Questions and Answers
What happens to individuals who win large lottery payouts?
They are more likely to declare bankruptcy than those who don't.
What is financial capability?
Having the knowledge, skills, and motivation to make appropriate decisions about your finances.
What does the used car represent for Jonah?
Opportunity cost.
Which of the following expenses would be considered a 'need' instead of a 'want'?
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A budget should include 'wants'.
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What would be an example of a fixed expense?
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What term best describes Tara's problem with her bills due at the end of the month?
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What best explains the concept of time value of money?
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What does 'caveat emptor' mean in private party transactions?
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What best explains the low price of the used car in the online ad?
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What should you do before signing any type of contract or agreement?
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How does a person with a high credit score fare in terms of credit costs?
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What is the best strategy to determine if you are on track to meet your financial goals?
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What would be the best use of your emergency fund?
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What is the best strategy to avoid late fees and negative impacts to your credit score?
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Which is a variable expense?
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Why is it necessary to regularly review and revise your budget?
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How are charities different than businesses?
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Which best describes charities?
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Which is not a reason individuals and businesses support charities?
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Study Notes
Lottery Winnings and Bankruptcy
- Individuals who win large lottery payouts are more likely to declare bankruptcy compared to those who do not win.
Financial Capability
- Financial capability involves possessing the knowledge, skills, and motivation necessary for making informed financial decisions.
Opportunity Cost
- For Jonah, saving his paycheck for college instead of purchasing a used car illustrates the concept of opportunity cost.
Needs vs. Wants
- A dining experience at a popular new restaurant is considered a "want" rather than a "need."
Budgeting for Wants
- Including "wants" in a budget is essential for making it realistic and enjoyable, reflecting personal happiness.
Fixed Expenses
- An example of a fixed expense is paying an auto loan bill, which remains constant each month.
Cash Flow
- Tara's issue of not receiving payments until the end of the month while her bills are due earlier is termed cash flow management.
Time Value of Money
- The time value of money principle asserts that receiving money now has a greater value than the same amount received in the future.
Caveat Emptor
- In private party transactions, the principle of caveat emptor indicates that the buyer must conduct their own research and due diligence.
Red Flags in Transactions
- A used car priced significantly lower than its average selling cost likely indicates it requires maintenance or repairs.
Contract Review
- Before signing any contract or agreement, it is advisable to have it examined by a lawyer to ensure there are no unacceptable terms.
Credit Scores and Costs
- Individuals with high credit scores benefit from lower costs of credit compared to those with lower scores.
Tracking Financial Goals
- The best strategy for staying on track to meet financial goals is to regularly review financial accounts, debts, and net worth.
Emergency Funds
- An emergency fund is best utilized for unexpected expenses like costly car repairs that are not covered by warranty.
Avoiding Late Fees
- To prevent late fees and negative impacts on credit scores, automatic bill payment from bank accounts is recommended.
Variable Expenses
- Entertainment expenditures are categorized as variable expenses, as they can fluctuate based on personal choices.
Budget Review
- Regularly reviewing and revising a budget is crucial due to life changes that may necessitate adjustments in financial planning.
Charitable Organizations
- Charities operate as non-profit entities and are distinct from businesses in that they do not pay taxes on the funds they raise.
Support for Charities
- A misconception is that the primary reason for supporting charities is the tax benefits received from donations; this is not accurate.
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Description
Test your knowledge with these flashcards from Chapter 1 of the Budget Challenge. Explore key financial concepts such as lottery impacts on individuals and the definition of financial capability. Perfect for anyone looking to enhance their financial literacy.
