WISE TEST REVIEW.

WISE TEST REVIEW

Question Correct Answer Reason
If a person makes a deposit of $10,000 or more into a bank account, the bank must notify the: Correct Answer US Treasury Department Reason In order to track large deposits, the federal government requires that deposits of $10,000 or more be reported to the Treasury Department. Some concerns may be that a person might be trying to avoid paying taxes on game winnings or perhaps illegal gains.

What action should a person take who must make a tuition payment at the end of August each year? Correct Answer Decide how much money will be needed and then place 1/12th of that amount in a separate account each month Reason This is an example of “pay yourself first”. The best way to save in order to make a yearly purchase, in this case a tuition payment, is to immediately deposit a portion of the payment in a form of savings account (so it can earn interest throughout the year) as soon as the person is paid each payroll period.

Which financial product can you buy for $25, is safe, and will be worth $50 at a future date? Correct Answer Series EE savings bond Reason Series EE savings bonds, which are issued and backed by the U.S. Treasury, are purchased for one-half of their face value. These bonds earn interest monthly, and a $50 Series EE bond, which is purchased for $25, is guaranteed to reach face value within 17 years, and may reach face value sooner.

Question Correct Answer Reason Safe-deposit boxes are:
Safe and can be accessed only by the owner of the box Reason Safe-deposit boxes are metal boxes in a bank's vault. Taking two keys, one owned by the bank and one by the customer, to open the safe-deposit box provides more safety for the customer. Only the owner can access the box. The bank customer pays a small annual rental fee to the bank for use of the safe-deposit box.

Question Correct Answer Reason The most liquid type of investment is:
A money market account Reason The most liquid type of savings is a statement savings account. You can withdraw money from it quickly and easily at any time without penalty. Stocks, bonds, and real estate have less liquidity than statement savings accounts because these investments must first be sold before they can be converted to cash. Typically, the greater the liquidity and flexibility, the lower the interest rate paid. The cost of this flexibility and liquidity is a lower interest rate than is paid on certificates of deposit and other investments.

To qualify for a Federal Housing Administration (FHA) loan, a person must generally: Correct Answer Fulfill income guidelines Reason The Federal Housing Administration (FHA) insures lenders who make mortgage loans that are riskier than regular bank loans because FHA loans are made to individuals who usually would not qualify for regular low-cost mortgages from banks (usually first-time home buyers with lower income and a weaker credit score). The objective of this federal agency is to encourage home ownership while helping to protect the lenders at the same time.

When a person brings an item to a pawnshop to obtain cash, the transaction is considered: Correct Answer A collateralized loan Reason Since pawnshops make loans based on determining the value of collateral (a tangible object such as jewelry, cameras, musical instruments) they receive, the loan is considered a collateralized loan.

When a person declares bankruptcy that fact will appear on the person’s credit report: Correct Answer For a 10 year period Reason Most of the adverse information on a credit report appears for 7 years. After a declared bankruptcy, the limit is 10 years.

A person has three credit cards with very large outstanding balances and is unable to make payments on any of them. Which action should the person take? Correct Answer Notify the credit card companies in order to negotiate a new payment plan Reason When experiencing financial difficulties, the first action to take is to notify creditors, in this case the three credit card companies. Quite often the company will assist in negotiating new terms.

What is meant by an uncollateralized loan? Correct Answer A personal loan without assets to cover the loan amount Reason Collateral is a tangible asset that is used to secure a loan. In the case of a mortgage, the actual house or apartment serves as the collateral for that loan. The same is true of a car loan. If the person who takes the loan, defaults on that loan, the bank or other lending agency has the right to keep the collateral. Therefore, an uncollateralized loan is one that does not have an asset to support the loan.

The type of credit card issued by an oil company, bank, or department store is: Correct Answer A revolving charge card Reason A revolving charge account has a pre-approved dollar limit that is the most the unpaid balance can be at any specific time. When a consumer charges a purchase on the card, it raises the balance. Making a payment reduces the balance by the amount of the payment minus the finance charge owed that month. Thus, the balance "revolves" up and down as the consumer charges purchases and makes payments.

