step is to pay off all of your debt.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    The explanation for the given answer "False" is that the first Baby Step is not to pay off all of your debt. The first Baby Step, according to Dave Ramsey's financial plan, is to save $1,000 as an emergency fund. Once you have this emergency fund in place, you can then start tackling your debt using the debt snowball method. So, paying off all of your debt is not the initial step in the Baby Steps plan.

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  • 11. 

    Most often identity theft is committed by strangers.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    Identity theft is not most often committed by strangers. In fact, studies have shown that a significant portion of identity theft cases involve someone known to the victim, such as a family member, friend, coworker, or acquaintance. This is known as "familiar fraud" and can occur when someone close to the victim gains access to their personal information and misuses it for fraudulent purposes. Therefore, the correct answer is False.

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  • 12. 

    There are two major credit bureaus: TransUnion and Experian.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    The statement is false because there are actually three major credit bureaus, not two. The three major credit bureaus are TransUnion, Experian, and Equifax.

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  • 13. 

    The fastest growing group of bankruptcy filers is senior citizens.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    The statement that the fastest growing group of bankruptcy filers is senior citizens is false. While it is true that senior citizens are facing financial challenges and filing for bankruptcy at higher rates than in the past, other age groups, such as young adults and middle-aged individuals, are also experiencing an increase in bankruptcy filings. Therefore, it is incorrect to say that senior citizens are the fastest growing group of bankruptcy filers.

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  • 14. 

    The power of cash is immediate

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    Cash is considered to have immediate power because it can be used for transactions instantly. Unlike other forms of payment, such as credit cards or online transfers, cash does not require any processing time or verification. It is universally accepted and can be used immediately to make purchases or settle debts. This immediate usability of cash gives it a certain level of power and convenience in daily transactions.

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  • 15. 

    In order to have a FICO score, you must have debt.

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    The statement is true because having debt is one of the factors considered in calculating a FICO score. A FICO score is a credit score that helps lenders assess the creditworthiness of an individual. It takes into account various factors, including the amount of debt a person has, their payment history, length of credit history, types of credit used, and new credit. Therefore, in order to have a FICO score, having some form of debt is necessary as it is a key component in the calculation process.

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  • 16. 

    The envelope system includes using credit cards for emergencies.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    The statement is false because the envelope system is a budgeting method that involves using physical envelopes to allocate cash for different spending categories, rather than relying on credit cards. The purpose of the envelope system is to help individuals control their spending and stick to their budget by using cash for everyday expenses. It does not involve the use of credit cards, especially for emergencies.

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  • 17. 

    The average mutual fund has anywhere from 90-200 companies in it.

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    The given statement states that the average mutual fund typically contains a range of 90-200 companies in it. This implies that a mutual fund is a diversified investment vehicle that holds a portfolio of stocks or securities from multiple companies. Therefore, the statement is true as it suggests that mutual funds generally include a diverse range of investments from various companies.

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  • 18. 

    You do not need renter’s insurance if you live in a dorm at college

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    Living in a dorm at college does not exempt you from needing renter's insurance. While the college may have insurance coverage for the building itself, it typically does not cover personal belongings. Renter's insurance provides coverage for personal property, liability protection, and additional living expenses in case of theft, damage, or accidents. Therefore, it is advisable for students living in dorms to have renter's insurance to protect their belongings and themselves from potential financial losses.

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  • 19. 

    Liquidity is the availability of your money.

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    Liquidity refers to the ease with which an asset or investment can be converted into cash without causing a significant impact on its market price. In other words, it is the measure of how quickly and easily you can access your money. Therefore, the statement "Liquidity is the availability of your money" is true as it accurately describes the concept of liquidity.

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  • 20. 

    You need a credit card in order to rent cars and check in to hotels.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    The statement is false because while it is true that many car rental companies and hotels require a credit card for reservations, there are alternatives available such as using a debit card or paying with cash. Some establishments may also accept pre-paid cards or allow for a cash deposit. Therefore, it is not always necessary to have a credit card in order to rent cars and check in to hotels.

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  • 21. 

    Cash advance and title pawn companies charge roughly the same interest rates and fees on loans as a credit card company.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    Cash advance and title pawn companies typically charge much higher interest rates and fees on loans compared to credit card companies. These alternative lending options often target individuals with poor credit or financial difficulties, and as a result, they impose higher costs to compensate for the increased risk. Credit card companies, on the other hand, may charge high interest rates, but they generally offer more competitive rates and fees compared to cash advance and title pawn companies. Therefore, the statement is false.

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  • 22. 

