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a given compounding interest rate. 13. Make the savings deposit a high priority budget item, not an afterthought! 14. A round up account is a savings program that “rounds up” debit card purchases to the nearest dollar and automatically transfers the difference into a savings or investment account. They are a good savings tool because they enable painless and automatic saving. Some services invest your money. Some place the money in a savings account. 15. James, you are living paycheck to paycheck. You need to turn that around! Get working on an emergency savings fund. Start by depositing your bonus check into it. Save 3-6 months of living expenses before you indulge in that new snowboard which is not a necessity! 16. D 17. C 18. Alison should reinvest the dividends in the stock. She should not spend it. Compounding applies to investments too. 19. Formula: Time to double money = 72/ compounding interest rate. 18 years; 10 years; 6.5 years 20. Student’s discretion My Personal Savings Habit Pledge saving; habit retirement; automated 3; 6; more liquid; credit; day short; student’s discretion long; student’s discretion 76; credit card/consumer the birth of a child, taking on the responsibility of caring for a parent, upgrading to a more expensive home or car, etc Are You Financially Literate? Chapter 8 Quiz B; Liquid means easily convertible to cash. Only the savings account has immediate access to money. The other assets are not as liquid. A and D are time deposits with substantial penalties for early withdrawal. A home could take months to sell. Health care costs, interest payments on debt 1. 2.
such as credit cards and student loans, and a small amount for personal expenses.
18. C 19. Answer should indicate that compounding means interest earned is added to the principal balance and included in the calculation of interest earned in the earnings compounding period. ie if an account has $100 and pays 2% compounding interest, the earnings of $2 is added to the balance of $100 and interest is calculated on $102 Jenna and Brenna Go House-Hunting 1. She needs to earn $15,000 more to reach $30,000 (20% of $130,000) 2. SINGLE FAMILY HOME: Should indicate a structure for one family and including the land it sits on. CONDOMINIUM: Should indicate a multi- occupant building. Units are separately owned and common areas are owned jointly by all of the unit owners. TOWN HOME: Should indicate individual houses placed side-by-side with one or two shared walls. COOPERATIVE: Should indicate that the homeowner is a partial owner of the entire building with a right to occupy their designated unit. MOBILE/MANUFACTURED HOME: Should indicate pre-fabricated moveable structure; must have toilet, cooking and sleeping facility to get a mortgage deduction. MULTIFAMILY DWELLING: Should indicate a building designed to house more than one family in separate units. They are called encumbrances. (a) is a common utility easement which stays on the property; (b) is an encroachment and unless agreed to should be removed; (c) is a standard property tax lien which stays on the property although any taxes due and owing should be paid by the seller before Jenna takes title. Equity is the value of a piece of property, minus any debts secured by the property. It is part of the owner's net worth. Homeowners are given a special tax deduction called the mortgage deduction. They may deduct the amount of interest they paid on their mortgage from their income, which reduces their tax liability. They may also deduct property taxes. 6. 20. F
3. 4. 5.
D D
Retirement, homeownership, a vacation home, college tuition for your kids, starting a business, having a certain net worth by a specific date or age.
6. 7. 8. 9.
D
C.
F
With the Rule of 72 she can divide 72 by 6 to find the amount of time it will take to double her money. In this case it is more than 12 years. She needs a higher rate of interest. 10. D 11. Having actual, measurable financial goals provides incentive to save and invest. She needs to write her goal down, determine how much she’ll need to make this goal a reality, start saving and investing to achieve the goal, and tracking her progress. 12. D 13. A round up account mobile is a micro- investing tool that rounds up debit card purchases to the nearest dollar and saves or invests the difference. (Example is student discretion.) 14. Investing commits money to buy assets with the expectation that the assets will increase in value over time. Saving simply sets the money aside for later use, but savings should always be in a compounding account. Compounding by reinvesting earnings applies to both saving and investing. 15. Some employers have programs that automatically deduct savings from an employee’s paycheck. You can also set up an automatic deduction through a checking account. Removing personal discretion from the savings equation makes saving effortless and more likely to be successful. 16. Marcus needs to get his priorities straight! He should make savings a top priority budget item. Only after he’s saved the budgeted amount are games and restaurants ok. 17. Students should indicate that savings PRODUCT PREVIEW 3. 4. F 5.
rates have declined sharply over the last 3 decades, so that most Americans have stopped saving; the consumption boom brought about by credit card use requiring monthly payments which eat away at savings is a likely culprit.
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