You can continue to charge purchases on your credit card when: Correct Answer The amount you owe on the card is below your credit limit Reason When the credit card account balance is greater than the credit limit, the consumer cannot charge anymore on the card because that would be more credit than he was approved.

Which of the following provides an increase in assets or wealth? Correct Answer Having capital gains Reason Volunteering and running in a marathon are examples of giving one's time for a good cause. Taking out a loan creates debt not wealth. Capital gains are the profits from selling an investment product and will add to financial assets.

When money is not used and goods and services are exchanged for other goods and services, this system is called: Correct Answer Barter Reason Bartering means exchanging goods and services with another person and makes it possible to satisfy needs and wants without spending money. Bartering cannot be used for many transactions including the purchase of investments or insurance.

Jami lost her debit card. She did not report it missing for 3 months. If an unauthorized person used her debit card, her maximum liability is: Correct Answer Unlimited liability Reason According to the Electronic Fund Transfer Act, if a consumer reports the theft or loss of an ATM or debit card to the issuing financial institution within two business days, he/she is liable for not more than $50 of unauthorized purchases. If reported within 60 days, the consumer is liable for up to $500 of unauthorized purchases. If reported after 60 days or not reported, the consumer may be liable for the entire amount of unauthorized purchases.

Question Correct Answer Reason The common name for U.S. currency is:
Green backs Reason The background color of all United States currency (bills) is primarily green.

A person complains about how expensive it is to be a cigarette smoker. One of the reasons cigarettes are so expensive is that: Correct Answer The government imposes an excise tax on them Reason The government may impose a tax on specific goods and services such as alcohol, cigarettes, gasoline, and airline services, which are called excise taxes. These taxes produce revenue for the government and are usually placed on items not considered necessities. Often, as in the case of alcohol and cigarettes, these taxes are also levied as a way to try to deter certain behaviors. As a result, these taxes have become known as “sin taxes”.

One of the benefits of holding an investment for over a year rather than selling it in less than a year is that the: Correct Answer Capital gains on the investment will be taxed at a lower rate Reason Capital gains are profits made from the sale of capital assets such as stocks and bonds and are tax deferred until the asset is sold. Capital assets that are held over one year are considered long-term capital gains and are taxed at a lower tax rate or in some cases are not taxed at all.

Question A person's debt ratio shows the relationship between debt and net worth. The lower the ratio the: Correct Answer The better off financially the person is Reason Since the debt ratio is calculated by dividing liabilities by net worth, the lower the debt ratio the better; that is the better off the person is financially.

A man budgeted $200 a month for clothing. This month the man spent $150 on clothing therefore that budget item is considered to have: Correct Answer A budget variance Reason The difference between the amount of money budgeted for items ($200 for clothing) and the actual amount of money spent for those items ($150 for clothing) is called a budget variance.

Question Correct Answer Reason Our values are:
The basic principles that guide our actions and beliefs Reason Our values are the beliefs that determine what we hold to be most important and worthwhile for ourselves and society. A person's values are likely to include beliefs about religion, the role of government, the importance of family, and social responsibility. One person may value financial success above all while another may place a higher priority on community service.

Question Correct Answer Reason An example of a fixed expense is:
Apartment rent Reason A fixed expense remains constant and includes rent. Fixed expenses are in contract to variable costs that change and do not remain constant. Since rent does not change during the term of a lease, it is considered a fixed expense.

Question Correct Answer Reason Goals:
Need to be realistic, have a target date, and, if possible, an associated cost Reason Goals usually differ for individual and family. Goals change as we achieve some and set new ones, as we move into new life stages, and as we experience major changes such as marriage, birth of a child, divorce, layoff, or retirement. Goals also need to be clearly stated with target dates. Short-term goals change most frequently. Long-term goals usually change the least over time.

Question Another term for the dollar amount of your paycheck after taxes and other withholdings is: Correct Answer Net income Reason Gross income minus all taxes and other required withholdings equals net income, sometimes called take-home pay. Gross pay is your salary or wage before any taxes or other withholdings, such as child support, health insurance, and union dues, have been subtracted. Net income is the dollar amount of your paycheck and is also called take-home pay.

