Financial Counseling Certification Program (FiCEP) Practice Exam

What cycle describes members who are just surviving and living paycheck to paycheck?

1. Earn/Spend/Earn/Spend

2. Save/Spend/Save/Spend

3. Invest/Earn/Spend/Invest

4. Earn/Save/Spend/Invest

The correct answer is: Earn/Spend/Earn/Spend

The cycle that best describes members who are just surviving and living paycheck to paycheck is the Earn/Spend/Earn/Spend cycle. This cycle illustrates a situation where individuals earn money, spend most or all of it on immediate needs, and then have to earn more again to cover their expenses. This pattern reflects a lack of savings or financial cushion, leading to a continuous cycle of earning income only to deplete it right away. In contrast, the other cycles suggested involve elements of saving or investing, indicating a more stable financial situation where individuals manage to set aside a portion of their income for future use or growth. For instance, the Save/Spend/Save/Spend cycle implies that while there is some saving taking place, the focus is still on necessary expenditures, but there is a possibility of having some reserves. The Invest/Earn/Spend/Invest cycle suggests a proactive approach to growing wealth, indicating a more secure financial position. Lastly, the Earn/Save/Spend/Invest cycle represents a balanced approach where individuals not only earn and spend but also effectively allocate portions of their income to saving and investing. In summary, the Earn/Spend/Earn/Spend cycle accurately captures the experience of those living paycheck to paycheck, highlighting the immedi