CHAPTERS 1 and 2 - Savings ANSWER KEY

ASSESSMENT REVIEW GUIDE

Directions: Use your notes, workbook, and chapter handouts to answer the following questions. These
questions are very similar to the questions you will find on your chapter exam.

1. What are Five Foundations? (pg. 32)

1. Emergency Fund 2. Get out of Debt 3. Pay Cash for your car
4. Pay Cash for college 5. Build Wealth

2. Which is correct according to Dave Ramsey? (Chap. 1, pg. 16)

Money management is... _____ 80% Knowledge and 20% Behavior
or
___X__ 80% Behavior and 20% Knowledge

3. What are THREE reasons why you should save money? (pg. 36)

1. Emergency Fund 2. Purchases 3. Wealth Building

4. What is a good reason to use the money in your Emergency Fund? Example: flat tire
What is a bad/poor reason to use the money in your emergency fund?
Example: buying something you want, like an iPad

5. What kind of money decisions does someone have to make if they don't have an emergency fund and they
experience an emergency? (pg. 34)
...borrowing money, going into debt, possibly getting a credit card, doing without something they need

6. If you get a flat tire should you use money out of your SINKING FUND or E MERGENCY FUND repair it?
(pg. 36)

7. Interest paid on interest is called Compound Interest. (pg. 41)

8. It is important to save for retirement, but that is not the first thing you should save for according to Dave
Ramsey. Why? What is the first thing you should save for? (pg. 36)
You should first save for your emergency fund because without an emergency fund you might go into
debt which prevents you from building wealth (which is saving for retirement).

9. We learned about brothers Ben and Arthur to help us understand a certain principle of saving. One of the
brothers, Ben, started saving early, the other, Arthur, started saving later. What TWO factors helped Ben, "out
save" his brother? (pg. 40 & 43)
length of time money is invested and the rate of return (interest)

10. Dave Ramsey recommends setting up a _____SINKING_______Fund and save money for an item you'd
like to purchase rather than buying it on credit. (pg. 37) Why?
It costs more to borrow money because you have to pay back interest.

11. It is recommended that you save $_____500_______ in your Emergency Fund if you are a teenager. (pg.
36)

12. If you are using the Sinking Fund approach to saving for large purchases and are saving $600 for a vacation
in 6 months, how much do you need to save each month? (pg. 37)
$100/month

13. Why should adults save 3-6 months in what's called a "fully funded" emergency fund when teenagers only
need a $500 emergency fund? (pg. 34/36)
adults have more living expenses than teens do.
Because

14. Why should your emergency fund be kept separate from the money you use for regular spending/purchases?
(pg. 34)
So you dont accidentally spend it on things that arent emergencies.

15. Why isn't it important for your Emergency Fund to earn high interest rates in an investment? (pg. 36)
Because an Emergency Fund isnt an investment, is needs to easily accessible (liquid), not tied up
in an investment.

16. Explain the following terms:

Time value of money (pg. 42) Today money has a different buying power than that same amount of
money in the future.

interest (pg. 41) Percentage paid to a lender (banker) for the use of money youve borrowed, or the
percentage earned on money youve invested (the principal)

inflation (pg. 42) The persistent rise in the cost of goods and services

compound interest (pg. 41) Interest paid on interest earned.

sinking fund (pg. 30/37) Saving money over time for a large purchase.

17. What personal character traits do people need to become good at saving money? (Hint: pg. 38 see Zig
Ziglar's quote in the margin)
DISCIPLINE

18. If you were to give a friend tips to start managing his/her money more wisely, what tips would you give that
you've learned in class so far?
pay cash for unexpected expenses/emergencies
dont get a credit card
start saving money/develop the habit at a young age
save up for things you want - be patient (good things come to those who wait!)
compound interest is amazing - let money work for you while you sleep!
19. Why should teenagers learn about personal finance, money management? Shouldnt you just worry about
that when you become an adult and get a real job? (pg. 17-23)
good money habits start young, you could even be born with your money personality
sometimes the family we are born into isnt a good example - we have to unlearn behaviors
Average Americans are broke, not giving teens good examples of healthy money skills
People arent born financially smart, it has to be taught

20. How do typical American manage their money? Are they planning for their future? Do they have money in
savings? Have they set up retirement investments? (pg. 16-17)
Americans look like they are rich, but most are in debt
Americans dont save money and havent planned for retirement

21. When people drive nice cars and own expensive houses, does this outward appearance mean that they are
wealthy?
Not necessarily. Many (if not most) Americans purchase their things on credit so you can never tell
how wealthy someone is by what they drive, their toys, the clothes they wear...