UNIT 2 - Personal Finance

Match the following

• Money withheld from the government & paid out at retirement age

• Gross Pay

• The money you bring home each pay period

• Net Pay

• The money you earn before taxes & deductions are subtracted

• Social Security Tax

• State Income & Federal Income taxes

• Medicare

• Money withheld to help pay for your medical benefits at retirement age

• Taxes

Which shoes the correct order of investments going from LEAST risky to MOST risky?

• Savings Accounts, Certificate of Deposits, Bonds, Stocks

• Bonds, Certificate of Deposits , Savings Accounts, Stocks

• Bonds, stocks, mutual funds, savings accounts

• Stocks, Certificate of Deposits, Savings Accounts, Bonds

Answer explanation

The correct order from least risky to most risky is Savings Accounts, Certificate of Deposits, Bonds, and Stocks. Savings accounts are insured and stable, while stocks are subject to market volatility, making them the riskiest.

Which of the following effects Jamie’s credit score the MOST?

• His education level

• Being married

• How much he charges his customers

• His payments always being on time

Answer explanation

His payments always being on time has the most significant impact on credit scores, as payment history accounts for a large portion of the score calculation, influencing lenders' trust in his creditworthiness.

Mr. and Mrs. Jacobs obtained a $20,000 bank loan to make improvements on their house. Which of the following was the bank’s MOST important consideration in giving them the loan?

• the total value of their house and other assets they own.

•  

  the estimate of how much the improvements would cost.

• the reliability of the company they hired to make the improvements.

•  

  the type of improvements they were planning to make.

Answer explanation

The bank's most important consideration is the total value of the Jacobs' house and other assets. This determines their ability to repay the loan, making it a key factor in the lending decision.

The Federal Deposit Insurance Company (FDIC) is a government agency that

•  

  protects the savings of people who deposit their money in banks

• provides mortgage insurance for homeowners

• protects banks from the risks of bankruptcy

• provides health insurance for low-income people

Answer explanation

The FDIC is a government agency that protects the savings of people who deposit their money in banks, ensuring that deposits are insured up to a certain limit, which helps maintain public confidence in the banking system.

Net pay is ...

• income before deductions

•   taxes paid to the state

•   income you pay your employer

• income after deductions

Answer explanation

Net pay refers to the amount of income an employee takes home after all deductions, such as taxes and benefits, have been subtracted from their gross income. Therefore, the correct answer is 'income after deductions'.

Consumers have a number of options when obtaining a loan. Financial institutions range from banks to payday lenders, and loans range from long to short term. One type of short-term loan is called a title pawn loan. Which statement BEST describes why these types of loans should be avoided if possible?

• A person is unable to apply for a new car title for up to three years after paying back the total balance of a title pawn loan.

• A vehicle title must be provided in exchange for a loan, and people can potentially lose their vehicles if loans are not paid back.

• A person applying for a title loan must be approved by his or her employer, which is information some may want to keep private

• After receiving a title loan, people are not allowed to open savings or checking accounts at any banks for up to six months.

Answer explanation

The correct choice highlights that title pawn loans require a vehicle title as collateral, risking vehicle loss if the loan is not repaid, making them a risky financial option.

What is the primary purpose of insurance?

• To protect you against a financial loss

•  

  To pay for your mistakes

•  

  To allow you to do things you couldn't do

• To take money away from you

Answer explanation

The primary purpose of insurance is to protect you against a financial loss. It provides a safety net, ensuring that unexpected events do not lead to significant financial hardship.

Which type of insurance does a person need if they wish to continue to receive a paycheck if they are out of work due to an injury or accident?

• disability

• life

• health

• property

Answer explanation

Disability insurance provides income replacement if you are unable to work due to an injury or accident. This type of insurance ensures you continue to receive a paycheck during your recovery.

Which of the following IS NOT one of the "Three C's" of credit?

• Compensation

• Collateral

• Capacity

• Character

Answer explanation

The "Three C's" of credit are Capacity, Character, and Collateral. Compensation is not one of them, making it the correct answer to the question.