#1
Which of the following is a common short-term financial goal?
Saving for a vacation
ExplanationShort-term saving for leisure.
#2
What is the purpose of an emergency fund in personal finance?
To cover unexpected expenses
ExplanationFinancial safety net.
#3
What is the purpose of a FICO credit score?
To evaluate your borrowing and creditworthiness
ExplanationCredit assessment metric.
#4
What is the purpose of a will in personal finance?
To distribute assets after death according to one's wishes
ExplanationEstate distribution planning.
#5
In personal finance, what is the debt snowball method?
A method for paying off the smallest debts first to gain momentum
ExplanationDebt repayment strategy.
#6
What does APR stand for in the context of loans and credit cards?
Annual Percentage Rate
ExplanationAnnual cost of borrowing.
#7
What is the primary purpose of a budget in personal finance?
To track income and expenses
ExplanationMonitoring financial flow.
#8
What is the difference between a traditional IRA and a Roth IRA?
Contributions to a traditional IRA are tax-deductible, while Roth IRA contributions are not.
ExplanationTax implications of retirement accounts.
#9
What does the term 'compound interest' mean in the context of savings and investments?
Interest calculated on both the initial principal and the accumulated interest
ExplanationInterest on interest.
#10
What is the debt-to-income ratio used for in personal finance?
To assess the proportion of debt relative to income
ExplanationDebt management measure.
#11
What is the impact of inflation on the purchasing power of money over time?
Decreases purchasing power
ExplanationErosion of money's value.
#12
What is the significance of the term 'credit utilization' in credit scores?
It assesses the proportion of credit being used relative to the total available credit
ExplanationCredit usage evaluation.
#13
What is the 50/30/20 rule in budgeting?
50% expenses, 30% savings, 20% debt repayment
ExplanationBudget allocation guideline.
#14
What is the concept of dollar-cost averaging in investing?
Investing a fixed amount regularly regardless of market conditions
ExplanationConsistent investment strategy.
#15
What is the importance of diversification in an investment portfolio?
To spread risk by investing in different assets
ExplanationRisk management strategy.
#16
In personal finance, what does the term 'liquidity' refer to?
The ease of converting an asset into cash
ExplanationAsset convertibility.
#17
What is the concept of a 401(k) retirement account?
A tax-advantaged retirement savings plan
ExplanationEmployer-sponsored retirement savings.
#18
How does the rule of 72 apply to investing?
It estimates the time required for an investment to double based on a fixed annual rate of return
ExplanationInvestment doubling estimation tool.
#19
What is the concept of risk tolerance in investing?
The degree of comfort with the potential for financial loss in pursuit of higher returns
ExplanationInvestment risk acceptance level.