Definitions

Question 1

Dalton’s Definition of Personal Financial Planning

Answer 1

The process of formulating, implementing, and monitoring financial decisions into an integrated plan that guides an individual or a family to achieve their financial goals.

Question 2

CFP Board Definition of Financial Planning

Answer 2

“A collaborative process that maximizes a clients potential for meeting life goals through Financial advice that integrates relevant elements of the Client’s personal and financial circumstances.”

Question 3

Financial Plan

Answer 3

A written document that generally sets out a list of recommendations to achieve a set of goals and objectives based on an understanding of the clients current financial and personal situation.

Question 4

7 Steps of the Process of Financial Planning

Answer 4

1. Understanding the Client’s Personal and Financial Circumstances

#2. Identifying and Selecting Goals
#3. Analyzing the Clint’s Current Course of Action and Potential Alternative Courses of Action
#4. Developing the Financial Planning Recommendations
#5. Presenting the Financial Planning Recommendations
#6. Implementing the Financial Planning Recommendations
#7. Monitoring Progress and Updating

Question 5

Items for Internal Data Quantitative Collection of Information

Answer 5

1: The Family

#2: The Insurance Portfolio
#3: Banking and Investment Information
#4: Taxes
#5: Retirement and Employee Benefits
#6: Estate Planning
#7: All Personal Finance Documents

Question 6

Time Value of Money (TVM)

Answer 6

A mathematical concept that determines the value of money at a point, or over a period of time, at a given interest rate.

Question 7

Present Value (PV)

Answer 7

the value of the cash flow today in dollars.

Question 8

Future Value (FV)

Answer 8

the dollar’s value at some point in the future or the amount after earning a rate return over a period of time.

Question 9

Payments (PMT)

Answer 9

any recurring payments such as an income stream or debt repayment.

Question 10

Periods (N)

Answer 10

the number of periods of compounding, which may be annual, semi-annual, quarterly, monthly, or daily.

Question 11

Interest Rate (i)

Answer 11

the rate being earned on an investment or interest paid on a loan.

Question 12

Present Value of $1 (Future Amount)

Answer 12

the current value today of that one dollar.

Question 13

Future Value of $1

Answer 13

the value of a present lump sum deposit after earning interest over a period of time.

Question 14

Ordinary Annuity

Answer 14

a recurring clash flow, of an equal amount that occurs at periodic (but regular) intervals.

(0 or END)

Question 15

Annuity Due

Answer 15

the timing of the first payment is at the beginning of the period (month, quarter, year).

(1 or BGN)

Question 16

Amortization Schedule

Answer 16

illustrates the repayment of debt over overtime. Each debt payment consist of both interest, expense, and principle repayment.

Question 17

Net Present Value (NPV)

Answer 17

used in budgeting by managers and investors to evaluate investment alternatives. Measures the excess or short fall of cash flow based on the discounted present value of the future cash flow, less the initial cost of the investment.

Question 18

Internal Rate of Return (IRR)

Answer 18

the compound rate return that equates the cash inflows and cash outflows.

Question 19

Inflation Adjusted Rate of Return

Answer 19

adjust the nominal rate of return into a real after inflation rate of return.

Question 20

Nominal Interest Rate

Answer 20

the actual rate of return earned on an investment (adjusted for inflation impact).

Question 21

Serial Payments

Answer 21

different from annuity payments. Adjusted upward periodically throughout the payment period at a constant rate, usually in order to adjust for inflation’s impact. Each serial payment will increase to maintain the real dollar purchasing power of an investment.

Question 22

Uneven Cash Flow

Answer 22

an investment or project that has periodic cash flow flows. There are not the same dollar amount or that or a combination of inflows and outflows.

Question 23

Extrinsic Motivation

Answer 23

an outside reward (you expect to get something in return) or avoidance of punishment.

Question 24

Disposition Effect

Answer 24

the cognitive bias is faulty, framing where normal investors do not mark their stocks to market prices. Investors create mental accounts when they purchase stocks and continue to mark their value to purchase prices even after market prices have changed the normal investor does not consider a stock a loser until the stock is sold.

Question 25

Developmental Paradigm

Answer 25

believes that human development occurs in stages over time. Relationships are formed early in life and become a template for establishing relationships and adulthood. As to emotions, the developmental paradigm assumes that all humans develop in progress in a predictable sequence.

