CFS 4062 Midterm

What is a Credit card?

cards that allow repeated use of credit as long as regular payments are made

what are monetary assets?

cash and low-risk, near-cash items that can quickly be converted into cash.

What is interest?

charge for the privilege of borrowing money

What does financial capability mean?

combination of knowledge and ability to take action to improve one's financial condition

What is a loan?

consumer credit that is repaid in equal amounts over a set period of time

What are some advantages of keeping good financial records?

-allow you to review your financial transactions and permit family members to find them in an emergency. -allow you to take advantage of tax deductions -better budgeting.

What are the phases of the business cycle?

-expansion: low interest rates, high demand, increase in production by hiring more workers -peak: economy reaches maximum rate of growth, business may not be able to match the increasing demand -contraction: corporate profits and consumer spending begins to fall, employment and income decline -trough: when the economy bottoms out and begins a new cycle

What is monetary asset management? What is the goal?

-ncompasses how you handle all of your monetary assets to maximize interest earnings and minimize fees. -Monetary asset management is meant to maximize interest earnings while minimizing fees on all funds kept readily available for daily living expenses, emergencies and savings and investment opportunities

What is financial planning? What does it include?

-the process of developing and implementing a coordinated series of financial goals Includes: plans for spending, risk management and capital accumulation

What is personal finance?

-the study of personal and family resources important for achieving financial success involves: -spending -saving -protecting -investing resources

What are the five steps of the financial planning process?

1. Evaluate your financial health relative to your education and career choice. 2.Define your financial goals. 3. Develop a plan of action to achieve your goals. 4.Implement spending and saving plans to monitor and control progress toward goals. 5.Review your financial progress and make changes as appropriate.

What are the seven steps in calculating your income taxes?

1.Add up all sources to get your total income. 2. Subtract exclusions to income to get your gross income. 3. Subtract adjustments to income to get adjusted gross income (AGI). 4. Subtract either the IRS's standard deduction for your tax status or itemize your deductions 5. Apply tax table or tax rate schedule to get your preliminary tax liability. 6. Subtract tax credits for which you qualify to get your final tax liability. 7. Subtract the amounts withheld from earnings over the year to calculate the balance owed or refund.

What are three examples of depository institutions where one could open a checking account.

A checking account could be opened at credit unions, community banks, and mutual savings banks

What is a regressive tax?

demands a decreasing proportion of one's income as income increases, or a flat rate. (Ex: sales tax)

What are the actions before, during, and after making a budget?

Before: - set financial goals (short, intermediate, long term) - make and reconcile budget estimates (take-home pay must equal or exceed planned expenditures) - revise budget estimate to balance the budget ( ear more income, cut back on expenses, or both to balance budget) -plan cashflows (cash flow calendar or revolving savings fund) Action during: -control spending ( track spending, track credit transactions, monitor unexpended balances, justify exceptions, etc) Action After: -Evaluate budgeting progress and make needed changes (budget variance is the difference between amount budgeted and actual amount spent or received) - Evaluate budgeting progress and make changes as needed (what do we do with left over money? Did we go over budget)

What are some advantages to using credit?

Convenience Emergencies Make reservations Own expensive items sooner Take advantage of free credit Protect against fraud Obtain an education

What is a credit history, and what role do credit bureaus play in the development of it?

Credit history is a continuous record of a person's credit usage and repayment of debts which credit bureaus keep track of and collects and files borrowers' credit history in order to allow for the spender to obtain future loans and credit usage at different rates from different lenders.

What is the Debt payments to disposable income ratio?

disposable income: income after subtracting withholdings from taxes and insurance Monthly non-mortgage debt payment divided by monthly disposable income Is my non mortgage debt too stressful

What is your total income made up of?

earned income: income derived from active participation in a trade or business including wages, salary, tips, commissions and bonuses\ and additional sources: commissions, bonuses, interest and investment income, retirement income

What is gross income? What are exclusions?

Gross income is the portion of your total income that is reportable on your tax income after taking exclusions Exclusions include gifts, inherited money, cash rebates, per-diem, etc

What is the investment assets to total assets ratio?

Investment assets divided by total assets Am I saving/investing enough?

What does financial literacy mean?

Knowledge of facts, concepts, principles, and technology tools used with money

Why is it difficult for many people in relationships to talk about money matters?

Money is often considered a private matter, but money can bring up strong emotions because oftentimes it is related to success and can also be stressful when money is tight. Money can also bring up disagreements or secrets regarding debt and expenses.

What is a Money Market Mutual Funds?

Money market accounts offered by a mutual fund investment company

What are three examples of adjustment to income?

Moving expenses to a new job location, higher education expenses, health savings accounts

Is cryptocurrency like Bitcoin a good investment?

No, because there is zero purchasing power and no intrinsic value. It is also not protect by a central bank and governments will probably never confer the status of legal currency on private currency. Bitcoin has also been connected to pay for illegal actions like buying drugs or money laundering.

What is a balance sheet?

Shows a person's financial condition by assessing assets, liabilities and net worth at a particular date Assets: what is owned (monetary, tangible, investment) Liabilities: What is owed assets - Liabilities = Networth

What is simple interest?

Simple interest is the dollar amount (principal), rate of interest, and amount of time which is then multiplied together

What are the rules that apply if you lose your ATM or debit card, and it is used without your authorization?

The loss is limited to $50 if the institution is notified within two days, $500 within 3-59 days and if not reported within 60 days the customer risks unlimited loss.

What is the Marginal tax bracket? What is the marginal tax rate?

The marginal tax bracket is the the highest percentage you pay out of the seven brackets of federal income tax your marginal tax rate is the rate at which you last dollar of income is taxed

What is inflation? How does it affect income and consumption?

The steady rise in the general level of prices? -Inflation affects consumption because as the price of items go up, the amount of money that consumers need to buy all their necessities also goes up, but their wages may not. For example, if you're on a tight budget and spend $100 on groceries and now it is $102, you would have to put an item back. The normal amount people spend doesn't go as far. On the income end, workers will demand higher wages so that they can keep up with their lifestyle. So in order to compensate, companies will pay higher wages, which could mean an increase in price of the goods and services.

What is asset to debt ratio?

Total assets divided by total debt Do I have enough assets compared to liabilities?

True or False: The budget shows your FUTURE finances

True

True or False: The cash-flow statement shows your finances in the PAST

True

What are some disadvantages of using credit

Use of credit reduces financial flexibility It is tempting to overspend Adds to the cost of goods and services Slows progress toward reaching financial goals Overuse can affect one's credit score, leading to reduced access to credit when needed Reduces privacy Can have a negative impact on relationships Adds to one's financial stress Interest can be costly

How do financial goals follow from one's values?

Values are the fundamental beliefs about what people view as important or desirable. What we spend our money on is an expression of what we see as valuable. For example, someone who values education may choose to take out loans or put money towards their education. Each person has different values and that guides how they spend, save and invest their money.

What is the liquidity ratio?

monetary assets divided by monthly expenses liquidity: The speed and ease with which an asset can be converted to cash. How long could you pay your monthly expenses using only monetary assets (actual money) if your income stopped?

What is a progressive tax?

requires a higher tax rate as income increases. (federal income tax)

What is financial happiness?

satisfaction about money matters

What is the economy

system of managing the productive and employment resources of a country, state, or community

What is opportunity cost? Give an example

the cost of decision measured by the value of the next bed alternative that must be forgone? EX: , the opportunity cost of getting higher education is forgoing the money that could be made from working a full time job. However, from a financial perspective, it is an investment to get an education because it typically results in higher pay in the future.

What is identity theft?

the fraudulent acquisition and use of a person's private identifying information such as SSN or credit card information - Can lead to financial loss - Can negatively impact one's credit report

What is marginal tax rate?

the tax rate at which your last dollar earned is taxed

What is gross domestic product?

the total value of goods produced and services provided in a country during one year.

What is marginal utility?

the usefulness or cost of the next increment of something

What is the first thing you should do if you find an error in your monthly statement regarding an electronic transaction?

You should contact your bank to protect yourself from fraud and freeze the account if possible

What is an economic indicator?

a statistic that suggests how well the economy is doing now and in the future

What is annuity?

a stream of payments to be received in the future EX: mortgage, insurance payments

What is a money market account?

a type of savings that pays high interest and allows you to write checks against the deposited money

Explain why opening a checking account and a money market account are appropriate actions for most people and tell how each will be used.

- A checking account allows for funds to be very liquid and is what most people use for a day to day basis because there is very little to no interest, so not a high benefit of keeping the money in that account. -A money market account is a variety of interest earning accounts that pay slightly higher interest rates and allow for some check writing privileges. These are similar because they both allow for withdrawal at any time, but MMA's have higher rates of return on a daily basis.

What is the difference between credit cards, debit cards, and a stored value card?

- A debit card is a card that provides the cardholder electronic access to their bank account. - A credit card is issued by a bank or business authorizing the holder to use it as payment instead of cash to buy goods on credit, which essentially means buy now, pay later. -A stored value card is a payment card with a monetary value stored on the card itself, not in an external account, that is usually issued in the name of an individual account holder.

What is a tax credit? What is a refundable tax credit?

- A tax credit is a dollar-for-dollar decrease in tax liability. - Some credits are refundable, meaning you will receive the amount even if it reduces your income tax owed to less than $0.

What are some ways to control student loan debt?

- Always know your outstanding debt and required monthly payment - Choose the most advantageous repayment pattern allowed - Make payments on time, every time - Pay off the most expensive loan first - Consolidate your student loans -Make more than minimum payments, if possible, to pay down balance

What are the three types of special purpose checks?

- Certified Check is drawn on your account and is certified that the account has sufficient funds - Cashier's Check is drawn on the bank's account from funds that you transfer into that account -Money Orders are purchased for a specific amount from depository institutions and other providers, such as the U.S. Post Service

Explain the circumstances in which it would be appropriate to have funds in a checking account, a savings account, or in investments.

- Checking accounts are used to have funds that are very liquid, meaning there are many transactions such as withdrawals and deposits, but usually have very little interest if any. - A savings account is used to hold funds for a time period and earn more interest on their money than a checking account. - Investments are appropriate to grow money, however, it is funds that are not liquid and is meant to be used further in the future

What is compound interest? What is is important?

- Compound interest occurs when interest on an investment is left on deposit so you can earn interest on interest. - Compound interest (compounding) is the key to building wealth.

What are three strategies to avoid over overpayment of income tax?

- Defer income: purposefully making arrangements to receive some of this year's income in the next year, when your marginal rate might be lower. - Take All of Your Legal Tax Deductions: Spend money on higher end items that allow for the tax deductions such as purchasing a home with a mortgage loan. - Buy and manage real estate: Taxpayers are allowed to deduct certain real estate losses against ordinary taxable income. Deductions are allowed for real estate investors who have an adjusted gross income of $150,000 or less or actively participate in the management of the property

What are three ways you could more effectively communicate about money matters?

- First using "I" statements to express issues without blaming the other person and can build up a relationship when used correctly. -Being open, honest, and regularly speaking about the topic also helps with communicating money matters. When money isn't a taboo topic, it is easier to communicate and take care of issues early on. -learn to manage disagreements by listening to understand the concerns of the other. By listening to each other's concerns, a compromise is possible.

What are 5 examples of tax credits?

- Hope scholarship credit: for those who paid tuition, fees, books, or related expenses for post secondary education -Lifetime learning credit: The nonrefundable credit may be claimed every year for tuition and related expenses paid for all years of post secondary education - American Opportunity Tax: Provides up to $25- per tax credits to help defray colette expenses for the first four years. - Retirement Savings Contribution Credit: Nonrefundable credit of up to 1000$ is available - Elderly or Disabled Tax Credit: Lower income individuals who are age 65 or older or who are permanently or totally disabled

What are other financial services that are not federally insured?

- Mutual funds: raise money by selling shares to the public and then invest in a diversified portfolio. - Stock brokerage firms: focus on buying and selling securities and providing advice to investors. - Insurance companies: provide property, liability, health, and life insurance and other risk management products.

What does it mean to be financially responsible?

-You are accountable for your future financial wellbeing -You strive to make wise personal financial decisions

Upon notification of a statement error, the institution must:

- Promptly investigate the error within 45 days -Restore funds to the account pending the outcome of the investigation if the investigation takes more than 10 days - Provide the customer with the results of the investigation -Provide documentation if requested by the customer

What are some wealth building principles to consider?

- Set clear financial goals both in the short and long term. - Save by paying yourself first out of your paycheck. -Pay credit card balances in full each month. -Spend less than earned. -Participate in the retirement plan at work. -Take full advantage of your employer's match on retirement savings. -Buy a home. -Pay off home before retirement. -Be patient when investing for the long term. -Live every day knowing that personal finances are under control.

What is the annual percentage yield?

- The APY reflects the simple interest rate adjusted for the frequency of compounding. - The more frequent the compounding, the better for depositors.

What are the varieties of CDs?

- Variable-Rate Certificates of Deposit (or Adjustable-Rate CDs) allow for periodic changes in the interest rate to reflect interest rates in general - Bump-Up CDs allow a one-time increase in the interest rate - Brokered Certificates of Deposit are available through stock brokerages

Name three financial records that might best be kept in a safe-deposit box instead of stored digitally on the cloud.

- list of credit accounts and telephone numbers to report stolen/lost cards -Copy of your will - rare coins, stamps, collectibles etc

What is a checking account? How is it accessed?

- used for day to day spending with easy withdrawals and deposits - accessed through checks, debit, electronic transfers

What are savings account? What does the interest paid depend upon?

-"time deposits," meaning that the intent is for the money to stay on deposit. Interest depends on: - The amount of money on deposit - The method of determining the balance - Interest applied to the balance - Frequency of compounding

What are some money topics to discuss with a partner? Why is it important?

-Attempt to live on one salary and bank all or most of the other. -Expect to live beneath rising means. -Talk regularly about financial matters. -Share money secrets with your partner. -Create a budget and commit to creating an emergency fund. -Build retirement savings separately. It is important to talk about these issues because without conversation, finances can break relationships

What are minimum balance accounts?

-Checking accounts that require that your balance never drops below a certain minimum or fees will be assessed

Name three steps to help establish a good credit history

-Establish both a checking account and savings accounts - request, acquire, and use credit cards from resellers and business, - stay current on your student loans.

What are the building blocks to achieving financial success?

-Foundation: use of regular income to provide basic lifestyle and savings -Base: have a checking account, savings account, money market account, insurance protection, and employee benefits -Establish: short and long term goals, organized financial records, a realistic budget, and an emergency fund -Manage: housing, transportation, and insurance expenses, income taxes, and contingencies Handle:credit cards, installment loans, savings accounts, and education costs -Invest: in mutual funds, stocks and bonds, real estate, and retirement plans - Achieve: a financially successful life!

What are some factors to consider when assessing economic outlook?

-GDP and jobs -Procyclical items like inflation and interest rates -Counter cyclical items like unemployment and gold prices -Leading indicators like the LEI -Interest rates -Federal funds rate

What are standard vs itemized deductions?

-Standard deduction is a fixed amount deducted depending on the filing status of married or single Itemized deductions include: - Medical and dental expenses that exceed 10 percent of your AGI. - Taxes you paid. Real estate property taxes (home or land) -Certain personal property taxes State, local, and foreign income taxes -State and local sales taxes (instead of state and local income taxes) - Uninsured casualty and theft losses that exceed 10 percent of your AGI. - Other deductions, such as gambling losses that exceed gambling winnings. - Certain interest you paid. Mortgage Interest "points" - Interest paid on home mortgage loans and home equity loans. Maximum home equity loan $100,000 and interest on $750,000 combined with first mortgage - Interest paid on loans used for investments Gifts to charity of cash or goods. A receipt is required if a cash contribution exceeds $250 You use which ever is greater

What are the types of cards to access money?

ATM cards Debit cards Prepaid cards Stored-value cards Credit cards Key fobs and smart cards Electronic benefit transfer (EBT) cards

What is financial success?

Achievement of financial aspirations

What are adjustments to income? What is the Adjusted Gross Income?

Adjustments to income: subtractions allowed for such things as IRA contributions, student loan interest paid Adjusted gross income: result after subtracting adjustments from gross income

What are the pros and cons of certificates of deposit?

