ANSWERS TO CHAPTER QUESTIONS
Chapter 1 Introduction to Personal Financial Planning
1) Some factors that may explain why it took until the 1970s for the field of financial
planning to begin include:
a) The ability of low-cost computers to handle middle-income problems.
b) The rise in discretionary incomes to enable non-high net worth people to afford
2) Personal financial planning involves other disciplines because:
a) PFP must take into account what is happening in the country and society—for
example, whether government policy is becoming more conservative—laissez-
faire or liberal and its affect on the individual’s financial future.
e) Communications and relational skills help in client interaction.
3) Financial planning is a process undertaken to achieve an objective. A financial plan
4) The personal financial planning process and its related procedures includes:
a) Establishing the scope of the activity.
i) How broad are we making our examination?
b) Gathering the data and identify goals.
i) What are our goals and what data will we need in the process? Obtain the
5) A comprehensive plan covers all basic parts of a financial plan plus others that may
6) Similarities and differences between a financial planning practitioner and a physician
could include:
a) Similarities
i) Both should draw on overall characteristics before making decisions.
ii) Both must integrate facts from diverse relevant areas before rendering a
b) Differences
i) Planners don’t have to answer to an insurance authority for reimbursement
as the majority of doctors do.
ii) One specializes in medicine the other financial matters.
7) Integration is important because people have only limited resources and must make
choices. The choices need to be compared to find the most desirable ones. This
8) The parts of a financial plan includes:
a) Estate Planning: planning principally for one’s heirs after the estate holder’s
demise.
9) What might be missing in their discussion was the integration function. When
integration is performed well, the proper allocation of resources in all areas of
10) Financial planners help people to develop and understand their goals, make
11) Common problems are:
a) Deciding on how much to save and adhering to a savings plan.
b) Getting out of debt.
12) The financial planner will help to assess their full financial picture including their
13) There are multiple factors that can be taken into consideration. After the fall of the
14) One possible explanation supporting why more information is better is that it allows
15) Deciding on hiring a financial planner is a matter of personal choice. It would
definitely be beneficial to hire a financial planner especially since Maria and her
16) Household finance is related to financial planning because it is the core of your
spending. Much of your finances whether it is food, repairs, rent, clothing,
entertainment, etc. is controlled from the household. Financial planning involves both
ANSWERS TO CASE APPLICATION QUESTIONS
Chapter 1 Introduction to Personal Financial Planning
1) While somewhat unusual given the financial and intellectual independence of their
parents, under the circumstances and stress that both were under it was a good move.
2) Richard sought advice because of a large loss which significantly reduced the
couple’s retirement assets. Brad and Barbara were just the precipitating factor. More
3) Richard and Monica need a comprehensive financial plan which would integrate all
their issues. The fact that they wanted to test the feasibility of an age 65 retirement
5) Placing $200,000 amounting to over one third of the couple’s retirement assets in a
speculative investment may indicate a reckless side to Richard.
6) The financial planner was hired as advisor to the entire household. To have met
7) Refer to Dan and Laura Web Appendix D. It is more sophisticated than the one you
Answers to CFP® Questions
Question
Answer