    Henry Ford and J.C. Penney were pioneers of the use of credit.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    Henry Ford and J.C. Penney were not pioneers of the use of credit. While J.C. Penney did introduce the concept of installment buying in his department stores, it was not a pioneering effort as credit had already been used in various forms prior to that. Henry Ford, on the other hand, revolutionized the automobile industry with his assembly line production but did not play a significant role in the development or popularization of credit. Therefore, the statement is false.

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  • 23. 

    Using a credit card is a good way to find a bargain

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    Using a credit card does not guarantee finding a bargain. While credit cards may offer rewards or cashback programs, the actual price of the item being purchased remains the same. A bargain is typically associated with finding a lower price or a good deal, which is not directly related to using a credit card. Therefore, the statement is false.

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  • 24. 

    You should always use a realtor when selling a home.

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    Using a realtor when selling a home is recommended because they have the knowledge, experience, and resources to effectively market and sell the property. Realtors can provide valuable guidance on pricing the home, staging it for potential buyers, negotiating offers, and navigating the legal and paperwork aspects of the transaction. They also have access to a wide network of potential buyers and other real estate professionals. Overall, using a realtor can help ensure a smoother and more successful selling process.

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  • 25. 

    Term life insurance is more expensive because it funds a savings plan.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    Term life insurance is actually less expensive compared to other types of life insurance because it does not include a savings component. Unlike whole life insurance or universal life insurance, term life insurance only provides coverage for a specific period of time and does not accumulate cash value. Therefore, the statement that term life insurance is more expensive because it funds a savings plan is false.

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  • 26. 

    Spending cash is more painful than using a debit card.

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    Using a debit card is less painful than spending cash because when using a debit card, the transaction is electronic and the individual does not physically see the money leaving their possession. On the other hand, when spending cash, there is a physical exchange of money, making it more tangible and therefore more painful. This can lead to individuals being more cautious and mindful of their spending when using cash compared to using a debit card.

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  • 27. 

    Men and women have different views about money.

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    Men and women often have different perspectives on money due to various factors such as societal norms, cultural upbringing, and personal experiences. These differences can manifest in areas such as spending habits, financial priorities, and attitudes towards risk and investment. Research has shown that men tend to be more risk-averse and focused on long-term financial goals, while women tend to prioritize financial security and have a more cautious approach to money management. Therefore, it can be concluded that men and women do indeed have different views about money.

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  • 28. 

    Personal finance is 20% behavior, 80% head knowledge.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    This statement suggests that personal finance is primarily influenced by behavior rather than head knowledge. It implies that one's actions and habits when it comes to managing money have a greater impact on their financial well-being than their level of knowledge or understanding about personal finance. Therefore, the correct answer is False, indicating that behavior plays a more significant role (80%) compared to head knowledge (20%) in personal finance.

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  • 29. 

    The average job is five years in length.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    The statement "The average job is five years in length" is false. The average job length can vary greatly depending on the industry, occupation, and individual circumstances. While some jobs may last for several years, others can be short-term or temporary. Additionally, factors such as economic conditions, technological advancements, and individual career choices can also impact job duration. Therefore, it is not accurate to claim that the average job is five years long.

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  • 30. 

    Not every state has FICA tax withholdings

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    FICA tax withholdings are mandatory deductions from an employee's paycheck that go towards Social Security and Medicare. Every state in the United States has FICA tax withholdings as these are federal taxes. Therefore, the statement "Not every state has FICA tax withholdings" is false.

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  • 31. 

    There is no interest charged on debit card purchases

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    Debit card purchases do not incur interest charges because the money used for these transactions is directly deducted from the cardholder's bank account. Unlike credit cards, which allow users to borrow money and pay it back later with interest, debit cards only allow spending what is available in the linked account. Therefore, there is no need for interest charges on debit card purchases.

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  • 32. 

    The number one cause of divorce in this country is money issues.

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    Money issues are a major source of conflict in many marriages, leading to stress, arguments, and ultimately divorce. Financial problems can arise from differences in spending habits, financial goals, or income disparities. Additionally, financial stress can exacerbate other underlying issues in a relationship. Therefore, it is plausible that money issues are the number one cause of divorce in the country.

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  • 33. 

    Walk away power means you leave if you don’t get the price you want.

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    Walk away power refers to the ability to reject a deal or negotiation if the desired price or terms are not met. It means that if you do not get the price you want, you have the option to leave or walk away from the negotiation. Therefore, the statement "Walk away power means you leave if you don't get the price you want" is true.

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  • 34. 