Certificates of Deposit (CD) is an interest earning savings instrument purchased for a fixed period of time (ranging from 6 months-5 years) and then the depositors college their principal and interest when the CD has matured. The benefit is that there is some certainty on the return on investment - drawback is that if the interest rate goes up, you may not be able to move the money into an account with a higher interest rate, so you will not earn as much.

What are average balance accounts?

Checking accounts that require that your average balance for the month be above a certain amount or fees will be assessed

What is the debt-to-income method for setting your own debt limit?

Divide your nonmortgage debt payments by your disposable (take-home) income. You are overindebted if the ratio is 15 percent or higher. Focuses on payments, rather than level of debt.

What is the debt payments to disposibable income method for establishing your own debt limit?

Divide your nonmortgage debt payments by your disposable (take-home) income. -You are overindebted if the ratio is 15 percent or higher. Focuses on payments, rather than level of debt.

True or False: The Balance sheet shows your finances in the FUTURE

False: it shows your present finances

Explain a fixed vs variable expense

Fixed: stays the same every month (rent) Variable: changes every month (gas)

What is the biggest financial worry of most individuals? What can they do about it?

For many people they don't worry about their income, but are living above their means and have spending habits that are too big. This problem can be solved by financial planning and budgeting to ensure income is going to the areas needed and prevent worry about living above your means.

What is the effective marginal tax rate vs average tax rate?

Effective marginal tax rate is the rate you pay when all income taxes are combined (federal, state, city, Social Security taxes, etc.) The average tax rate is the proportion of all total income paid in taxes (lower than EMTR)

What are the three major national credit bureaus?

Experian, TransUnion, Equifax

What are some strategies to increase net worth?

Increase assets, decrease liabilities, or both

What is economic growth?

Increasing production and consumption in the economy

What are three employee sponsored plans to reduce income taxes?

Premium Only plan: Allows employees to withhold a portion of their pre tax salary to pay their premiums for employer-provided health benefits such as health, dental, vision, etc Transit Spending Account: The employer plan allows you the opportunity to save money by using payroll deductions with pretax salary dollars to pay for work related transportation Flexible Spending account: allows an employee to fund qualified expenses, specifically child or elderly care, on a pretax basis through salary reduction to pay for out-of-pocket unreimbursed expenses for medical and dental expenses and dependent care.

What is real income vs nominal income?

Real income: income measured in constant prices relative to some base time period Nominal income: income that as not been adjust for inflation

What is the Rule of 72? How is it calculated?

The Rule of 72 is a quick way to calculate the length of time it will take to double a sum of money. Divide 72 by the expected interest rate to determine the number of years it will take your money to double.

What is the difference between APR and the finance charge on a debt

The annual percentage rate is the rate that is charged for borrowing expressed as a percentage number that represents the actual yearly cost of funds over the term of a loan, including any fees or additional costs associated with the transactions. Finance charge is the total dollar amount paid to use credit

What is a cashflow statement?

The cash flow statement is a summary of all income and expense transactions over a time period such as a month or a year. It shows whether you were able to live within your income and summarizes the flow of funds.

What is financial security?

The comfortable feeling that your resources will be sufficient to meet your needs and wants

What are the effects of increasing debt payments from 10 to 15% on a budget?

The effects of increasing the payments would be having higher payments each month so you would have to reduce your spending in other areas of your life. So that may mean reducing things that are wanted, such as cable or entertainment, in order to pay the higher amount, or choosing a lower rate that will take longer to pay off.

What happens when you write a check?

When you write a check, it is sent to your bank so the funds can be paid to whoever you had written the check or a substitute one is created by being scanned. The check gets cleared when it has been paid out of your account by the bank, so it doesn't always come out of your account immediately.

What does financial well-being mean?

Where a person can fully meet current and ongoing financial obligations, feel secure in their financial future, and make choices that allow them to enjoy life

What is the continuous debt limit?

You should be able to get completely out of debt other than a mortgage every four years. If cannot be out of debt in four years, then relying too much on longer term debt.

What is indexing?

adjusts the tax brackets each year for inflation

What is the debt to income ratio?

annual debt payment divided by gross income multiplied by 100 Is my total debt burden too high?