About the Savvy Spending quiz on MSN.com
August 15th, 2005 | by mbhunter |A lot of the quizzes on MSN.com are pretty good. This one on “Savvy Spending” fell a little short, though. Some of the questions were OK, but some of the questions had more than one reasonable answer. Others were no more tractable than:
What is the best color?
- Blue
- Green
- Red
- Orange
and having one of the answers be correct and the others wrong!
I’ll share the answers to the questions that I “missed,” so if you want a crack at the quiz before I discuss it, you can take it now.
1. When planning your annual vacation, you:
- Wait until the last minute and inevitably feel that you’ve spent too much and that it wasn’t really worth it.
- Always mean to take a vacation, but when the time comes, you usually decide you can’t spare the money.
- Use money set aside in your budget for leisure.
- Go “all out,” reasoning that your job is stressful and you need the relaxation, no matter what the cost.
I chose (2) but the “correct” answer was (3). This might reflect my personal dislike of travel, but saying that I “can’t spare the money” indicates to me that there are more important things to spend money on than vacations — like paying down my mortgage or saving up for my daughter’s college expenses — not that I can’t afford it. I think that taking a vacation to go wherever is friviolus. Not everyone thinks that, but is my answer “wrong” because I think that? I don’t think so.
13. When the monthly bills come in, you:
- Don’t even notice. You have arranged for automatic bill paying at the bank.
- Pay the minimum on each one and throw it in the trash.
- Put them off until the second notice and then pay the minimum.
- Pay them once a month.
I chose (4) but the “correct” answer was (1). The reasoning given for choice (1) was that “If you’ve set up your budget properly, your bills are already factored into your account and many of them are paid seamlessly.” This makes paying bills easier (especially if you’re forgetful, like I am) but at the same time it’s dangerous to put your finances on autopilot. We do have some of our bills deducted automatically from our checking account or charged to a credit card, which we pay off each month. But we still view this as “paying the bills once a month.”
“Not even noticing” your bills is to be negligent of your finances, and it’s exactly what businesses want — they want you to give them permission to charge you regularly and to have you forget that they’re doing so. By looking at the money flow each month, instead, you give yourself the opportunity to ask: “Do I really need this service?” We cancelled our DirecTV because we realized that we weren’t using it that much. And, it also lets you become aware of price increases, charging errors, etc.
Donald Trump once said that he likes to write his own checks for his businesses because it lets him see first-hand where the money goes. There are stories of other famous people who trusted others to run their finances, and they ended up broke. Basically, if you don’t manage your finances, someone else will, and they probably will have their own interests at heart rather than yours.
17. Which investment portfolio is likely to earn the best return over 10 years?
- 85 percent stocks, 15 percent bonds.
- 100 percent bank certificates of deposit.
- 50 percent stocks, 50 percent bonds.
- 40 percent stocks, 30 percent bonds, 30 percent Treasury bills.
(Disclaimer: This is not personalized investment advice!) The “correct” answer was (1). “Over the long term, stocks are your best investment bet,” was the reason given. Who says? MSN.com has a crystal ball that the rest of us don’t? There are times that stocks have outperformed the other investments, but by no means always. A lof of people (myself included) are still nursing wounds from the stock selloff beginning in early 2000. The S&P 500 index is off about 20% from its high, and the NASDAQ is at less than half of its peak. And some would say that today’s stock prices are still too high!
“Stocks are your best investment bet” is more conventional wisdom than anything else. The thing is, if enough people follow the conventional wisdom, not many people make money. Why? Because all of the buying bids up the price, and it’s no longer a good deal. Also, conventional wisdom has the past as its support. Historically, stocks may have outperformed other investment vehicles. Again, why? Well, the country was in expansion. We were producing and investing in capital. What about now? We certainly owe a lot more than we used to, and we’re shutting down a lot of production in favor of overseas outsourcing. Energy prices are eating into profits for most companies. And so forth. Conventional wisdom undergoes a change in such circumstances.
The point is that it’s the current economic climate that makes one investment better than another, and it’s borderline propaganda to say that one form of investment is your best bet all the time.
18. You’ve just received a $100,000 inheritance. You:
- Adjust your portfolio of stocks and bonds, making it slightly more conservative. You don’t need to take so many risks now that you have more capital.
- Feel anxious. Dad didn’t really enjoy his life because he was always scrimping and saving to leave that money to you.
- Quit your job and start the business you’ve been dreaming about.
- Go on a trip around the world.
The “correct” answer is (1), but I chose (2). Certainly people can both do (1) and feel (2). Putting it to work in an investment vehicle that’s not likely to lose money is certainly a good idea. But it also pays to reflect on what the sacrifice was that got you that inheritance in the first place. Was it worth it? Not that you want to “die broke,” but why scrimp to save if you’re not going to enjoy the fruits of your labor? That anxious feeling is valuable.
20. When you make a large purchase, you typically feel:
- Elated, then let down.
- Satisfied. You did your research and planned for it.
- Depressed. You really don’t deserve anything that costs so much.
- Regretful. You probably didn’t make the right decision.
The “correct” answer was (2), but I chose (4). Some people (myself included), regardless of how good a deal we get on something, will feel somewhat regretful after the purchase. This is buyer’s remorse, and it comes from asking questions after the fact. Big purchases involve a lot of opportunity cost and usually a fair amount of pricing risk. Even after extensive research, and after getting the best deal you possibly could, you can always go back and figure out places to save even more. Or you kick yourself for not waiting a little longer. Or whatever. This is second nature to some people. Is it wrong? Brooding isn’t the best use of energy, but if it opens your eyes to different ways of looking at a big purchase, then you’ll know better next time. You learn a lot more looking at what went wrong than by being satisfied that everything worked out all right.