    A good age to open a checking account is between the ages of 13 and 15.

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    Opening a checking account between the ages of 13 and 15 is considered a good age because it allows young individuals to start learning about financial responsibility and money management at an early stage. At this age, teenagers are old enough to understand the basics of banking, such as depositing and withdrawing money, writing checks, and tracking their expenses. It also provides an opportunity for parents to guide and educate their children about financial literacy, budgeting, and saving habits. Overall, opening a checking account at this age can help teenagers develop important financial skills that will benefit them in the long run.

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  • 35. 

    The purpose of insurance is to increase your investments.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    The purpose of insurance is not to increase your investments, but rather to provide financial protection against potential risks and losses. Insurance helps to mitigate the financial impact of unforeseen events such as accidents, natural disasters, or medical emergencies. It provides a safety net by compensating for damages or losses incurred, rather than focusing on increasing investments. Therefore, the statement that the purpose of insurance is to increase investments is false.

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  • 36. 

    Increasing your deductible usually decreases the premium.

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    Increasing your deductible usually decreases the premium because a deductible is the amount of money that you have to pay out of pocket before your insurance coverage kicks in. By increasing the deductible, you are taking on more of the financial risk, which means the insurance company has to pay less in the event of a claim. As a result, they are able to offer lower premiums since they are assuming less risk.

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  • 37. 

    There are two parts to FICA: Medicare and Social Security

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    FICA stands for the Federal Insurance Contributions Act, which is a payroll tax that funds both Medicare and Social Security. Therefore, it is correct to say that there are two parts to FICA: Medicare and Social Security.

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  • 38. 

    If your mortgage payment exceeds 25% of your net income, you have bought more house than you can afford.

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    If your mortgage payment exceeds 25% of your net income, it indicates that a significant portion of your income is going towards housing costs. This suggests that you may have bought a house that is beyond your financial means, as a higher percentage of your income being allocated to housing leaves less room for other necessary expenses and financial goals. Therefore, the statement is true.

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  • 39. 

    Your salary is the most important motivation for working.

    • A. 

      True

    • B. 

      False

    Correct Answer
    B. False
    Explanation
    While salary is an important factor for motivation, it is not necessarily the most important. Other factors such as job satisfaction, work-life balance, career growth opportunities, and a positive work environment can also play a significant role in motivating individuals. Therefore, it is not accurate to state that salary is the most important motivation for working.

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  • 40. 

    It usually takes three months for your budget to begin working well.

    • A. 

      True

    • B. 

      False

    Correct Answer
    A. True
    Explanation
    The statement suggests that it takes approximately three months for a budget to start functioning effectively. This implies that it takes time for the budgeting process to settle in and for any adjustments or changes to take effect. Therefore, the answer "True" indicates that the statement is correct and aligns with the typical timeline for a budget to start working well.

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  • 41. 

    Why do you plan for retirement instead of relying on Social Security to take care of you?

    • A. 

      Monthly Social Security benefits are not going to be enough to live on comfortably

    • B. 

      You are depending on another to take care of you

    • C. 

      The system may not be able to pay promised benefits in the future

    • D. 

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    Planning for retirement is necessary because relying solely on Social Security may not provide enough income to live comfortably. Social Security benefits are typically not sufficient to cover all living expenses, especially as the cost of living continues to rise. Additionally, depending on another entity, such as the government, to take care of one's financial needs can be risky. There is always a possibility that the Social Security system may not be able to pay the promised benefits in the future due to various economic factors. Therefore, it is prudent to plan for retirement by saving and investing in order to secure a comfortable future.

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  • 42. 

    Which is a type of insurance to avoid?

    • A. 

      Long-term care insurance

    • B. 

      Accidental death insurance

    • C. 

      Identity theft insurance

    • D. 

      Disability insurance

    Correct Answer
    B. Accidental death insurance
    Explanation
    Accidental death insurance is a type of insurance that provides coverage in the event of death due to an accident. This type of insurance is typically not necessary for most individuals, as it duplicates coverage that may already be provided by life insurance or other types of insurance policies. Therefore, it is often recommended to avoid accidental death insurance in order to prevent unnecessary expenses and overlapping coverage.

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  • 43. 

    What is the difference between gross pay and net pay?

    • A. 

      Gross pay is before taxes, net pay is after taxes

    • B. 

      Gross pay is after taxes, net pay is before taxes

    • C. 

      There is no difference between the two

    • D. 