Rossi has a part time job delivering pizzas to raise money for college in two years. Going to college is one of Rossi's: Correct Answer Goals Reason Some goals can be achieved with little time, energy, money and other resources. Other goals, like graduating from college, require the use of extensive resources. You usually have to fulfill several short-term and intermediate-term goals in order to reach a major long-term goal.

Something you are working to achieve within a defined period of time is a(an): Correct Answer Goal Reason A goal is something you are working toward in the future. Examples include graduates from high school or college, saving enough money to buy a specific item, and getting a full-time job in the field of your choice after completing school. Goals are divided into short-term, intermediate-term, and long-term, goals based on the amount of time it will take for the goal to be achieved. A goal should be clearly stated, have a target date and, if possible, have an associated cost.

A company offers a defined-contribution pension plan which means that upon retirement the employee will receive: Correct Answer The total amount of money contributed plus investment earnings Reason A defined-contribution plan has an individual account for each employee. The document that explains the plan indicates how much the employer will contribute and does not promise any particular benefit. On retirement, or when the individual becomes eligible for benefits, the benefit is the total amount in the participant’s account, including investment earnings on the funds in the account.

After five years of owning a Roth Individual Retirement Account (IRA), a person wants to buy his first home, the person can withdraw money from the Roth IRA : Correct Answer Tax and penalty free Reason Under normal circumstances, withdrawals from a Roth IRA before retirement age are subject to both taxes and a penalty. However, use of funds for education, purchase of a first home and medical emergencies are three situations which permit the holder of the IRA to use savings in the funds without incurring a penalty or paying taxes on the amount withdrawn.

A person owns a stock that pays a $2.00 a share dividend. If the person chooses to reinvest that dividend, this means that the $2.00 will go toward buying: Correct Answer More of the same stock Reason A dividend reinvestment plan is designed to help the shareholder acquire additional shares (or partial shares if there is not enough money) of the stock by immediately reinvesting the dividend in the same company’s stock as soon as the dividend is declared. The shareholder is still responsible for paying taxes on the dividends earned.

What is the largest equities market in the world? Correct Answer New York Stock Exchange (NYSE) Reason The largest of these markets is the New York Stock Exchange. It was founded in 1792 under a tree on Wall Street. Also known as the "Big Board" and "the Exchange." the NYSE has the most stringent listing requirements and is governed by a board of directors. Recent events have led the NYSE to develop and enforce stricter rules of corporate governance.

The interest earned on United States Series EE Savings Bonds is: Correct Answer Exempt from state and local taxes Reason The interest rate on US savings bonds is exempt from state and local taxes.

Investors select "blue chip" stocks because they: Correct Answer Have a reputation for quality management and sometimes pay dividends Reason Blue chip stocks are of well-known companies with a long record of profit growth and or dividend payment and a reputation for quality management, products, and services. Some examples of blue chip stocks: General Electric and DuPont.

To determine the time value of depositing $100 in a savings account, a person needs to know the interest rate and: Correct Answer The rate of inflation Reason The “time value of money” is a way of looking at how much a saving or investment is worth at the end of a period of time when it is compared to the rate of inflation during that period and the person’s earning power.

Money received today is worth more than the same amount of money received sometime in the future is: Correct Answer The time value of money Reason The time value of money is the concept that money received today is worth more than the same amount of money received in the future. If you receive $100 today, you can put it to work immediately through savings or investing immediately.

Which type of financial institution usually pays the highest rate of interest on savings account balances? Correct Answer Credit unions Reason Credit unions usually pay the highest rates of interest because they have lower risks and costs of operation. They are not-for-profit organizations, and their members have something in common, such as their employer, geographic area, or religious affiliation. Credit unions also offer fewer services than a commercial bank.

The information that a lender must disclose to consumers applying for a cash loan is: Correct Answer The annual percentage rate (APR), and/or the finance charge Reason The Consumer Credit Protection Act of 1968, known as the Truth in Lending Act, stipulates that consumers be told annual percentage rate (APR), the finance charge, and any special loan terms for mortgages, cash loans, vehicle loans, etc.

Lamar believes that interest rates are going to fall in the near future and remain low for a considerable period of time. She should invest in: Correct Answer A long-term, fixed rate certificate of deposit Reason By investing now in a long-term, fixed rate certificate of deposit, she will lock in the higher current rate over a long period of time. If she waited until later to invest and interest rates had fallen, the certificate of deposit would have a lower interest rate. This is an example of interest rate risk.

