Personal Finance For Canadians - Chapter 1

Front 1

A net worth statement is characterized by the following:
1 Subtracting liabilities from assets at a specific date
2 Income less expenses over an interval of time
3 The amount of income available
4 The difference between assets and liabilities over an interval of time

Back 1

1 - Subtracting liabilities from assets at a specific date.

In a net worth statement, the amounts outstanding on your liabilities are subtracted from the current value of your assets. When an asset is not fully paid for, its present market value is listed under the asset column and the amount owing is listed under the liability column.

Front 2

Which of the following statements about fixed expenses is true?
1- They are difficult to change in the short term.
2- They are legally binding.
3- They cover expenses such as food, clothing, and shelter.
4- They must be paid on a monthly basis.

Back 2

They are difficult to change in the short term.

Fixed expenses are those that are difficult to change in the short-term. They include life and home insurance, car payments, mortgage or rent payments, etc.

Front 3

Which of the following statements about financial planners is true?
1- Financial planners must be licensed in order to practice.
2- Financial planners mostly advise the wealthy on how to handle their finances.
3- Since financial planners can be compensated in several ways, you should find out which way yours is paid, in order to avoid a conflict of interest.
4- Financial planners do not charge when giving advice about credit problems.

Back 3

Since financial planners can be compensated in several ways, you should find out which way yours is paid, in order to avoid a conflict of interest.

Financial planners are paid in several ways, some of which might lead to a possible conflict of interest.

Front 4

The word "budget" is used to describe:
1- An analysis of net worth.
2- A plan for future reductions.
3- A record of past cash flows and spending.
4- A plan for future spending and wealth.

Back 4

A plan for future spending and wealth.

A budget is not a record of what was spent last year, but a plan for using financial resources - a projection for the future.

Front 5

In the financial planning process, which of the following should you do as a part of developing implementation and control strategies?
Preparing net worth statements
Preparing budgets
Balancing savings and expenditures
Allocating and distributing funds, and knowing where the money is going

Back 5

Allocating and distributing funds, and knowing where the money is going

The controlling stage of your financial plan is the way you expect your plan to work. This stage comes in only after your savings and spending estimates have been balanced with your expected resources.

Front 6

Which of the following is a true statement?
Rapid expansion of the financial planning industry has caused confusion.
Financial planning is a highly regulated industry.
All provinces have passed legislation regulating the financial planning industry.
Software has yet to be developed to help people create a financial plan.

Back 6

Rapid expansion of the financial planning industry has caused confusion.

The industry is largely unregulated.

Front 7

Women need to gain a better understanding of financial planning because:
Women tend to have more debt than men.
Their income is generally higher than men's.
The number of women in the workforce is increasing.
More women stay at home than go out to work.

Back 7

The number of women in the workforce is increasing.

Women are increasing in the workforce and may have income to invest.

Front 8

At which stage of the life cycle is it most difficult to plan for retirement?
Retirement
Fifties to retirement
Mid-thirties to fifties
The usual post-secondary student years to mid-thirties

Back 8

The usual post-secondary student years to mid-thirties

Young people are concerned with paying off school debts and starting a career.

Front 9

Which is a common family problem that makes financial planning difficult?
Identifying goals and setting priorities
Assessing resources
Evaluating progress
Balancing future cash flows

Back 9

Identifying goals and setting priorities

A family that shares economic resources does not always have the same financial goals.

Front 10

Why do women face higher economic risks than men?
They often have greater family responsibilities than men.
They generally lack an interest in financial affairs.
They are too career-oriented.
They tend to depend on financial advisors.

Back 10

They often have greater family responsibilities than men.

Women usually perform most of the unpaid work in the home, live longer than men, and often head single-parent families.

Front 11

Sam is working at Step 2 of the financial planning process. Which of the following should Sam be doing now?
Listing all of the amounts currently outstanding on all her existing liabilities.
Analyzing her net worth statement.
Listing all of her assets at their current value.
All of the above.

