Fundamentals Flashcards

A client receives a lump-sum inheritance. According to sound financial counseling principles, what should they do first?

Answer: Assess their overall financial situation and goals before acting

A holistic financial review before acting on a windfall ensures the funds align with the client's short- and long-term goals.

What is the primary distinction between Chapter 7 and Chapter 13 bankruptcy?

Answer: Chapter 7 liquidates assets; Chapter 13 creates a repayment plan

Chapter 7 involves liquidating non-exempt assets to pay creditors, while Chapter 13 establishes a 3–5 year repayment plan.

Which factor has the greatest impact on a FICO credit score?

Answer: Payment history

Payment history accounts for 35% of a FICO score, making it the single most influential factor.

What is 'predatory lending' in the context of consumer financial protection?

Answer: Lending practices that impose unfair or abusive loan terms on borrowers

Predatory lending involves deceptive, manipulative, or exploitative loan terms that harm consumers financially.

A counselor uses motivational interviewing techniques. What is the core purpose of this approach?

Answer: To elicit the client's own motivation to change financial behaviors

Motivational interviewing is a client-centered counseling style that draws out intrinsic motivation to support behavior change.

Which of the following best defines 'opportunity cost' in personal finance?

Answer: The value of the next best alternative foregone when making a financial decision

Opportunity cost represents the potential benefit sacrificed by choosing one option over the best alternative.

A client is underbanked. Which service best describes their likely financial situation?

Answer: They rely partly on alternative financial services outside the traditional banking system

Underbanked individuals have a bank account but still rely on check cashers, payday lenders, or money orders for financial services.