AFC Savings Strategies and Emergency Fund Planning 3

Question 1

According to behavioral finance research, which psychological bias most commonly causes individuals to consistently under-save for the future?

Accepted Answer

Present bias (hyperbolic discounting)

Answer

Anchoring bias

Answer

Sunk cost fallacy

Answer

Confirmation bias

Question 2

When applying the SMART framework to savings goals, the 'T' component requires that goals be:

Accepted Answer

Time-bound with a specific deadline

Answer

Tax-advantaged

Answer

Transferable to heirs

Answer

Tracked through a third-party app

Question 3

A financial counselor working with a client who lives paycheck-to-paycheck and has no savings should FIRST recommend:

Accepted Answer

Building a starter emergency fund of $500 to $1,000

Answer

Opening a Roth IRA and contributing the annual maximum

Answer

Investing in a diversified stock portfolio

Answer

Purchasing a whole life insurance policy

Question 4

Which of the following best describes 'sinking funds' as used in personal financial counseling?

Accepted Answer

Dedicated savings set aside regularly for known, anticipated future expenses

Answer

Savings accounts that decrease in value due to inflation

Answer

Emergency reserves for unexpected job loss

Answer

Investment accounts with gradually declining return targets

Question 5

Under the Rule of 72, if a savings account earns 6% annual interest, approximately how many years will it take for the balance to double?

Accepted Answer

12 years

Answer

6 years

Answer

18 years

Answer

24 years

Question 6

The 50/30/20 budgeting rule allocates what percentage of after-tax income to savings and debt repayment?

Accepted Answer

20%

Answer

10%

Answer

30%

Answer

50%

Question 7

For a client experiencing lifestyle inflation after receiving a significant raise, a financial counselor would MOST likely recommend:

Accepted Answer

Automatically directing at least 50% of the raise to savings or debt payoff

Answer

Increasing credit card limits to match the new lifestyle

Answer

Temporarily reducing retirement contributions to enjoy the income increase

Answer

Consolidating existing debt with a home equity loan