Question

Situation 3: Nina, age 23, recently received a $30,000 gift from her aunt. Nina is considering various uses for these unexpected funds including paying off credit card bills from her last vacation or setting aside money for a down payment on a vehicle. Or she might invest the money in a tax-deferred annuity for retirement purpose. Another possibility is using the money for technology certification courses to enhance her earning power. She is overwhelmed by the choices and comments to herself, "I want to avoid the temptation of wasting the money on impulse items. I want to make sure I use the money on things with lasting value.”

a. Identify the main financial planning issues that need to be addressed.

b. Suggest any TWO additional information either quantitative or qualitative you need before making recommendation.

c. Recommend the most appropriate TWO actions based on the information provided and your assessment of the situation,

Answer 1

a) Nina is very young which is a significant input in decision making process. Since, she is young, and a long career in front of her, her plans to save for retirement can wait for some while. Credit card bills are something that needs attention as the interest rate are very high for credit cards, any delay will cost Nina huge sums of money. Furthermore, Nina's plan for purchasing vehicle is a need or want. If it saves considerable time to her workplace and hence makes her use time efficiently, then it can be thought of. Otherwise, the best option is to go for certification course. Hence, the preference for Nina should be to pay her credit card bill, go for a certification course if benefit from buying car is less and then she can think of putting some money for her retirement.

b) Knowing the credit card interest rates and cost of running a car that is daily fuel cost and yearly maintenance charges is important. Also, if she buys a car, how much time and energy will she save. Comparing these cost and benefits, she can decide to choose which one of the above mentioned alternatives can she opt for.

c) As mentioned earlier, she must know if the certification course can quickly help her earn more. If yes, then she should choose the certification course as after that she can expense it. However, if the earnings will not be quickly turnaround, then paying off the credit card bill shall be appropriate as the interest rates are very high. After this, Anna might think of buying a car if it saves her time and helps in utilize time efficiently if the cost of fuel and maintenance cost is not much.