Back 11

Listing all of the amounts currently outstanding on all her existing liabilities.

Sam is at Step 2 of the financial planning process that involves preparing and analyzing her net worth statement.

Front 12

Which of the following statements about a budget is correct?
Savings are always greater than expenditures.
Only short-term expenses are taken into account.
Income and expenses of past years are recorded.
Projected income and expenses are equal.

Back 12

Projected income and expenses are equal.

A budget is a plan or forecast for a specific period that includes a statement of your financial resources and their allocations.

Front 13

Which of the following is a liquid asset?
Term deposits
Land
Canada Savings Bonds
Long-term investments

Back 13

Canada Savings Bonds

Liquid assets are those that can readily be converted to cash without loss of principal. Cash is the most liquid, while an asset such as land is less liquid.

Front 14

Which of the following is not a record-keeping task in determining cash flow?
Collecting data
Summarizing monthly and annual totals
Accumulating assets
Analyzing results

Back 14

Accumulating assets

The three steps for record keeping are: collecting data, finding periodical totals, and analyzing them.

Front 15

Canadians' attitudes towards money are determined by:
Their current age
The economic politics of the federal government
Reducing income tax
Their cultural and family values and personality

Back 15

Their cultural and family values and personality

Attitudes towards money are determined by one's personality and cultural and family values.

Front 16

Creating a financial plan involves the following steps:
Seeing a financial planner and doing as she suggests.
Setting goals, minimizing tax, and saving as much as possible.
Setting goals, identifying resources and allocating them, and designing a strategy to reach the goals.
Setting goals and earning enough money to achieve them.

Back 16

Setting goals, identifying resources and allocating them, and designing a strategy to reach the goals.

A financial plan begins with setting goals, followed by identifying resources and allocating them, then designing a strategy to reach the goals.

Front 17

Taking a lifetime perspective on financial planning involves realizing that:
Having children will increase the cost of living.
Living costs tend to rise with expectations.
Living expenses will be more stable than employment income.
All of the above.

Back 17

All of the above.

Over a lifetime, living expenses will increase as expectations rise and children arrive, and generally the expenses will be more stable than income.

Front 18

It is easiest to minimize income tax by:
Waiting until it is time to file your tax, then looking for last-minute breaks.
Putting as much money as possible into RRSP's.
Following the same steps as you did last year.
Planning in advance and keeping current on tax information.

Back 18

Planning in advance and keeping current on tax information.

Plan, keep up on tax changes, and take advantage of them.

Front 19

The key to financial independence is:
Agreeing on financial goals as a family.
Constantly minimizing expenses.
Following the advice of a financial planner.
To spend less than earnings, and invest the difference.

Back 19

To spend less than earnings, and invest the difference.

Financial independence means that one must spend less than one earns, and invest the savings.

Front 20

The statement "Financial planning is dynamic" means that:
If you invest early, you will attain financial independence.
You should build up your assets as quickly as possible.
It is exciting to do a financial plan.
Your financial plan will change as your circumstances change.

Back 20

Your financial plan will change as your circumstances change.

Your financial plan will change as you move through the life cycle.

Front 21

A personal goal can have a financial aspect that:
Will become an expense if the personal goal is not met.
Totally controls achievement of the personal goal.
Provides a measurable factor of the personal goal.
Doesn't affect the outcome of the personal goal.

Back 21

Provides a measurable factor of the personal goal.

A financial goal is the quantitative and measurable aspect of a personal goal.

Front 22

Estate planning means that:
You accumulate financial resources that can be left to others when you die.
The financial plan includes what you will inherit from your parents.
You will need to own land in order to plan your estate.
Upon death, you can leave only your land to your children.

Back 22

You accumulate financial resources that can be left to others when you die.

You plan to accumulate an estate that can be left to others upon your death.