CHARACTERISTICS:
* Moderately Directive
* Alliance is important
* Resolve emotional needs not met earlier in life
* Healthy development
* Focus on past experiences + family origin to present difficulties
* Understanding and self-awareness

MICROSKILLS:
(1) Active Listening
(2) Client Observation
(3) Paraphrasing
(4) Feeling Reflection
(5) Supportive Challenging
(6) Reflection of Meaning

Question 26

Confirmation Bias

Answer 26

a commonly used and popular phrase is that you do not get a second chance at a first impression. People tend to filter information and focus on information supporting their opinions.

Question 27

Composure

Answer 27

a client’s ability to remain calm and focused when under pressure.

Question 28

Active Listening

Answer 28

requires the solicitor’s undivided attention. Active listening involves concentration on what the speaker saying. The listener must put aside irrelevant thoughts.

Question 29

Affect Heuristic

Answer 29

deals with judging something whether it is good or bad.

Question 30

Anchoring

Answer 30

attaching or anchoring one thoughts to a reference point even though there may be no logical relevance or is not pertinent to the issue in question. Also known as conservatism or belief perseverance.

Question 31

Availability Heuristic

Answer 31

when a decision-maker relies upon knowledge that is readily available in his or her memory the cognitive heuristic known as availability is involved.

Question 32

Behavioral Finance

Answer 32

contains much of the scientific framework and lessons learned from traditional finance amend some of it with basic assumptions, based on normal more human, like behavior and supplements, other aspects of it with notion from psychology and sociology.

Assumptions:
* Investors are normal
* Markets are not efficient
* The behavioral portfolio theory governs
* Risk alone does not determine returns

Question 33

Closed Question

Answer 33

seeks a response that is very specific and commonly involves an answer that can be accomplished with a single word or two. Close questions lead with: is, are, do, did, could, would, have, or “is it not true that…?”

Question 34

Cognitive-Behavioral Paradigm

Answer 34

humans are beings are subject to the same learning principles that were established in animal research. The basic principles of classical and operant conditioning are assumed to count for an individuals behavior and understandings throughout their lives.

CHARACTERISTICS:
* Highly directive
* Alliance not as important (only if client cares)
* Identifies reinforcers
* Identifies strengths + weaknesses
* Manipulation of the reinforcers to change the behavior and thought process
* Counselor Challenge: sound evaluation of how reinforcers are maintaining problematic self-talk and behaviors

MICROSKILLS:
(1) Active Listening
(2) Questioning
(5) Supportive Challenging
(6) Reflection of Meaning

Question 35

Financial Infidelity

Answer 35

the act of engaging in significant financial transactions without the knowledge of support of a spouse or partner.

Question 36

Financial Enmeshment

Answer 36

occurs when parents involve children in adult financial decision decisions and conflicts at a time when the child is not yet emotionally and cognitively prepared to cope with such decisions and conflicts.

Question 37

Financial Exploitation

Answer 37

the fraudulent or otherwise illegal, unauthorized or improper act or process of an individual, including caregiver or fiduciary that uses the resources of an older individual for monetary or personal benefit, profit or gain, or that result in depriving an older individual of rightful access to or use of benefits, resources, belongings, or assets.

Question 38

Framing

Answer 38

a cognitive bias under which the manner in which something is framed impacts how the context is evaluated or interpreted, even though the same fact have been provided.

Question 39

Gambler’s Fallacy

Answer 39

one of the incorrect assumptions from the world of probabilities in the realm of probabilities misconceptions can lead to faulty, predictions as to occurrences of events.

Question 40

Herding

Answer 40

this cognitive bias is explained just by looking at the word. People tend to follow the masses or the herd.

Question 41

Hindsight

Answer 41

another potential buyers for an investor. Hindsight is looking back after the fact to know.

Question 42

Human Communication

Answer 42

comprise of the fundamental elements. Societal groups use a system of signs in their communication process. Assign could be a word object, gesture, tone, quality, image, substance, or other reference, according to a code of shared meaning among those who use that sign for communication purposes.

Question 43

Humanistic Paradigm

Answer 43

dominated by theorists, whose models have their origins from a shared philosophical approach. For a client to grow the relationship requires a transparent and genuine counselor. The advisor needs a philosophical dance that humankind is basically good and that people have inherent capability of self direction and growth under the right set of circumstances.

