International Baccalaureate (IB) Practice Exam

Which statement best explains why income alone does not determine wealth?

1. Only people who are natural savers can become wealthy.

2. Income alone does determine a person's wealth.

3. How much money a person makes does not dictate his or her spending and saving behavior.

4. Investing is the only factor that contributes to wealth building.

The correct answer is: How much money a person makes does not dictate his or her spending and saving behavior.

The statement that income alone does not determine wealth is best explained by the idea that how much money a person makes does not dictate his or her spending and saving behavior. This assertion highlights a crucial understanding of personal finance: two individuals may earn the same income, but their financial outcomes can be vastly different based on how they manage their money. For instance, a person who spends most of their income on expenses, lifestyle, or debt obligations may struggle to build wealth, while another person earning the same amount could save and invest wisely, thus accumulating wealth over time. The relationship between income and wealth is more complex than mere earnings; it incorporates habits around saving, investing, and spending. Effective financial management can lead to wealth accumulation regardless of the income level, underscoring that wealth is as much a function of behavior as it is of income itself. Other choices do not convey the nuanced relationship between income and wealth. For example, suggesting that only natural savers can become wealthy simplifies the issue, while stating that income does determine wealth contradicts the complex realities of financial management. The statement about investing being the only factor contributing to wealth building overlooks other important elements like saving habits and expenditure behaviors.