For the past five years, a person has had a $20,000 whole life insurance policy that has a cash value clause. The person decides to surrender the policy. At the time of surrender, the person will receive: Correct Answer a calculated amount of money which includes the premiums paid as well as the interest on that money Reason The cash value of a whole life insurance policy is based on premiums paid plus some of the interest earned.

A woman has just received a very expensive piece of jewelry. The woman has homeowner's insurance. Which statement would it be most appropriate for her to make to her insurance agent? Correct Answer "I think I need a personal property floater." Reason A personal floater is additional property insurance, which is available within a homeowner’s policy, to cover damage or loss of a specific item of value.

A person buys a flat screen, plasma, theater-like television. The person has homeowner’s insurance. Why would it be appropriate to add a personal property floater to that insurance? Correct Answer To cover the cost of replacement should the television get damaged or stolen Reason An extremely expensive item such as furs or jewelry or, in this case, the theater-like television, would usually not be covered in a standard insurance policy. As a result, policy holders often opt to attach a rider or “floater” to the policy to cover replacement or repair of these items. The policy holder also must pay an additional premium for the floater coverage.

When Jessie needs health care, she must first go to her primary care physician who coordinates her care and decides whether Jessie should see a specialist. Jessie pays $10 as the co-pay when she sees her primary care doctor. Jessie has which type of health insurance? Correct Answer Managed care health plan Reason A managed care health plan refers to prepaid health plans that provide comprehensive health care to members. They are offered by health maintenance organizations, preferred provider organizations, exclusive provider organizations, point-of-service plans, and traditional health insurance companies. While differing from one another, almost all managed care plans require the meeting with the primary care physician first, referral by the primary care physician to specialists, and co-payments.

John's job provided the main income for his family. He died unexpectedly and had no life insurance. The probable financial consequence for his wife and two children does not include: Correct Answer An increase in income and expenses Reason The largest cost for the surviving family if a spouse dies is ongoing income, especially until the children are grown. Dual-earner families usually need both incomes to maintain their lifestyles and financial obligations, such as mortgages, car loans, and credit card debt. When one wage-earner dies prematurely, the other one needs ongoing income until the debts are paid off and/or lifestyle changes are made. Being under-insured or lack of insurance typically results lowers the family's standard of living.

How can individuals be prepared for losing their job or having a large medical expense? Correct Answer Save at least three months of income Reason People generally need three to six months' of income in a savings account to cover unknown and unexpected events and expenses.

Which documents should be stored in a safe-deposit box? Correct Answer Mortgage loan papers Reason The purpose of having a safe deposit box is to have a fireproof, secure place to store valuables and irreplaceable items including legal documents such as a birth certificate and precious jewelry.

Which of the following is considered to be open-end credit? Correct Answer Department store charge cards Reason Open-end credit is a revolving live of credit that is offered by banks and other lenders to consumers. There is a limit set on the line of credit and the funds, products or services are accessed using a credit or debit card, check, store charge card or cash advance. Consumers pay interest on the outstanding balance. A car loan is made for a specified amount and a specific length of time and is therefore considered closed-end credit. A mortgage loan is also considered a form of closed-end credit since the house serves as collateral for the loan which is made at a specified interest rate for a specified time period.

Matt's wallet, with all his credit cards, was stolen. He needs to: Correct Answer Notify each credit card company immediately Reason Under federal law, if a thief uses Matt's credit card or account number, the most he is liable for is $50 per card if the creditor is notified within two business days. If he contacts his card company before any unauthorized charges are made, he is not responsible for any unauthorized charges. Matt should have a list of his credit cards with account numbers and telephone numbers to call in the event his cards are stolen or lost so he can call the credit card companies immediately.

The Truth in Lending Act of 1968 requires creditors to: Correct Answer A: State the monthly finance charge and the Annual Percentage Rate on the monthly statement Reason The total finance charge for a billing period and the Annual Percentage Rate (APR) used to calculate the finance charge must be stated on the monthly credit card statement. There are no federally mandated interest rates or limits on the amount charged to customers for credit.