      The difference is determined primarily by your current tax bracket

    Correct Answer
    A. Gross pay is before taxes, net pay is after taxes
    Explanation
    Gross pay refers to the total amount of money earned by an individual before any deductions or taxes are taken out. It represents the full amount of income earned. On the other hand, net pay refers to the amount of money an individual receives after all deductions, such as taxes, insurance, and retirement contributions, are subtracted from the gross pay. It represents the actual amount of income that the individual takes home. Therefore, the correct answer is "Gross pay is before taxes, net pay is after taxes."

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  • 44. 

    You are ready to buy a home under the following conditions:

    • A. 

      You have a good paying job and you have worked there for three years

    • B. 

      You have an emergency fund

    • C. 

      You have at least 10% down

    • D. 

      Both b and c

    Correct Answer
    D. Both b and c
    Explanation
    The correct answer is "Both b and c." This means that in order to be ready to buy a home, you need to have both an emergency fund and at least 10% down payment. Having a good paying job and working there for three years is not sufficient on its own, but having both an emergency fund and the required down payment shows financial stability and preparedness for homeownership.

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  • 45. 

    Which tax may or may not be withheld from your paycheck depending on where you live?

    • A. 

      Federal

    • B. 

      FICA

    • C. 

      State

    • D. 

      All are mandatory withholdings

    Correct Answer
    C. State
    Explanation
    The tax that may or may not be withheld from your paycheck depending on where you live is the State tax. This tax varies from state to state, and some states do not have a state income tax at all. Therefore, depending on the state in which you reside, you may or may not have state tax withheld from your paycheck.

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  • 46. 

    In general, a good way to save on insurance premiums is to:

    • A. 

      Get an umbrella policy

    • B. 

      Decrease your deductible

    • C. 

      Increase your deductible

    • D. 

      Increase your liability

    Correct Answer
    C. Increase your deductible
    Explanation
    Increasing your deductible is a good way to save on insurance premiums because it means you are willing to pay a higher amount out of pocket before your insurance coverage kicks in. By choosing a higher deductible, the insurance company sees you as taking on more financial responsibility, which reduces the risk for them and allows them to lower your premium. This can be especially beneficial for individuals who have a good track record of not filing claims and are confident in their ability to cover a higher deductible if needed.

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  • 47. 

    Which is not a characteristic of cash?

    • A. 

      Visual

    • B. 

      Walk away power

    • C. 

      Emotional

    • D. 

      Immediacy

    Correct Answer
    B. Walk away power
    Explanation
    "Walk away power" is not a characteristic of cash. Cash does not have the ability to make someone walk away from a transaction or refuse to participate. Cash is a physical form of payment that provides immediacy (ability to be used immediately) and visual (tangible) qualities. It may also have emotional value to some individuals, but "walk away power" is not applicable to cash.

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  • 48. 

    What is a good age for kids to open their first checking account?

    • A. 

      8-10 years old

    • B. 

      Wait until they are18 years old

    • C. 

      13-15 years old

    • D. 

      When they have a job

    Correct Answer
    C. 13-15 years old
    Explanation
    A good age for kids to open their first checking account is between 13-15 years old. At this age, children are starting to develop a better understanding of financial responsibility and can learn valuable lessons about managing money. They may also have more opportunities to earn income through part-time jobs or allowances, which can further enhance their financial skills. Waiting until they are 18 years old might be too late to teach them important financial habits, while opening an account at 8-10 years old may be too early for them to fully grasp the concept of banking.

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  • 49. 

    Sending in a proof of purchase to get free gifts or cash back is called:

    • A. 

      Couponing

    • B. 

      Instant mailing

    • C. 

      Rebating

    • D. 

      Online negotiating

    Correct Answer
    C. Rebating
    Explanation
    Rebating refers to the practice of sending in a proof of purchase to receive free gifts or cash back. This involves customers providing evidence of their purchase to the manufacturer or retailer in order to claim their rebate. It is a common marketing strategy used to incentivize customers to make purchases by offering them additional benefits or discounts.

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  • 50. 

    Joe tries to bargain at an electronic store but is unable to get the price down to where he wants it. What should his next step be?

    • A. 

      Walk away

    • B. 

      Ask about 90 days same-as-cash

    • C. 

      Shut up

    • D. 

      All of the above

    Correct Answer
    A. Walk away
    Explanation
    If Joe is unable to negotiate the price to his desired level, his best next step would be to walk away. This means that he should leave the store without making a purchase. Walking away is a strategy to show the store that Joe is not willing to pay the current price and is willing to explore other options or look for a better deal elsewhere. By doing so, Joe can potentially find a better deal or the store might reconsider and offer a lower price to win his business.

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