AppD
1. (p. 634) The value of education is often exaggerated when searching for a good job.
2. (p. 634) The average lifetime income of someone with an undergraduate degree is about $1.6 million higher
3. (p. 634) The U.S. government provides several types of financial incentives to encourage people to attend
college.
4. (p. 634) About half of the U.S. population accumulates enough money to afford a comfortable retirement.
5. (p. 635) The first step in getting control of your finances is to prepare a budget.
6. (p. 634) Over 35% of U.S. households do not have a retirement account.
7. (p. 635) Your personal balance sheet will reflect the same fundamental accounting equation as the balance sheet
for a business: assets = liabilities + owners’ equity.
8. (p. 635) On your personal balance sheet, your assets should include anything of value that you own.
9. (p. 635) If your personal liabilities exceed your assets, your are on the road to financial security.
10. (p. 635) Your computer and car should both be listed on the asset side of your personal balance sheet.
11. (p. 635) Credit-card debt represents an asset on a consumer’s balance sheet.
12. (p. 635) A major source of revenue on your personal income statement is your salary or wages from your job.
13. (p. 635) One step toward the goal of taking control of your finances is to keep track of all your expenses.
14. (p. 635) If you find yourself regularly running out of cash, your only real option is to focus your attention on
finding ways to increase your income.
15. (p. 636) Once you have evaluated your current financial situation and know your sources of income and
expenses, you have reached the point where you can establish a personal budget.
16. (p. 635) One way to motivate yourself to start saving is to visualize your goals and think about how much
money it will take to achieve them.
17. (p. 636) Managing the finances of a household is similar to managing the finances of a small business.
18. (p. 636) With respect to personal financial planning, the first thing to do with any extra money you have is to
start a savings plan.
19. (p. 636) In order to get in the habit of saving, personal financial advisors suggest that you save first and wait to
pay off any debts until you’ve accumulated at least $10,000 in cash, savings accounts, CDs and other liquid
assets.
20. (p. 636) It is usually better to use any money left after paying monthly bills to pay off debts that carry high
interest rates rather than putting that money into a savings account.
21. (p. 637) Financial planners regularly suggest that you borrow money to pay for large purchases.
22. (p. 637) The best way to save money is to pay yourself first.
23. (p. 637) Most financial experts will tell you to save about 1 month of earnings for contingency purposes.
24. (p. 637) Borrowing money for ordinary expenses is a necessary part of life.
25. (p. 634) LaTasha is attending her local community college so she can get a good job. She knows that financial
planning begins first with making money.
26. (p. 635) Henri wants to get better control of his personal finances. He should begin by setting up a personal
balance sheet and a personal income statement.
27. (p. 635) Your big screen HDTV would be listed as an asset on your personal balance sheet. However, the loan
you took out to buy the TV would be listed as a personal liability.
28. (p. 635) Listing all of your personal assets is the first step in preparing your own income statement.
29. (p. 635) Tracking business and personal spending by categories is an important technique to control
expenditures.
30. (p. 636) Your personal budget is the same thing as your personal income statement.
31. (p. 637) Financial planners encourage individuals to borrow only to cover immediate expenses.
32. (p. 636) For individuals, budgets are usually more trouble than they are worth.
33. (p. 637) A good way to save money is to spend all of your regular income, but have a strict rule to put any
money from unexpected or unusual sources (such as overtime pay, bonuses, gifts, gambling payouts, or contest
prizes) into a savings account.
34. (p. 637) You should never borrow to cover regular expenses, but it makes perfectly good sense to use credit to
cover unexpected expenses such as car or home repairs.
35. (p. 637) Even though they are in debt, most of today’s college graduates are capital-rich.
36. (p. 637) Most people find it relatively easy to live frugally.
37. (p. 638) In order to accumulate enough wealth to get started toward achieving their goals many people have to
make significant sacrifices in their standard of living for several years.
38. (p. 638) Once they’ve accumulated enough money, buying a low-priced home is often a good investment for
young adults.
39. (p. 638) Personal financial planners recommend renting a home, rather than incurring the cost of buying a
home.
40. (p. 638) Before getting married, a couple should discuss and agree upon a financial strategy.
41. (p. 638) After marriage, one great financial strategy is to live on one income and to save the other.
42. (p. 638) If possible, it is almost always better to buy a single home rather than a duplex.
43. (p. 639) A home is a good asset to have when applying for a loan.
44. (p. 638) One drawback to buying a home compared to renting is that your monthly mortgage payments will
increase, while rental payments are fixed.
45. (p. 638) When you buy a home, the monthly payments for the home may remain relatively fixed, but your
payments for taxes and utilities are likely to increase.
46. (p. 639) Interest paid on a home loan is deductible from taxable income.
47. (p. 639) The federal government discourages home ownership through high tax rates.
48. (p. 639) The three factors that have the greatest influence on how the value of your home increases over time
are: (1) size (square feet), (2) age, and (3) design features.
49. (p. 639) From an investment viewpoint, it is a good idea to buy a large home in an area of town where homes
are less expensive.
50. (p. 640) Historically, the best place to invest has been in U.S. government savings bonds.
51. (p. 640) Most financial experts believe that the stock market is likely to grow more slowly in the future than it
did in the last 50 years.
