CAEC Financial Literacy and Personal Finance 1

Question 1

What is the difference between gross income and net income?

Accepted Answer

Gross income is before taxes and deductions; net income is after taxes and deductions

Answer

Gross income is the total amount earned before any taxes or deductions are removed, while net income is the amount you actually take home after all deductions.

Question 2

Which of the following is an example of a fixed expense?

Accepted Answer

Monthly rent payment

Answer

Fixed expenses remain the same amount each month, such as rent, while variable expenses change depending on usage or choices.

Question 3

What is the primary purpose of creating a personal budget?

Accepted Answer

To track and plan how you spend and save your money

Answer

A budget helps you track income and expenses so you can make informed decisions about spending, saving, and reaching financial goals.

Question 4

According to the 50/30/20 budgeting rule, what percentage of after-tax income should go toward needs?

Accepted Answer

50%

Answer

The 50/30/20 rule suggests allocating 50% to needs such as housing and food, 30% to wants, and 20% to savings and debt repayment.

Question 5

What is an emergency fund?

Accepted Answer

Personal savings reserved for unexpected expenses or financial hardship

Answer

An emergency fund is personal savings set aside to cover unexpected costs like medical bills, car repairs, or loss of employment.

(CAEC) Canadian Adult Education Credential Practice Test

(CAEC) Canadian Adult Education Credential Practice Test

CAEC Financial Literacy and Personal Finance 1