Front 23

Sunita is a single woman in her mid-thirties with a good job. She is having trouble deciding on her financial goals. A reason for this may be:
She is not sure if she will get married and have children.
She is not clear on what her priorities are.
Her parents didn't do any financial planning and she fears she may be following the same pattern.
Her salary is high enough that she feels she will always have enough money.

Back 23

She is not clear on what her priorities are.

Single people can have trouble setting financial goals due to unresolved conflicts in priorities, lack of self-discipline, and poor control methods.

Front 24

Income is:
Your total assets minus total liabilities.
The same as wealth.
A flow of resources over a specified period of time.
The total of your net worth.

Back 24

A flow of resources over a specified period of time.

Income is the flow of resources of a period of time, such as a month, year, etc.

Front 25

A net worth statement can be described as:
An ongoing account of your assets and liabilities as they change from day to day.
The accumulation of your wealth at the end of your life.
A statement of your wealth on a specified day, and covering a period of time such as one year.
The same as a budget.

Back 25

A statement of your wealth on a specified day, and covering a period of time such as one year.

A net worth statement can be described as a picture of your assets and liabilities on a specified day over a regular time period.

Front 26

Sanjay and Lisa were developing a statement of their net worth. In deciding how to place a value on their assets, they should:
Use the purchase price plus 5 percent increase in value for every year they owned the assets.
Use the price for which they purchased the assets.
Get appraisals from knowledgeable experts, and use recent resale prices for items such as houses and cars.
Ask their banker to give them a value.

Back 26

Get appraisals from knowledgeable experts, and use recent resale prices for items such as houses and cars.

Certified individuals can appraise collectibles, and recent sales prices can be used for items such as houses and cars.

Front 27

An analysis of the net worth statement can:
Help to decide if the debt to asset ratio is satisfactory.
Assist in planning for retirement needs.
Help to determine if you should purchase additional life insurance for your dependants.
All of the above.

Back 27

All of the above.

An analysis will help determine if the asset mix is appropriate and will meet your needs.

Front 28

Mario has a large proportion of his investments tied up in Canada Savings Bonds. He feels this is a secure and patriotic investment. However, his financial planner has advised him to limit these types of investments. What is the reason for this?
They can be easily converted to cash.
There is less demand than there is supply of Canada Savings Bonds.
Liquid assets, such as Canada Savings Bonds, earn less than other investments.
The Canadian economy is suffering a downturn.

Back 28

Liquid assets, such as Canada Savings Bonds, earn less than other investments.

Highly liquid investments like Canada Saving's Bonds typically generate a lower return than less liquid investments such a stocks, bonds, and real estate. Consequently, the financial planner recommended that Mario diversify his investments.

Front 29

On the net worth statement, when entering estimated income for the planning period, you should:
Use your estimated take-home pay plus income tax.
Use your estimated take-home pay.
Use your estimated gross income.
Use your estimated gross income less income tax.

Back 29

Use your estimated gross income.

Use your estimated gross income. All deductions will be shown as expenses.

Front 30

Olga and Michael have three teenaged boys. When developing the expense items on their net worth statement, Olga suggests that each person in the family be allotted a certain sum of money for personal allowance with no further details required. Michael wants to know exactly what the boys spend their money on, so that he can allot the expense in more detail. Olga's suggestion is probably better because it:
Gives the boys the opportunity to misspend their money if they so choose.
Lets everyone spend his personal allowance as he sees fit.
Covers up any expenses that Michael would not approve.
Allows for better family relations and simpler bookkeeping

Back 30

Allows for better family relations and simpler bookkeeping

Using a general category for personal allowance makes record keeping simpler and improves family harmony.

Front 31

Which of the following best describes what is included in a net worth statement?
A list of all of your sources of income.
A list of all your assets at their current value and the total amounts currently outstanding on all existing liabilities.
A list of all of your available sources of income and the total amounts of all your expenses.
A summary of your projected expenses.