Which of the following does the Federal Reserve use to regulate the nation's money supply? Correct Answer Monetary policy Reason The Federal Reserve uses monetary policy to regulate the nation's money supply. Monetary policy is directed at expanding or contracting the supply of money and credit in the U.S. economy. In theory, if there is too little money in circulation, consumers will spend less, interest rates will be high, and unemployment will rise. In this situation, the Fed can deliberately increase the amount of money in circulation, leading to lower interest rates, increases in consumer spending, and higher employment rates. If there is too much money in circulation, however, prices rise and the value of the dollar decreases (inflation).

Question The primary sources of income for most people between the ages of 20 and 35 who are not living on a pension or social security are: Correct Answer Salaries, wages, and tips Reason The primary sources of income for most people between the ages of 20 and 35 are salaries, wages, and tips from their employment, also known as earned income. Earned income is also the primary source of income for most other age groups. Very few people have sufficient unearned income - dividends, interest, rents, or profits - to live on without holding a job or running a business.

Purchases made with your debit card are usually: Correct Answer Deducted immediately from your checking account Reason Debit card purchases are immediately deducted from your checking account balance while credit card purchases are added to your credit card balance. You have about 20 days after receiving a credit card bill to pay it without being charged interest. Through the use of a credit card, you get use of goods or services before they are paid for.

Which statement best describes the relationship between a person's educational level and that person's potential earning power? Correct Answer A person with a professional degree is likely to earn at least four times as much per year as a person who did not complete high school Reason There is a direct relationship between educational level and potential earning power. A person with a professional degree, for example, is likely to earn at least four times as much per year as a person who never completed high school.

A high school student has begun to investigate the field of finance as a career choice. In deciding about the field, the student should focus on which question first? Correct Answer Will I find a balance between financial rewards and personal satisfaction from work? Reason It is important to investigate a career with the idea of not only getting a sense of earning potential, types of positions available and the training necessary to acquire these positions but what are the chances that the individual will enjoy working in this field.

An important consideration when saving money for emergencies is: Correct Answer High degree of safety and liquidity Reason An emergency fund account needs to have a high degree of safety and liquidity. High safety means that there is very little chance of losing the principal (dollar amount in the account). High liquidity means it is easy to get cash out of the account quickly.

Question Correct Answer Reason A well stated financial goal is:
Realistic with a target date Reason A goal is something you are working toward in the future. Examples include graduates from high school or college, saving enough money to buy a specific item, and getting a full-time job in the field of your choice after completing school. Goals are divided into short-term, intermediate-term, and long-term, goals based on the amount of time it will take for the goal to be achieved. A goal should be clearly stated, have a target date and, if possible, have an associated cost.

Spreading one's assets across several types of saving and investment products to manage risk is called: Correct Answer Diversification Reason Diversification is dividing investment money among several different types of investments that have different risk levels as a way to reduce the portfolio's market risk.

Ben's annual income is $30,000, and he contributed $3,000 to a traditional IRA in his local bank. What is his taxable income? Correct Answer $27,000 Reason Ben's annual income is low enough that he can deduct his IRA contribution from his taxable income. His taxable income after deducting the contribution is $27,000 ($30,000 - $3,000), so the amount of tax he has to pay is lower than it would have been if he hadn't made the contribution.

What does a well designed, successful financial plan include? Correct Answer Retirement planning Reason A well-designed, successful financial plan includes financial strategies for saving and investing, tax management, risk management, retirement planning and estate planning.

As an investment, a person decides to buy a small house that has three rental apartments. The profits from this investment may be lower then expected if the: Correct Answer One of the apartments is not rented Reason The investor regards the house as a small business. Any time that any apartment is not rented, the investor is losing income and therefore profits on the investment.

Buying a treasury bill (T-bill) is best for investors who are looking for: Correct Answer A secure, low risk investment Reason These bills are backed by the full faith and credit of the US government, therefore considered relatively risk free.

Before the Kiss Corporation can issue stocks or bonds, it must register the issue with: Correct Answer The Securities and Exchange Commission (SEC) Reason Before a company can raise capital by issuing stocks or bonds, it must register the stock or bond issue with the Securities and Exchange Commission (SEC). An investment banking firm assists the corporation in completing the registration forms and serves as an intermediary between the issuing corporation and the initial investors.

