Week 8

Question 1

What is the secret to success according to the text?

Answer 1

To have capital, or money.

Question 2

What does financial literacy mean?

Answer 2

Having the knowledge, skills, and confidence to make responsible financial decisions.

Question 3

What is the first step in controlling your assets?

Answer 3

Take an inventory of your financial assets.

Question 4

What equation is fundamental to creating a balance sheet?

Answer 4

Assets = Liabilities + Owners’ Equity.

Question 5

What should you do if your liabilities exceed the value of your assets?

Answer 5

You are not on the path to financial security.

Question 6

What is the purpose of keeping track of all your expenses?

Answer 6

To learn discipline and manage cash flow.

Question 7

What tool has the Royal Bank of Canada developed to help track expenses?

Answer 7

The Spend-o-meter tool.

Question 8

What is a personal budget?

Answer 8

A financial plan that includes income and expenses.

Question 9

What is the Rule of 72?

Answer 9

A calculation to estimate how long it takes for money to double at a certain interest rate.

Question 10

What should you do with money remaining after paying monthly bills?

Answer 10

Pay off your debts, starting with those carrying the highest interest rates.

Question 11

What is the recommended savings percentage of your income for long-term growth?

Answer 11

10 to 15 percent.

Question 12

What is the best way to save money according to David Chilton?

Answer 12

Pay yourself first.

Question 13

What should you borrow money for?

Answer 13

To buy assets that increase in value or generate income.

Question 14

What is the recommended savings for emergencies?

Answer 14

Three to six months of earnings.

Question 15

What is the main strategy for building financial success?

Answer 15

Accumulating capital through discipline and careful planning.

Question 16

Fill in the blank: Financial literacy is defined as having the knowledge, skills, and confidence to make _______.

Answer 16

responsible financial decisions.

Question 17

True or False: It is advisable to borrow money for ordinary expenses.

Answer 17

False.

Question 18

What should you do with your unexpected windfall or raise?

Answer 18

Put away at least 10 to 15 percent of your income.

Question 19

What does living frugally require?

Answer 19

Foregoing most non-essential purchases to accumulate investment money.

Question 20

What is one way to manage money suggested in the text?

Answer 20

The money jar system.

Question 21

What can help you visualize your financial goals?

Answer 21

Clearly visualizing your goals makes it easier to save for them.

Question 22

What is a key factor for becoming wealthy according to the text?

Answer 22

Choosing to become an entrepreneur.

Question 23

What is a capital-generating strategy?

Answer 23

A strategy that may require foregoing luxury purchases to accumulate investment money.

Question 24

How do most millionaires accumulate their wealth?

Answer 24

By living frugally and saving over time.

Question 25

What is a Tax-Free Savings Account (TFSA)?

Answer 25

An investment option for Canadian residents 18+ to contribute up to $5,500 annually, with tax-free withdrawals.

Question 26

What are some investment options permitted in a TFSA?

Answer 26

* Cash * Mutual funds * Securities on a designated stock exchange * Term deposits * Bonds * Certain shares of small business corporations

Question 27

What is one benefit of home ownership over renting?

Answer 27

Home ownership locks in payments for shelter at a fixed amount.

Question 28

What should you consider when deciding between owning and renting a home?

Answer 28

Check if it is better to own or rent based on changing home prices.

Question 29

What is a contrarian approach in investing?

Answer 29

Buying stock when everyone else is selling or vice versa.

Question 30

What is the risk/reward relationship in the stock market?

Answer 30

The greater the risk, usually the greater the return.

Question 31

What is a key factor in managing credit cards effectively?

Answer 31

Paying the balance in full during the interest-free period.

Question 32

What is term insurance?

Answer 32

Pure insurance protection for a given number of years.

Question 33

Why should someone consider buying life insurance?

Answer 33

To protect loved ones from the loss of income due to unexpected events.

Question 34

What is whole life insurance?

Answer 34

Life insurance that combines pure insurance and savings.