Back 31

A list of all your assets at their current value and the total amounts currently outstanding on all existing liabilities.

This would be included in a budget.

Front 32

Once a budget plan has been drawn up, it is important that:
All people affected by the budget are committed to following it.
It is not looked at again until the end of the financial year.
Only one person should be in charge of controlling where the money goes.
It is filed in a safe place.

Back 32

All people affected by the budget are committed to following it.

Everyone handling the money must be committed to following it.

Front 33

To track expenses in a budget plan, it is important that:
All receipts are kept in a shoebox until the end of the financial year.
Expense amounts be input and reviewed once a year.
Everyone involved in the budget estimates how much is spent every month.
A written record is regularly kept of all expenses.

Back 33

A written record is regularly kept of all expenses.


A simple system of record keeping needs to be maintained. Writing down what is spent clearly shows where the money is going and if changes need to be made.

Front 34

Joshua and Leah are expecting their first child. They need to redo their budget to take the additional expenses into account, but they're not sure how much to allot for the new baby. They should:
Make an estimate of expenses for the first few months, then review them and make a more definite plan.
Use the old budget for six months until they get detailed new expenses, and then prepare a new budget.
Add 10 percent to all expenses that having a baby might affect, and review it after one year.
Wait a year until they do a new budget, and then include the additional baby expenses.

Back 34

Make an estimate of expenses for the first few months, then review them and make a more definite plan.

It may be difficult to predict how a change in living expenses will affect a budget; in this case, estimates should be made for a few months, then reviewed, and a more accurate budget drawn up.

Front 35

In comparing the planned budget with the actual expenses, the budget should serve as:
A general-purpose guide that can have a 50 percent variance on all items.
A strict guideline that should always be achieved.
A guide for making financial decisions.
A general-purpose guide that can have a 25 percent variance on all items.

Back 35

A guide for making financial decisions.

The budget is a blueprint for making financial decisions; an exact comparison between budgeted and actual amounts is not expected for all items.

Front 36

Comparing the amount budgeted for savings and living expenses with the actual cash flow for them should be done:
Monthly, or at least quarterly.
Once a year.
Every six months.
Whenever you feel like doing it.

Back 36

Monthly, or at least quarterly.

These should be reviewed monthly, or at least quarterly.

Front 37

Jan and Dana live together in a two-earner household and have wisely chosen to make proportionate contributions to a common pool of funds. Such an arrangement means that:
The contributions are based on the proportionate amount of income earned by each partner.
The contributions are based on the proportionate amount of expenses of each partner.
The partner that has been working longest will contribute the most.
The contributions can change based on the proportionate amount of time worked each month.

Back 37

The contributions are based on the proportionate amount of income earned by each partner.

Proportionate contributions are based on agreed portions of income of each partner.

Front 38

David took the time to develop a comprehensive financial plan three years ago. After comparing actual figures with those he estimated, he found that the plan was constantly wrong, so he stopped using it. Today, David should:
Take out the old plan and see if it will work now.
Forget about doing another plan since it obviously doesn't work for him.
Ask his financial advisor to provide estimates.
Review all his estimates and use more realistic ones for a new plan.

Back 38

Review all his estimates and use more realistic ones for a new plan.

David should review the estimates and control methods, and try a new plan.

Front 39

Because many women are in low-paying jobs or are single parents, they need to be aware of:
The value of their unpaid housework.
How to use credit wisely.
Investing alternatives.
Saving for education.

Back 39

How to use credit wisely.

Debts can increase quickly; unwise use of credit can add greatly to the burden.

Front 40

A credit counsellor will provide advice and assistance to which of the following:
Only to people on public assistance programs.
Only to people who have more debt than they can handle.
To people who are not over-indebted, and to those that are.
Only to people who have been recommended by a financial planner.

Back 40

To people who are not over-indebted, and to those that are.

Credit counsellors provide assistance to those facing a credit crisis and to those not yet over-indebted.