Using a brokerage firm, a qualified investor buys 1000 shares of a common stock at $50 a share on 50% margin. This means that the: Correct Answer Brokerage firm is lending the investor 50% of the money Reason Margin is a speculative method whereby an investor borrows up to 50% of the money needed from a brokerage firm in order to buy a wanted stock and pays a fee for the privilege.

A pharmacy is to drugs as the American Stock Exchange is to: Correct Answer Securities Reason A pharmacy, run by a licensed pharmacist, is authorized by a state government to fill prescription orders. A stock or bond exchange is where registered stockbrokers buy and sell securities such as stocks or bonds (fill orders) for investors. Exchanges are similar to other marketplaces in that the prices of the goods (equities) change based upon the basic laws of supply and demand.

An investor bought 40 shares of ABC corporation's stock at $80 a share. Two weeks later, the investor receives notice that the corporation has approved a 2-for-1 stock split. Based on this information, the investor would own at the moment of the split : Correct Answer 80 shares of the stock and the price of each share is $40 Reason A stock split is when the existing stock divides into a larger number of shares and the price of each share is then reduced accordingly, i.e., a 2-for-1 split on 40 shares that is worth $80 would result in 80 shares at $40 at the time of the split. Among other reasons, companies often decide to declare a stock split when they want to bring in more investors and do not want to issue more stock. Or, they believe that by bringing down the price of the stock through a stock split, that they will increase activity and interest in the corporation’s stock.

What is the chief reason corporations issue stock? Correct Answer To raise money for the corporation Reason A corporation issues stock to raise money for expansion or other operations. All of a company's stockholders collectively own the corporation.

Question 42 Correct Answer Reason
If a person has $1,000 in a savings account and earns $20 a year in interest on that account, the rate of return on the money is close to: Correct Answer 2% Reason Though interest is calculated on a daily basis, the closest Annual Percentage Rate earned is 2% ($20 is 2% of $1000).

A person is convinced that a lending institution is charging too much interest for a loan. This person should be aware that: Correct Answer there are state usury laws Reason Charging excessive interest rates on loans is known as “usury” and that practice is prohibited by law.

The cost to use someone else's money for a period of time is called the: Correct Answer Interest rate expressed as a percentage Reason Consumers usually pay a price for the goods and services they buy. The cost to buy the right to use someone else's money for a period of time is called the interest rate.

Question Correct Answer Reason The annual percentage rate (APR) is:
The true cost of credit that must be disclosed on a loan agreement Reason The annual percentage rate (APR) is the true cost of credit because it takes into account all the costs of borrowing. The federal Truth in Lending Act requires that every consumer loan agreement disclose the APR in large, bold print

The only type of life insurance that does not develop a cash value is: Correct Answer Term life insurance Reason Term life insurance provides a death benefit at a low premium cost. All other types of life insurance are described as cash value life insurance because they develop some type of cash value or cash accumulation.

Ben's truck is crushed by a hit-and-run driver. Scott is hit by an uninsured driver. How will they receive payments? Correct Answer Uninsured or no-fault motorist coverage Reason Uninsured or no-fault motorist's protection covers the cost of injuries to the policyholder and family members. Uninsured or no-fault motorist's protection also covers car repairs, financial losses due to injuries, car damage caused by a hit-and-run driver, or the cost of other people's injuries by a driver who has insufficient coverage.

Which of the following is the federal law that requires the cost of credit be disclosed to consumers in bold print on loan agreement? Correct Answer Truth in Lending Act Reason The Truth in Lending Act requires that the finance charge and annual percentage rate be disclosed to the consumer in advance and specifies how the annual percentage rate must be calculated.

In comparing the difference in the rate of return between a safe and secure investment and a speculative investment, the investor should be aware that the return on a: Correct Answer Speculative investment is usually higher than for a conservative or safe investment Reason Since there is greater risk involved in a speculative investment (there is a greater chance of losing the principal as well as not making any money on the investment), these investments offer a higher rate of return in order to attract investors. More conservative investments are usually more stable, the companies issuing these products are less likely to fail, usually pay investors dividends or interest on a regular basis, and therefore tend to attract investors without offering high rates of return.

