Finance Flashcards
6 cards from real FICEP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Finance flashcards as text
What is the time value of money and how does it affect counseling recommendations?
Answer: A dollar today is worth more than a dollar in the future because of its earning potential
The time value of money states that money available today is worth more because it can be invested to earn returns.
What is the difference between gross income and net income for budgeting?
Answer: Gross is total earnings before deductions; net is take-home pay and is the correct basis for budgeting
Gross income is total earnings before taxes and deductions; net income is what remains. Budgets should use net income.
What is liquidity in personal finance and why does it matter?
Answer: It measures how quickly an asset can be converted to cash without significant loss of value
Liquidity refers to how easily an asset can be converted to cash. Emergency funds should be highly liquid.
What is the Rule of 72 and how can counselors use it?
Answer: A formula to estimate how many years for an investment to double: divide 72 by the annual rate
The Rule of 72: divide 72 by the annual rate to estimate doubling time.
What are the three main personal financial statements a counselor might create with a client?
Answer: Balance sheet, income and expense statement, and spending plan
The three foundational statements are the balance sheet (net worth), income and expense statement (cash flow), and spending plan (budget).
What is the difference between simple interest and compound interest?
Answer: Simple interest is on principal only; compound interest is on principal plus accumulated interest
Simple interest is calculated on the original principal only; compound interest includes previously earned interest, leading to accelerating growth.