NEDP Consumer Economics 2 — Questions and Answers
Question 1: What is 'identity theft' and how can you protect yourself from it?
- When someone uses your personal information without permission to commit fraud; protect yourself by monitoring accounts and guarding your SSN. (Correct answer)
- When a company uses your shopping data to send targeted ads; opt out of mailing lists.
- When a thief steals your wallet and uses your cash; use digital payments only.
- When someone accesses your social media; use strong passwords.
Correct answer: When someone uses your personal information without permission to commit fraud; protect yourself by monitoring accounts and guarding your SSN.
Identity theft involves stealing personal data (SSN, credit card numbers) to open accounts or make purchases fraudulently.
Identity theft occurs when someone steals personal information (Social Security number, financial account details, address) to commit fraud — opening credit cards, taking loans, or filing false tax returns in your name. Protection strategies: monitor your credit report (free at annualcreditreport.com), use strong unique passwords, shred financial documents, be cautious with email attachments, and place a credit freeze if needed.
Question 2: What does it mean to 'live within your means'?
- Spending no more than what you earn, avoiding consumer debt for everyday purchases (Correct answer)
- Earning just enough to cover basic necessities
- Only spending money during promotional sales
- Avoiding all major purchases until retirement
Correct answer: Spending no more than what you earn, avoiding consumer debt for everyday purchases
Living within your means is a budgeting principle: spending less than or equal to your income and not using debt to fund normal lifestyle expenses.
Living within your means is a cornerstone of financial health. It means tracking income and expenses, ensuring monthly spending does not exceed take-home pay, and avoiding high-interest consumer debt for non-essential purchases. Those who consistently live below their means can save, build an emergency fund, and invest for the future.
Question 3: What is the purpose of a 'credit report'?
- To document a person's borrowing history, including payment record, outstanding debts, and credit inquiries (Correct answer)
- To show a person's total annual income and tax payments
- To list all bank accounts and their current balances
- To provide a record of workplace earnings and employment history
Correct answer: To document a person's borrowing history, including payment record, outstanding debts, and credit inquiries
Credit reports (from Equifax, Experian, TransUnion) document your credit history — lenders use them to assess your creditworthiness.
A credit report is compiled by the three major credit bureaus (Equifax, Experian, TransUnion) and contains: personal information, credit accounts (type, credit limit, balance, payment history), public records (bankruptcies), and credit inquiries. Lenders, landlords, and sometimes employers use it to evaluate financial reliability. You are entitled to one free report per bureau annually at annualcreditreport.com.
Question 4: What is a 'lease agreement' in the context of renting an apartment?
- A legal contract between a landlord and tenant specifying rent, term, rules, and responsibilities (Correct answer)
- An informal verbal agreement for monthly payment
- A government form required to apply for housing assistance
- A payment plan for purchasing a home over time
Correct answer: A legal contract between a landlord and tenant specifying rent, term, rules, and responsibilities
A lease is a legally binding contract stating the rental terms — both parties are obligated to its terms for the duration specified.
A lease agreement is a binding legal contract specifying: the monthly rent amount and due date, the lease term (usually 12 months), security deposit terms, rules about pets, guests, and alterations, maintenance responsibilities, and conditions for breaking the lease. Tenants should read leases carefully and ask for clarification before signing. Breaking a lease typically has financial penalties.
Question 5: What is the primary advantage of using a credit card responsibly (paying the full balance monthly)?
- Building credit history and earning rewards with no interest cost (Correct answer)
- Avoiding all record of purchases for privacy
- Paying less than you would with cash due to rewards points
- Getting extended payment terms on all purchases for free
Correct answer: Building credit history and earning rewards with no interest cost
Paying the full balance each month means no interest is charged while building credit history and potentially earning cash-back or travel rewards.
When you pay your full credit card balance by the due date each month, you pay zero interest while benefiting from: building a positive credit history (improving your credit score), fraud protection (cards offer $0 liability for unauthorized charges, unlike debit cards), and rewards programs (cash back, airline miles, points). The key is paying in full — carrying a balance triggers high interest charges.
Question 6: Which of the following is an example of a 'needs' vs. a 'wants' in personal budgeting?
- Housing (need) vs. streaming subscriptions (want) (Correct answer)
- Groceries (want) vs. dining out (need)
- Water (want) vs. electricity (need)
- Health insurance (want) vs. gym membership (need)
Correct answer: Housing (need) vs. streaming subscriptions (want)
Needs are essential for survival and basic functioning (housing, food, utilities, healthcare); wants are extras that enhance life but aren't essential.
Distinguishing needs from wants is fundamental to budgeting. Needs include: housing, utilities, basic groceries, healthcare, transportation to work, and essential clothing. Wants include streaming services, dining out, vacations, entertainment, and fashion. The 50/30/20 budgeting rule suggests allocating 50% of income to needs, 30% to wants, and 20% to savings and debt repayment.
NEDP Consumer Economics 2
What is 'identity theft' and how can you protect yourself from it?