The term that best describes money left over after paying taxes, fixed and other essential living expenses, is: Correct Answer Disposable income Reason The income left over after paying taxes, fixed expenses and other essential living expenses is called discretionary income. Discretionary income is used for extras such as additional savings and investments, vacations, entertainment, and special purchases.

Question Correct Answer Reason A stock broker or financial consultant:
Gives financial advice to clients Reason Stockbrokers represent individual investors who want to buy or sell stocks, bonds, and other securities, give financial advice to their clients and they work for a securities firm also known as a broker-dealer.

Which of the following is necessary for successful budgeting? Correct Answer The ability to adjust spending to money available Reason The steps in developing a realistic, usable budget once goals have been established are (1) identify the source and amount of all expected income, (2) identify probable fixed and variable expenses, and (3) adjust spending to match the expected income.

Jane saw a breakfast cereal being advertised on TV and insisted that her mother purchase this cereal. This is an example of advertising's: Correct Answer Power of persuasion in creating demand Reason The TV commercial for the cereal helped to persuade Jane to ask her mother to purchase the advertised cereal. This is called the power of persuasion. Many ads and commercials have strong powers to persuade us to buy particular products or services.

Money for saving, investing, or spending cannot be from: Correct Answer Capital losses from the sale of stock Reason A job-holder receives money in the form of a salary or wage. Sometimes people receive a gift of money gift. Money and other items received from the estate of a person who died is called an inheritance. Money could also come from a capital gain on an investment that is sold. If someone buys a stock at $40 a share and sells it at $25 per share, the $15 per share drop is considered a "capital loss" and therefore is money that no longer exists to be spent.

Nora needed to make a long-distance call from a pay phone and did not have the cash. She was able to make the call by using her: Correct Answer Cash card Reason Consumers purchase cash cards for a specific amount of money. The amount paid is stored in the card's memory, and the card can be used to pay for goods or services specific to a particular store or action until the amount stored, or "loaded" on the card, has been spent. The type of cash card Nora used is called a phone card. Some retail chain stores sell cash cards which can be used to pay for their products. Cash cards are either disposable or re-loadable. Disposable cash cards cannot be replenished (loaded again). With re-loadable cash cards, the consumer can return to the merchant and pay to have the balance on the card replenished.

To improve an UNFAVORABLE credit rating, a person should: Correct Answer Pay bills on time Reason To have a good credit rating is a valuable asset. To obtain a good credit rating a person should limit borrowing (charging) to the person’s capacity to repay the amount borrowed (monthly balances). Paying bills on time shows this principle in action.

Debbie was behind on her stereo installment credit contract payments. As a result, the creditor seized and sold the stereo. The sale price did not cover all of the loan balance, the creditor got a court to order her employer to withhold part of her wages. This court order is called: Correct Answer Garnishment Reason A garnishment is a court order requiring an employer to pay part of an employee's wages to the creditor. If the employer doesn't comply with the garnishment, the court may declare the employer to be held in contempt of court. A wage assignment is a contract clause in which the debtor agrees in the original contract to let the creditor ask his/her employer to withhold part of his/her wages and pay them to the creditor if the creditor shows that the employee has defaulted on a credit contract. Because a wage assignment is not a court order, an employer does not have to agree to it.

This organization is responsible for consumer protection in the financial sector. Its jurisdiction includes banks, credit unions, securities firms, payday lenders, mortgage-servicing operations, foreclosure relief services, debt collectors and other financial companies operating in the United States. Correct Answer CFPB—Consumer Financial Protection Bureau Reason The CFPB's creation was authorized by the Dodd–Frank Wall Street Reform and Consumer Protection Act, whose passage in 2010 was a legislative response to the financial crisis of 2007–08 and the subsequent Great Recession.

The Latin phrase used in contract law which literally translates into “Let the buyer beware” is: Correct Answer Caveat Emptor Reason From caveat, "may he beware", the subjunctive of cavere, "to beware" + emptor, "buyer"). Generally, caveat emptor is the contract law principle that controls the sale of real property after the date of closing, but may also apply to sales of other goods.

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