FHCE EXAM QUESTIONS AND ANSWERS
Financial Literacy - Answers- How well you can understand and use personal
finance related information
Financial Knowledge - Answers- The ability to understand personal finance information
Financial Risk Tolerance - Answers- Your unwillingness to engage in financial
endeavors that have certain outcomes
Feelings of control - Answers- The amount of control you feel you have when making
financial decisions
2 words to describe life's journey - Answers- 1. costly
2. unpredictable
4 key action items to the Journey of Financial Well-being - Answers- 1. Keep good
records
2. spend less than you earn
3. maintain appropriate insurance
4. save money on a regular basis
T/F: Nearly 65% of Americans DON'T have $1,000 set aside to cover unexpected
emergencies - Answers- TRUE
Human capital and social capital are categories of ____. - Answers- Financial well-
being
Human capital - Answers- Ability and willingness to work, learn, earn and make wise
decisions about how to save and invest money
Social Capital - Answers- How well you are able to form connections with other people
What can human and social capital increase together? - Answers- Together these can
increase your financial well-being and achieve your financial goals
Social capital: Define-
1. Informal networks
2. Formal networks - Answers- - Informal networks - the interpersonal relationships you
form with your family and close friends
- Formal networks - connect you with people in professional, recreational, leisure and
social communities
,How do you calculate payback period? - Answers- Payback period = Total costs /
increase in annual income
(Slide 17)
In addition to your formal education, other resources increase your human capital
include: - Answers- - Your health (no health, no wealth)
- Your willingness to relocate for higher paying job markets
- Continuing professional education and skill development
What are some ways to minimize your payback period? - Answers- Scholarships, side
hustle, etc. If she didn't apply for a federal loan she can file her taxes
Define Risk and Risk Taking - Answers- - Risk - the uncertainty associated with any
physical, social, emotional, environmental, labor market, or financial activity
- Risk Taking - refers to doing something that involves the possibility of a gain or a loss
For those interested in accumulating wealth over their life, being willing to take _ _ _ will
be essential in reaching financial goals - Answers- Calculated Financial Risks
Life is full of _ _ - Answers- Trade-offs
T/F: In financial markets, the only way to accumulate a certain level of wealth is to take
informed financial risks with your savings - Answers- TRUE
T/F: The greater the wealth you have, the lower the risk tolerance - Answers- FALSE
Higher wealth = higher risk tolerance
T/F: Short-term time horizons are less than a year and long-term time horizons are
greater than a year - Answers- TRUE
Psychological time perspectives:
- Past-oriented
- Present-oriented
- Future-oriented - Answers- - Past-oriented: based on memories, whether good or bad
- Present-oriented: based on present perspective
- Future-oriented: based on a calculation of the consequences of action in terms of a
future payoff
In past-oriented time perspectives, define:
- Hedonistic perspective:
- Fatalistic perspective: - Answers- -Hedonistic perspective: doing things for pleasure,
the experience, excitement or action
-Fatalistic perspective: unable to visualize a meaningful future
, _ and _ to follow through on plans is essential to accomplishing goals - Answers-
Commitment and motivation to follow through on plans is essential to accomplishing
goals
2 ways to increase the importance of a goal: - Answers- External factors: financial
bonuses if you reach your goal and sharing your goal with others (in person or social
media)
Internal factors: Self-improvement and visualizing attainment of your goal
Self-efficacy: - Answers- How well you believe you can do something (slide 34)
Tips to help you believe you can do something: - Answers- - Break complex goals into
objectives and tasks
- Focus on things you can control
- Recognize small achievements along the way
Psychology and Financial Well-Being:
- Planning:
- Procrastination:
- Hyperbolic Discounting: - Answers- Planning: for the future is essential to achieve
short, intermediate and long-term financial goals
Procrastination: is placing more value on the present at the expense of the future
Hyperbolic discounting: occurs when the value of future benefits is perceived to be
lower than that of an alternative available right now
What is our greatest asset? - Answers- Time
Heuristics - - Answers- Automatic ways to respond to information; quick decisions made
on past experiences; automatic and rarely used with forethought and can help you
make quick decisions, however, they sometimes lead to problematic choices and
outcomes
Our minds use heuristics to do what? - Answers- Our minds use heuristics to make
decisions more quickly and easily then if we were to labor over every choice
Status quo bias - - Answers- Personal preference for keeping things the same
Status quo bias:
- Overemphasizes what?
Underestimates what?
