Grade 8 Personal Financial Literacy

Visual Model 1

Question: A household budget for monthly net income of $4{,}000 is divided as follows: Housing 35%, Food 20%, Transportation 15%, Utilities 10%, Savings 10%, Other 10%. How much is allocated to housing?

• A. $400
• B. $800
• C. $1{,}400
• D. $2{,}000

Why it works: Housing allocation = 35% of $4{,}000 = \(0.35\times4000=$1{,}400\).

Answer: $1{,}400

Visual Model 2

Question: An investment grows with compound interest. If $1{,}000 is invested at 8% compound interest annually, which is the closest to the amount after 2 years?

• A. $1{,}080
• B. $1{,}160
• C. $1{,}166
• D. $1{,}200

Why it works: \(A=1000(1.08)^2=1000\times1.1664=$1{,}166.40\approx$1{,}166\).

Answer: $1{,}166

Example 1

Question: A person compares two loans for $2{,}000: If the person wants to minimize total borrowing cost, which loan is better?

• A. Need more information
• B. Loan Y
• C. They cost the same
• D. Loan X

1. Loan X costs $200 in interest; Loan Y costs $240.
2. Loan X is cheaper overall.

Answer: Loan X

Example 2

Question: A freelancer's gross income is $5{,}000/month. After federal tax (15%), state tax (5%), and self-employment tax (15%), what is the net income?

• A. $4{,}250
• B. $3{,}500
• C. $4{,}000
• D. $3{,}250

1. Total tax rate: \(15\% + 5\% + 15\% = 35\%\).
2. Net income: $5{,}000 \(\times\) (1 \(-\) 0.35) = $5{,}000 \(\times\) 0.65 = $3{,}250.

Answer: $3{,}250

Example 3

Question: A student invests $1{,}000 and compares: saving account at 2% simple interest vs investing at 5% simple interest for 4 years. What is the difference in final amounts?

• A. $60
• B. $80
• C. $120
• D. $200

1. Savings account: \(A=1000(1+0.02\times4)=$1{,}080\).
2. Investment: \(A=1000(1+0.05\times4)=$1{,}200\).
3. Difference: $1{,}200 \(-\) $1{,}080 = $120.

Answer: $120

Problem 1

Question: Sarah invests $2{,}000 at 5% simple interest for 3 years. At the end of 3 years, she decides whether to withdraw all her money or let it grow another 3 years at the same rate. Which statement correctly predicts the impact of waiting another 3 years?

• A. No additional interest accrues after 3 years
• B. She will earn another $600 in interest (total after 6 years: $2{,}900)
• C. Interest compounds, so she earns more than $300
• D. She will earn another $300 in interest (total after 6 years: $2{,}600)

Why it works: After 3 years: \(A=2000+2000\times0.05\times3=$2{,}300\). Another 3 years of simple interest on $2{,}000: \(I=2000\times0.05\times3=$300\). Total: $2{,}300 + $300 = $2{,}600. (Note: Simple interest, not compound, means the same principal earns the same amount each 3-year period.)

Answer: She will earn another $300 in interest (total after 6 years: $2{,}600)

Problem 2

Question: Juan borrows $1{,}200 at 8% simple interest. If he repays the loan in 2 years, what is the total amount he owes?

• A. $1{,}200
• B. $1{,}292
• C. $1{,}392
• D. $1{,}512

Why it works: Interest: \(I=1200\times0.08\times2=$192\). Total: \(A=1200+192=$1{,}392\).

Answer: $1{,}392