not turn out exactly as planned.)
5. What Web site feature of www.cafp.org or www.canadianfinance.com would provide assistance with
your financial decisions?
Answers will vary. Students might refer to investment advice, money management tips, or buying on
credit warnings.
Concept Check 1-2
1. What are examples of long-term goals?
Long-term goals are financial objectives more than just a few years off (usually more than five years),
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such as retirement savings, money for children’s college education, or other long-term savings goals.
2. What are the four main characteristics of useful financial goals?
Useful financial goals should (1) be realistic; (2) be stated in specific, measurable terms; (3) have a
time orientation; and (4) imply the type of action to be taken.
3. How does your life situation affect your financial goals?
The financial goals we set for ourselves, ultimately the way we spend and save our money vary
greatly depending on our life situation. For example, an unmarried 25-year-old with no children may
be willing to take a few more risks and spend a larger amount of money since he/she only has
him/herself to support. The opposite is true for a married, 45-year-old with two children. He/she
will likely spend money more wisely and take great consideration when presented with a risky
situation.
Concept Check 1-3
1. How might the uncertainty of inflation make personal financial planning difficult?
Inflation can affect financial planning with unexpected higher prices for which a budget was not
planned. Or, expected inflation will mean higher interest rates as a lender is concerned about being
paid back in dollars with less buying power.
2. What factors influence the level of interest rates?
Interest rates are affected by the supply and demand for money, along with the risk of lending and
borrowing money.
Concept Check 1-4
1. How can you use future value and present value computations to measure the opportunity cost of a
financial decision?
Time value of money calculations (future value and present value) are used to compute interest
earned and the value of a sum of money at a later date. (See Appendix 1B and the “Financial Planning
Calculations” feature).
2. Use the time value of money tables in Exhibit 1-8 to calculate the following:
a. The future value of $100 at 7 percent in 10 years.
$100 1.967 = $196.70
b. The future value of $100 a year for 6 years earning 6 percent.
$100 6.975 = $697.50
c. The present value of $500 received in 8 years with an interest rate of 8 percent.
$500 0.54 = $270
Concept Check 1-5
1. What are the main components of personal financial planning?
The main components of financial planning are obtaining, planning, saving, borrowing, spending,
managing risk, investing, and retirement and estate planning.
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2. What is the purpose of a financial plan?
A financial plan provides a person with an overall summary of current and desired financial situations
along with planned actions to reach those goals.
3. Identify some common actions taken to achieve financial goals.
Common financial planning strategies include developing a savings plan, investing in stocks and
bonds, purchasing real estate for investment purposes, planning investment and other financial
decisions with taxes in mind, limit the use of credit, and investing in a variety of investment vehicles.
OPENING CASE QUESTIONS
1. How did Karen benefit from her parents’ advice and her own financial planning?
Following advice from her parents, Karen consulted a financial planner to help her invest her money.
By doing this, Karen is taking her first steps in personal financial planning which will help her get
full satisfaction from each available dollar.
2. What decisions does Karen need to make regarding her future?
Karen has already determined her current financial situation and financial goals. Her next step is to
identify alternative courses of action and evaluate these alternatives so that she is able to create and
implement a financial action plan.
3. How could various personal and economic factors influence Karen’s financial planning?
Many factors can influence Karen’s financial planning, for example, graduation, engagement or a
change in health can influence her spending and saving patterns and financial needs. In addition,
economic factors such as inflation and interest rates can have a large effect on the value of her