1.4.3 Earning and Spending PFL TEST

1.4.
3 Test (TST): Earning and Spending Test
Personal Financial Literacy Name: Emma Wright
Points Possible:60
Date:
Answer the following questions thoroughly.
Part I: Short-Answer Questions (40 points)
1. What is the difference between a want and a need? Define these terms to explain the
difference, and then identify five examples of needs you have and five examples of wants. Then
explain why needs must come before wants. (8 points) A want is something that you like or
want to have, while a need is something you need to live. For example some wants are new
shoes, makeup, new clothes, new sunglasses, and starbucks. Some needs are shelter, bills,
food, water, electricity. Needs come before wants because if you are limited on money you
would need food instead of new makeup for example.

2. In May, Kayla pays to repair her car. During the same month, she buys a new work shirt; pays
her rent, cable TV, and phone bill; and takes her mom out for a birthday dinner. She also pays her
car insurance and buys gas for her newly repaired car. Complete the table to determine which of
these expenses are fixed expenses and which are variable expenses. (8 points)
Kayla's May Fixed expense Variable expense

expenses
Car repairs yes
New work shirt yes

Rent yes
Cable TV bill yes
Phone bill yes

Mom's birthday yes
dinner
Car insurance yes
Gas yes
3. Explain the difference between a tax deduction and a tax credit. Identify two examples of
each. (8 points) A tax credit is applied against your tax liability. A tax
deduction is applied against your taxable income.With the $1,000 tax
credit, your tax bill is reduced to $2,000. With a tax deduction, it lowers
your taxable income. So, if you're in the 12% tax bracket, that $1,000
deduction takes $120 off of your taxable income (not your tax bill).
4. Nikki is buying a new house and new furniture to decorate her new home. What kind of tax —
progressive or regressive — will Nikki pay on each of her new purchases? Your response should
also explain the difference between a progressive tax and a regressive tax. (8 points) Nikki
will pay a regressive tax on her new house and furniture purchases. This is
because sales taxes, which are applied to goods and services like houses
and furniture, are typically considered regressive.
5. Xiomara uses reward points on her credit card to purchase a book she wants to read online.
That evening she meets up with a friend for dinner but discovers she left her credit card at
home. She agrees to pay her friend for her half of dinner later using Venmo. Their waiter uses a
point-of-service mobile device to charge Xiomara's friend's credit card. On her way home,
Xiomara buys a latte at a drive-through using cash she got from an ATM the day before, and
when she gets home, she pays her friend with Venmo and then uses some airline miles to buy a
plane ticket to see her mother in Mexico next month. Which of these purchases involve digital
payments? Which involve using digital assets? Which involve cash or credit? Explain why each
person might have chosen the form of payment. (8 points)
Transactions Digital Digital Cash or

payments assets credit
Book It is a want
purchase,
therefore
she wants
to earn
rewards
from it.
Dinner Her friend

uses her
credit
card to
pay it
back later
at the end
of the
month.
Paying her She uses

friend back venmo to
send her
friend
money.
Latte She uses

some
cash she
had for
the latte
since it
wasn’t
too
expensive
im
assuming
.
Plane ticket She uses

airline
miles to
pay for
her ticket.
Part II: Application and Critical Thinking (20 points)
6. Nadeem is considering several expenses: getting his car fixed, buying a newer car in better
shape, buying a suit to begin interviewing for a better job, going on a trip with friends to Las
Vegas, and buying a new video game console. Regarding getting his car fixed, buying the suit, or
buying a new game console, Nadeem has enough cash on hand for two of these, but not all
three. The trip to Las Vegas would require him to put charges on his card and pay them off over
the next several months with interest, and he could only buy a newer car if he got the longest
possible payment plan that would have high interest. If you were a friend of Nadeem's, how
would you help him prioritize these expenses?

Think about what Nadeem can afford right now and what he really needs. Also think about how
he can get some of the more expensive things he wants without taking on too much debt.
He should buy the suit and fix his car because both of them are more important than the new
gaming console he wants. He needs his car to be fixed so he can continue to drive and make it
to the job interview. He will need the suit for his job interview. If he gets hired and makes a
good impression he could make more money than he is now, which could make it to where he
has enough money for the things he wants and he could maybe get a new car if he saved up.

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1.4.

3 Test (TST): Earning and Spending Test

Personal Financial Literacy Name: Emma Wright

Answer the following questions thoroughly.

Part I: Short-Answer Questions (40 points)

would need food instead of new makeup for example.

Kayla's May Fixed expense Variable expense

Car repairs yes

New work shirt yes

Cable TV bill yes

Phone bill yes

Car insurance yes

and furniture, are typically considered regressive.

person might have chosen the form of payment. (8 points)

Transactions Digital Digital Cash or

Dinner Her friend

Paying her She uses

Latte She uses

Plane ticket She uses

Part II: Application and Critical Thinking (20 points)

would you help him prioritize these expenses?

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