12.11 Knowledge Check
Knowledge Check
Text Description
Multiple Choice Activity #1
What is the key lesson behind the Micawber Principle?
- Increasing your income is the best way to guarantee financial success
- Spending slightly more than you earn is manageable if you have access to credit
- Consistently living within your means is essential for financial security
- Debt is unavoidable, so short-term overspending won’t significantly impact long-term stability
Multiple Choice Activity #2
According to the chapter, which of the following is the least effective reason for saving money?
- Protecting yourself from unexpected expenses that could create debt
- Setting aside funds for major purchases or life goals
- Keeping extra money in a savings account without a clear financial plan
- Budgeting for vacations or short-term planned expenses
Multiple Choice Activity #3
The 50-30-20 rule suggests allocating income as follows:
- 50% to needs, 30% to investments, and 20% to entertainment
- 50% to savings, 30% to fixed expenses, and 20% to debt repayment
- 50% to needs, 30% to wants, and 20% to savings or debt repayment
- 50% to discretionary spending, 30% to necessities, and 20% to credit card payments
Multiple Choice Activity #4
Which of the following best describes the role of a budget in financial planning?
- A budget is a restrictive tool that limits spending and prevents financial flexibility
- A budget is a plan that tracks income and expenses to help manage money effectively
- Budgeting is only necessary for individuals with significant debt or financial instability
- Once a budget is created, it should remain unchanged regardless of financial circumstances
Multiple Choice Activity #5
What is one significant long-term benefit of responsible credit card use?
- It guarantees approval for future loans and mortgages
- It provides financial flexibility while also helping build a strong credit history
- It eliminates the need for an emergency fund since credit can always be used
- It allows you to make purchases without worrying about repayment as long as you make minimum payments
Multiple Choice Activity #6
How does investing differ from saving in terms of financial strategy?
- Investing allows for long-term financial growth but carries risks, while saving prioritizes security with limited returns
- Savings accounts generate higher returns than most investments over time
- Investing is only useful for those who already have significant wealth
- Saving is best for short-term needs, while investing is primarily for retirement
Multiple Choice Activity #7
Why is compound interest often considered a key factor in wealth-building?
- It allows money to grow at an increasing rate by reinvesting both the principal and interest earned
- It guarantees that investments will double in value every five years
- It prevents market downturns from affecting investment returns
- It only applies to high-risk investment strategies
Correct Answers:
Activity #1: c. Consistently living within your means is essential for financial security
Activity #2: c. Keeping extra money in a savings account without a clear financial plan
Activity #3: c. 50% to needs, 30% to wants, and 20% to savings or debt repayment
Activity #4: b. A budget is a plan that tracks income and expenses to help manage money effectively
Activity #5: b. It provides financial flexibility while also helping build a strong credit history
Activity #6: a. Investing allows for long-term financial growth but carries risks, while saving prioritizes security with limited returns
Activity #7: a. It allows money to grow at an increasing rate by reinvesting both the principal and interest earned
OpenAI. (2025). ChatGPT. [Large language model]. https://chat.openai.com/chat
Prompt: Please create seven multiple-choice questions with answers based on the content shared.
