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Questions and Answers
What does a low credit score typically result in?
What does a low credit score typically result in?
Which of the following best describes fixed expenses?
Which of the following best describes fixed expenses?
What is the purpose of an emergency fund?
What is the purpose of an emergency fund?
Why do people often donate to charities?
Why do people often donate to charities?
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What is a budget intended to accomplish?
What is a budget intended to accomplish?
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What does the term 'opportunity cost' refer to?
What does the term 'opportunity cost' refer to?
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What does 'Caveat Emptor' mean?
What does 'Caveat Emptor' mean?
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Which of the following best defines needs?
Which of the following best defines needs?
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What represents a positive cash flow?
What represents a positive cash flow?
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What is meant by the 'Time Value of Money'?
What is meant by the 'Time Value of Money'?
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Which of the following statements about bankruptcy is true?
Which of the following statements about bankruptcy is true?
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What is compound interest?
What is compound interest?
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What does financial capability include?
What does financial capability include?
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Study Notes
Opportunity Cost and Scarcity
- Opportunity cost: The value of what you lose when choosing between options. It's the next best alternative.
- Scarcity: A fundamental economic concept; resources are limited.
Needs vs. Wants
- Needs: Essential resources for survival – food, shelter, clothing.
- Wants: Desired items, but aren't essential.
Caveat Emptor
- Caveat emptor: Latin for "let the buyer beware." Buyers are responsible for verifying the value and quality of a product or service before purchase. Be a shrewd consumer.
- Be wary of bargains that seem too good to be true.
- Read the fine print!
Financial Risks and Management Strategies
- Bankruptcy: Occurs when someone can't pay debts. Obtaining help to alleviate debts is an option.
- Financial capability: Knowledge, skills, attitude, and motivation for sound financial management.
- Emergency fund: Money set aside for unforeseen events.
- Insurance: Reduces financial impact of negative events.
- Protect your identity.
- Manage your debt load.
- Automate positive financial behaviors (e.g., automatic bill payments).
- Credit score: A number reflecting your creditworthiness.
- High scores allow for better credit terms.
- Low scores restrict access to credit & usually result in higher interest rates.
Budgeting and Financial Planning
- Budget: A plan for spending, saving and investing money to meet financial goals (short- and long-term).
- Revising and updating budgets regularly is essential.
- Cash flow: Money moving in and out.
- Positive cash flow: Income exceeds expenses.
- Negative cash flow: Expenses exceed income.
- Fixed expenses: Consistent monthly costs (rent, cell phone).
- Variable expenses: Shifting monthly costs (food, entertainment).
- Income: Money coming in.
- Expenses: Money going out.
- Account balance: Current funds in an account, or debt.
Financial Concepts
- Time value of money: Money available right now is more valuable than the same amount in the future.
- This is based on potential investment returns/ earnings.
- Compound interest: Interest on accumulated interest, as well as the principal.
- Your interest will continually grow with compounding.
- New worth: Assets (what you own) minus liabilities (what you owe).
Lottery Winners and Bankruptcy
- Lottery winners are at higher risk of bankruptcy compared to those who don't win.
Important Financial Concepts
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Philanthropy: Giving back time, talent, or money to causes you care about.
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Charities: Non-profit organizations that don't pay taxes, but your donations to them could qualify for tax deductions. Factors motivating donations:
- Belief in the organization's mission (their aims & beliefs)
- Personal connection with the charity
- Potential financial benefits/tax deductions
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Description
Test your understanding of key economic concepts, including opportunity cost, scarcity, needs vs. wants, and financial risks. This quiz will help you assess your knowledge of smart financial management strategies and consumer awareness.