Creates a fear of what? - Answers- Overemphasizes the good aspects of a current
situation
Financial Literacy - Answers- How well you can understand and use personal
finance related information
Financial Knowledge - Answers- The ability to understand personal finance information
Financial Risk Tolerance - Answers- Your unwillingness to engage in financial
endeavors that have certain outcomes
Feelings of control - Answers- The amount of control you feel you have when making
financial decisions
2 words to describe life's journey - Answers- 1. costly
2. unpredictable
4 key action items to the Journey of Financial Well-being - Answers- 1. Keep good
records
2. spend less than you earn
3. maintain appropriate insurance
4. save money on a regular basis
T/F: Nearly 65% of Americans DON'T have $1,000 set aside to cover unexpected
emergencies - Answers- TRUE
Human capital and social capital are categories of ____. - Answers- Financial well-
being
Human capital - Answers- Ability and willingness to work, learn, earn and make wise
decisions about how to save and invest money
Social Capital - Answers- How well you are able to form connections with other people
What can human and social capital increase together? - Answers- Together these can
increase your financial well-being and achieve your financial goals
Social capital: Define-
1. Informal networks
2. Formal networks - Answers- - Informal networks - the interpersonal relationships you
form with your family and close friends
- Formal networks - connect you with people in professional, recreational, leisure and
social communities
,How do you calculate payback period? - Answers- Payback period = Total costs /
increase in annual income
(Slide 17)
In addition to your formal education, other resources increase your human capital
include: - Answers- - Your health (no health, no wealth)
- Your willingness to relocate for higher paying job markets
- Continuing professional education and skill development
What are some ways to minimize your payback period? - Answers- Scholarships, side
hustle, etc. If she didn't apply for a federal loan she can file her taxes
Define Risk and Risk Taking - Answers- - Risk - the uncertainty associated with any
physical, social, emotional, environmental, labor market, or financial activity
- Risk Taking - refers to doing something that involves the possibility of a gain or a loss
For those interested in accumulating wealth over their life, being willing to take _ _ _ will
be essential in reaching financial goals - Answers- Calculated Financial Risks
Life is full of _ _ - Answers- Trade-offs
T/F: In financial markets, the only way to accumulate a certain level of wealth is to take
informed financial risks with your savings - Answers- TRUE
T/F: The greater the wealth you have, the lower the risk tolerance - Answers- FALSE
Higher wealth = higher risk tolerance
T/F: Short-term time horizons are less than a year and long-term time horizons are
greater than a year - Answers- TRUE
Psychological time perspectives:
- Past-oriented
- Present-oriented
- Future-oriented - Answers- - Past-oriented: based on memories, whether good or bad
- Present-oriented: based on present perspective
- Future-oriented: based on a calculation of the consequences of action in terms of a
future payoff
In past-oriented time perspectives, define:
- Hedonistic perspective:
- Fatalistic perspective: - Answers- -Hedonistic perspective: doing things for pleasure,
the experience, excitement or action
-Fatalistic perspective: unable to visualize a meaningful future
, _ and _ to follow through on plans is essential to accomplishing goals - Answers-
Commitment and motivation to follow through on plans is essential to accomplishing
goals
2 ways to increase the importance of a goal: - Answers- External factors: financial
bonuses if you reach your goal and sharing your goal with others (in person or social
media)
Internal factors: Self-improvement and visualizing attainment of your goal
Self-efficacy: - Answers- How well you believe you can do something (slide 34)
Tips to help you believe you can do something: - Answers- - Break complex goals into
objectives and tasks
- Focus on things you can control
- Recognize small achievements along the way
Psychology and Financial Well-Being:
- Planning:
- Procrastination:
- Hyperbolic Discounting: - Answers- Planning: for the future is essential to achieve
short, intermediate and long-term financial goals
Procrastination: is placing more value on the present at the expense of the future
Hyperbolic discounting: occurs when the value of future benefits is perceived to be
lower than that of an alternative available right now
What is our greatest asset? - Answers- Time
Heuristics - - Answers- Automatic ways to respond to information; quick decisions made
on past experiences; automatic and rarely used with forethought and can help you
make quick decisions, however, they sometimes lead to problematic choices and
outcomes
Our minds use heuristics to do what? - Answers- Our minds use heuristics to make
decisions more quickly and easily then if we were to labor over every choice
Status quo bias - - Answers- Personal preference for keeping things the same
Status quo bias:
- Overemphasizes what?
Underestimates what?
Creates a fear of what? - Answers- Overemphasizes the good aspects of a current
situation