52. (p. 640) Though stock prices do sometimes go down, investing in the stock market has generally provided very
attractive returns over the long run.
53. (p. 640) A contrarian would advise you to buy stock when stock prices are falling and most other people are
selling.
54. (p. 640) Funds invested in savings accounts and certificates of deposit (CDs) have traditionally outperformed
stocks as a means of generating long-term financial gains.
55. (p. 640) A person using a credit card to make a purchase may end up paying much more than if he or she had
paid cash.
56. (p. 640) A good manager of personal finances, like a good businessperson, uses borrowed funds whenever
possible.
57. (p. 641) If you use a credit card to make purchases, you should make a strong effort to pay off the balance in
full each month.
58. (p. 640) Credit cards can be used to categorize and track your purchases.
59. (p. 641) Excessive debt is as much a problem of young consumers as it is of other age groups.
60. (p. 641) More than half of all debtors seeking help at the National Consumer Counseling Service were between
the ages of 18 and 32.
61. (p. 641) One danger of a credit card is that consumers often buy items they wouldn’t normally buy if they had
to pay cash.
62. (p. 637) Accumulating money through savings allows you to participate in the growth of a capitalist society.
63. (p. 639) If you are in the 25 percent tax bracket and your home mortgage interest is $1000 per month, then
your after-tax mortgage interest cost is $750 per month.
64. (p. 638) Buying a duplex and living in one side, while renting the other side, generally turns out to be more
trouble than it is worth, since you have to satisfy not only your own needs, but also the needs of the renters.
65. (p. 639) When young people decide to buy a house, the best approach is to buy a house in an inexpensive part
of town so they can get a larger house for less money.
66. (p. 638) House payments tend to rise at a faster rate than do rent payments on a similar sized house.
67. (p. 639) The tax shelter offered by home ownership increases the overall cost of owning your home.
68. (p. 640) Shuichi graduated from college two years ago. He has already accumulated enough money in his
savings account and money market to meet basic contingencies, and now wants to begin investing a portion of
each paycheck to earn a high rate of return over the long run. His best choice as a young recent graduate would
be to put money into a bank savings account regularly.
69. (p. 640) Investors who desire a very stable and predictable income from their investments (such as people who
are nearing retirement) would be reluctant to invest heavily in the stock market.
70. (p. 640) During the most recent drop in stock prices, Homer took the opportunity to buy a wide variety of
stocks even though many of his friends and relatives were selling. Homer’s investment strategy appears to be
consistent with contrarian views.
71. (p. 639) During the first few years of a home mortgage, almost all the payments go for interest on the loan.
This high interest is a reason it is better for young people to rent rather than buy.
72. (p. 640–641) One of the keys to financial success is never to apply for a credit card.
73. (p. 641) The best strategy to follow in using credit cards is to pay only the minimum amount required each
month.
74. (p. 641) Life insurance is not needed in families when the husband and wife both work.
75. (p. 642) Term life insurance is a combination insurance plan and savings plan.
76. (p. 642) Term life insurance offers pure insurance with no savings feature.
77. (p. 642) The younger you are when you buy term life insurance, the lower the premiums tend to be.
78. (p. 642) Multiyear level-premium insurance is a new form of term insurance with fixed premiums for the life
of the policy.
79. (p. 642) Most families only need to buy enough life insurance to replace about three years of income.
80. (p. 642) Whole life insurance premiums provide the insured with both pure insurance and a savings plan.
81. (p. 642) Unlike whole life policies, a universal life insurance policy typically invests part of the premium in
very aggressive, high-risk assets.
82. (p. 642) The death benefits of a variable life insurance policy vary depending upon the performance of the
investment.
83. (p. 642–643) An annuity is a contract to make regular payments to a person for life or for a fixed period.
84. (p. 662–643) Fixed annuities have become much more popular than variable annuities.
85. (p. 642–643) Variable annuities offer investment choices identical to mutual funds.
86. (p. 643) People who have health insurance seldom need disability insurance.
87. (p. 643) If you are relatively healthy, there is no real reason to buy health insurance.
88. (p. 644) Everything else constant, the higher the deductible on your car insurance policy, the higher the
premium for your car insurance.
89. (p. 643) Many employers offer health insurance coverage for their full-time employees.
90. (p. 643) Disability insurance provides a relatively low cost way of protecting against lost income due to an
accident or illness that prevents you from working for an extended period of time.
91. (p. 643) Due to the high cost of the insurance premiums, many people have found that it makes financial sense
to carry medical insurance only if their employer provides it.
92. (p. 643) The chances of becoming disabled at an early age are much higher than your chances of dying from an
accident.
93. (p. 643) Guaranteed replacement cost insurance coverage provides the insured with the depreciated cost of
assets.
94. (p. 643) Most homeowner’s insurance policies do not cover certain types of expensive items unless you
purchase a rider for the additional coverage.
95. (p. 644) An umbrella policy is an inexpensive policy that provides financial protection only in the event of
clearly defined major catastrophes such as hurricanes or earthquakes—events which are referred to in the
insurance industry as “rainy days.”
96. (p. 642) Don is young and newly married. He and his wife plan to have children in the near future and Don
wants to get a significant amount of life insurance coverage at as low a cost as possible. He would be well
advised to purchase a term insurance policy.