Question 35

What is an annuity?

Answer 35

A contract to make regular payments to a person for life or a fixed period.

Question 36

What does disability insurance cover?

Answer 36

It pays part of the cost of a long-term illness or an accident.

Question 37

True or False: It is advisable to consult both an insurance agent and a financial adviser before buying insurance.

Answer 37

True

Question 38

What is the primary benefit of a debit card?

Answer 38

It does not allow you to spend more than what you have in your account.

Question 39

What is the average time to pay off a $10,000 credit card balance with a 16% interest rate while making minimum payments?

Answer 39

14 years.

Question 40

What type of investments do variable life insurance policies typically invest in?

Answer 40

Stocks or other high-yielding securities.

Question 41

Fill in the blank: A _______ is a form of whole life insurance that invests the cash value of the policy in stocks.

Answer 41

variable life insurance

Question 42

What is disability insurance?

Answer 42

Insurance that pays part of the cost of a long-term illness or an accident.

Question 43

What is guaranteed replacement cost in homeowners or renters insurance?

Answer 43

Insurance that covers the full cost to replace items with new ones.

Question 44

What is the difference between guaranteed replacement cost and depreciated cost in insurance?

Answer 44

Guaranteed replacement covers new item costs; depreciated cost covers current item value.

Question 45

What should you include in car insurance?

Answer 45

Liability insurance and coverage against losses from uninsured motorists.

Question 46

What is an umbrella policy?

Answer 46

A broadly based insurance policy that saves you money by consolidating all insurance with one company.

Question 47

Why is it important to plan for retirement early?

Answer 47

Successful financial planning means long-range planning, which impacts quality of life in retirement.

Question 48

What are the three pillars of retirement income in Canada?

Answer 48

* Pillar 1: Old Age Security (OAS) * Pillar 2: Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) * Pillar 3: Private savings and retirement plans.

Question 49

What is the average retirement length for Canadians?

Answer 49

22 years, based on an average retirement age of 62 and life expectancy of 84.

Question 50

What benefits does the OAS program provide?

Answer 50

* Basic OAS pension * Guaranteed Income Supplement * Allowance for spouses of recipients * Allowance for the Survivor.

Question 51

What is the age of eligibility for the OAS pension?

Answer 51

Gradually increasing from 65 to 67 between 2023 and 2029.

Question 52

What is the CPP?

Answer 52

A contributory plan providing benefits when a contributor becomes disabled or retires.

Question 53

What is the maximum CPP or QPP monthly benefit for a retired recipient at age 65?

Answer 53

$1,065.

Question 54

What are EPPs?

Answer 54

Employer-specific private pension plans introduced during an employee’s orientation.

Question 55

What is an RRSP?

Answer 55

A federally-regulated, tax-sheltered savings plan designed to encourage Canadians to save for retirement.

Question 56

What is the contribution limit for an RRSP?

Answer 56

15 percent of earned income from the previous year, minus any pension adjustment plus unused contributions.

Question 57

What is the marginal tax rate?

Answer 57

The rate of tax payable on the last dollar earned.

Question 58

What is the RRSP contribution deadline?

Answer 58

60 days after the end of the year (i.e., March 1).

Question 59

What are the two plans allowing penalty-free RRSP withdrawals?

Answer 59

* Home Buyers’ Plan * Lifelong Learning Plan.

Question 60

What is the role of financial planners?

Answer 60

Assist in developing a comprehensive financial program covering investments, taxes, insurance, and more.

Question 61

What is a will?

Answer 61

A document that states how you want your assets distributed and names the executor for your estate.

Question 62

What is an executor?

Answer 62

An individual who assembles and values your estate, files taxes, and distributes assets when you pass away.

Question 63

What is a power of attorney?

Answer 63

A written document appointing someone to act on your behalf in specified matters.

Question 64

What is the importance of estate planning?

Answer 64

Preserves and protects your investments for your beneficiaries.