CHARACTERISITCS:
* Varies – non-directive to highly directive
* Alliance extremely important
* Experiencing present moment
* Freedom of choice
* Authenticity, full self-aware
* Accepting personal responsibility

MICRO SKILLS:
(1) Active Listening
(2) Client Observation
(3) Feeling Reflection
(4) Reflection of Meaning
(5) Supportive Challenging

Question 44

Intrinsic Motivation

Answer 44

intristic motivation comes from within and is often associate with satisfaction and enjoyment

Question 45

Joining

Answer 45

in the mental health field joining refers to making a connection with the client and establishing a trusting relationship.

Question 46

Multicultural Psychology

Answer 46

an extension of general psychology that recognizes that multiple aspects of identity, influence, a person’s worldview, including race, ethnicity language, sexual orientation, gender age, disability class, status, education, religious, or spiritual orientation, and other cultural dimensions in that both universal and culture specific phenomena should be taken into consideration when psychologist are helping clients training, students advocating for social change injustice, and conducting research.

Question 47

Motivational Interviewing

Answer 47

a communication technique that focuses of which is on guiding the client to express the desire and reason a changes needed (their motivation for change), to discover their ability to change, and to commit to making the change.

Question 48

Nonverbal Behaviors

Answer 48

nonverbal cues or body language can communicate feelings and attitudes from the client to the financial advisor and are mainly provided from the body and the voice. Body position and body movement are important while voice tone and voice pitch are also telling.

Question 49

Nudge

Answer 49

choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To be a nudge, the intervention must be easy and cheap to avoid.

Question 50

Open Question

Answer 50

result in a person answering with a lengthy response that usually begins with words, such as how what when where who and why?

Question 51

Overconfidence

Answer 51

usually concerns, an investor that listens mostly to himself or herself, overconfident investors mostly rely on their skills and capabilities to do their own homework or make their own decision decisions.

Question 52

Passive Listening

Answer 52

described as listening in the normal or usual conversation or conversational setting to which most people are accustomed at seminars, in class, at social gatherings, or sermons.

Question 53

Prospect Theory

Answer 53

provides that people value gains and losses differently and will base their decisions on perceived gains rather than perceived losses.

Question 54

Positive Psychology

Answer 54

the scientific study of the strength and enables individuals and community to thrive. The field is founded on the belief that people want to lean meaningful and fulfilling lives to cultivate what is best within themselves into enhance their experiences of love work and play.

Question 55

Recency Bias

Answer 55

occurs when too much weight is given to recent observations or stimuli versus long-term historical trends. This may cause a client to erroneously believe that recent trend are likely to repeat themselves over the long-term.

Question 56

Reflective Listening

Answer 56

occurs when the receiver devote reflective attention to both the content being said in the feelings are being expressed.

Question 57

Socialization

Answer 57

the process by which individuals acquire soft skills, beliefs, values, and behaviors necessary to function effectively in society or in a partucular group.

Question 58

Social Consciousness

Answer 58

an awareness of intensive responsibility for problems or injustice that exit within society.

Question 59

Solution-focused Therapy (SFT)

Answer 59

a future focused and goal directed approach to therapy.

Question 60

Traditional Finance

Answer 60

also described a literature as modern portfolio theory, though some of the concepts of the theory are not necessarily modern and have been subject to much debate and change over recent decades.

Premises/assumptions:
(1) investors are rational. (2) markets are efficient. (3) the mean-variance portfolio theory governs. (4) returned or determined by risk (beta).

Question 61

Five Stages of Change

Answer 61

1) Pre-contemplation
2) Contemplation
3) Preparation
4) Action
5) Maintenance

Question 62

Four Key Principles of Motivational Interviewing

Answer 62

(1) Partnership - collaborative process
(2) Evocation - reasons for change
(3) Acceptance - nonjudgemental
(4) Compassion - promotes + prioritizes clients’ welfare

Question 63

Common Sources of Money Conflict

Answer 63

(1) Financial Infidelity and Lack of Transparency
(2) Saving
(3) Spending
(4) Priorities
(5) Requests for Assistance from Family and Friends
(6) Financial Enmeshment

Question 64

Three main psychological needs that determine motivation:

Answer 64

(1) Competence – desire to control the outcome
(2) Relatedness – desire to be connected with others
(3) Autonomy – desire to be in control of one’s life