Test Bank for Personal Financial Planning, 13th Edition by Lawrence J. Gitman, Michael D. Joehnk & Randall S. Billingsley | 2025/2026 Updated Exam Q&A PDF

,Chapter 1—Understanding the Financial Planning Process


TRUE/FALSE

1. Standard of living is defined as the necessities, comforts, and luxuries desired by an individual or group.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Knowledge

2. Your average propensity to consume is the percentage of each dollar of income, on the average, that is
spent for current needs rather than savings.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Knowledge

3. A good financial plan completed when one is in their 30s will typically last a lifetime.

ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-2
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Synthesis

4. Financial planning is a continuing, life-long process.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-2
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Comprehension

5. Financial planning can improve your standard of living.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Comprehension

6. Current consumption is inversely related to saving for the future.

ANS: T PTS: 1 DIF: Challenging OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Analysis

7. About 20% of Americans say retirement planning is their most pressing financial concern.

, ANS: F PTS: 1 DIF: Moderate OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Knowledge

8. The most effective way to achieve financial objectives is through financial planning.

ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Comprehension

9. Defining financial goals is an important first step in personal financial planning process.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-2
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Comprehension

10. Two persons with equal average propensities to consume will not necessarily have equal standards of
living because of differences in income.

ANS: T PTS: 1 DIF: Challenging OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Evaluation

11. The need for financial planning declines as your income increases.

ANS: F PTS: 1 DIF: Moderate OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Synthesis

12. Current consumption effects future consumption.

ANS: T PTS: 1 DIF: Challenging OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Analysis

13. A person who has $2,000 monthly income and spends $1,800 monthly has an average propensity to
consume of 90%.

ANS: T PTS: 1 DIF: Challenging OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Evaluation

14. A person making $35,000 and spending $30,800 has an average propensity to consume of 80%.

ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Evaluation

15. Most families find it difficult to discuss money matters.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-2

, NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Knowledge

16. Average propensity to consume refers to how much of your money you plan to save in your financial
plan.

ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Comprehension

17. Tangible assets are earning assets that are held for the returns they promise.

ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Comprehension

18. Financial assets are paper assets, such as savings accounts and securities.

ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Comprehension

19. Mutual funds are examples of financial assets.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Application

20. Spending for your child's private-school education is an example of deferred consumption.

ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Application

21. Wealth can be defined as the total value of all the things you own.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Knowledge

22. Wealth is the key consideration is establishing financial goals as it is the measure of value in financial
transactions.

ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Comprehension

23. Financial assets include investments such as stocks and bonds.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates