Financial Counseling

Question 1

Define/Explain

Financial Knowledge

Answer 1

A basic understanding of financial concepts and procedures as well as the use of this knowledge to solve financial problems.

Encompasses conceptual and procedural knowledge

Question 2

Define/Explain

Financial Literacy

Answer 2

Knowledge and understanding of financial concepts and risks, and the skills, motivation, and confidence to apply such knowledge and understanding to make effective decisions across a wide range of life and financial contexts

Question 3

Define/Explain

Financial Capability

Answer 3

Connects literacy with specific financial products ans services that facilitate asset-building.

Question 4

What are the 10 Core Competencies?

Answer 4

1. Set the stage and gather client information
2. Assist a client in creating an action plan
3. Develop financial statements, ratios, and spending plans
4. Manage money
5. Manage credit and debt
6. Educate a client about consumer protection
7. Educate a client about major acquisitions
8. Manage financial risks
9. Discuss investment basics with a client
10. Educate a client about the financial aspects of retirement and estate planning

Question 5

Name 2 common statements financial counselors work with?

Answer 5

Cash flow statement (balance sheet)

Net Worth statement

Question 6

Name 2 common personal financial ratios financial counselors use?

Answer 6

Debt-to-income ratio

Liquidity ratio

Question 7

What are the 3 types of debt-to-income ratios and how are they calculated?

Answer 7

1. Consumer debt ratio - divide non-housing debt by monthly gross income. (15%
2. Front-end ratio aka housing expense ratio - divide all houseing debt by monthly gross income (28%)
3. Back-end ratio - divide total debt payments by monthly gross income (36%)