HSA Study Guide

No legitimate bank or financial institution will EVER ask you to verify your account information in an email or ask you to click on a link in an email to go to a web site to enter or verify your account information. If you receive such an email or text, you are the target of a

"phishing" scam. The phishing goal is to obtain your financial information and use it for fraudulent purposes. Most financial institutions have ways to notify them of phishing schemes that are impersonating them. Check your bank's web site for details.

Choosing the right savings account

1. Determine how much access you want to your money. This is called liquidity. 2. Determine how much money you have to deposit. 3. Find the best interest rate.

The rule of 72

72 divided by "interest rate" = number of years needed to double your money

Gift cards

A gift card is pre-loaded with an amount of funds. Once those funds are spent, the card is no longer valid and cannot be reloaded. Many stores and online retailers offer branded gift cards that are good only at their stores. Many financial institutions offer prepaid gift cards that are accepted wherever debit cards are accepted.

An interest rate is often referred to as an

APR, or Annual Percentage Rate.

Annual percentage rate (APR)

Also known as interest rate, it is the percentage used to compute the finance charges on an outstanding balance.

Late payment fee

Amount charged if your payment is received after the billing due date.

Avoid bankruptcy.

Bankruptcy is a legal state granted by a court of law that declares you unable or impaired in your ability to pay back your debts to your creditors. Bankruptcies stay on your credit history for a very long time.

Finance charge

Based on the interest rate, this is the amount of interest you pay on the outstanding balance.

If you don't need to write checks or make ATM withdrawals, and you have an amount of money to deposit that you can leave untouched for a longer amount of time you need a

CD, or certificate of deposit

When lenders consider your loan or credit card request, their main concern is:

Can and will you pay back the amount you borrow responsibly and on time? In other words, are you creditworthy?

Less liquid More money to save Higher interest rate

Certificate of deposit (CD)

More liquid Less money to save Lower interest rate

Checking account; Savings account

Pay Later:

Credit Cards

Creditworthy

Establishing, maintaining and protecting credit.

What is identity theft?

Identity theft occurs when someone steals your personal information and uses it to get loans, credit cards, cell phone or utility services or to open other accounts in your name. Identity thieves often rack up debt in your name, which has devastating effects on your credit history, and can cause you the loss of countless hours correcting the situation.

Having a budget allows you to concentrate on

Income Expenses Needs versus Wants

Keep old accounts open.

Keeping old credit card accounts open with a zero balance helps your credit history in two ways. First, it maintains the length of your credit history. Second, when you close an account, you lower the total amount of credit available to you, which in turn raises the ratio of balances on your other loans and credit cards.

How to increase your creditworthiness:

Pay down your debts. The more unused credit you have, the better your creditworthiness. Used wisely, credit cards help your creditworthiness. Spend less than you earn. Pay your bills on time. Avoid bankruptcy. Keep old accounts open.

Pay in Advance:

Prepaid Cards

Reloadable

Reloadable prepaid cards work exactly like prepaid mobile phones, where you use minutes and then refill them. With a reloadable prepaid card, you (or your parents) load the card with an initial amount of money. You use the card wherever debit cards are accepted. When the balance gets low, you can refill the card on the phone or online and continue to use it.

Minimum monthly payment

The amount due based on the percentage of the outstanding balance, or a minimum fixed amount.

In a savings account, principal refers to

The amount of money you deposit in your account to begin saving

Available credit

The amount of unused credit available on your credit card account.

Ways to save

The first rule of saving: Pay yourself first. In other words, instead of buying things and then seeing if there's any money left over to save, put aside money BEFORE you use it up. Otherwise, you may never get around to saving

Credit line (or credit limit)

The maximum amount you are allowed to carry as a balance on the card.

Cardholder agreement

This document details the terms and conditions of your credit card account. It will include your APR, any applicable annual fee, penalties and other costs associated with the use of the card.

discretionary spending

When you spend money on something you want versus something you need

Overdraft

When you write a check or make a withdrawal from your checking account that leaves you with a balance below zero. If you sign up for overdraft protection, your bank will cover the transaction but will likely charge you an overdraft fee to do so.

Compound interest

When your interest compounds, it gets added back to your account and becomes part of your principal. With more principal, the account earns even more interest, which continually compounds into new principal. It's a powerful cycle that really adds up.

What to do if your net account is negative

You will need to find ways to trim the expense side of your budget or increase your income (or both); otherwise you'll accumulate more and more debt.

Budget

a financial plan that takes a person's income (the money they earn) and determines where all of that money is spent

who usually offer a better interest rate than a checking account.

a savings account

Examples of discretionary spending

a soda and snack at a fast food restaurant , movie tickets, a summer vacation.

needs

all of the monthly expenses associated with the goods and services that keep your life stable

fixed expenses

are the same amount every month

who offers the highest liquidity

checking account

Every Credit card comes with a

credit limit, which is the maximum amount the issuer will let you borrow at any one time.

The Three "Cs" of credit are used to determine your

creditworthiness. Should a lender approve your car loan or student loan? Should a service provider approve your cell phone contract? Should a landlord sign a lease with you? Are you a good job candidate?

Pay Now:

debit cards

If you need to mail a bill

drop it off at the post office.

credit cards

entitles you to make purchases based on your promise to pay for these purchases at a later date.

Your expenses can be divided into two types:

fixed expenses and variable expenses

Wants

goods and services that are not essential to daily living, but they are often things that make people happy or may make life seem a little easier or a little more special

Capacity (Three Cs)

how much debt you can manage, based upon your income. Lenders want to know whether or not you have been working regularly in a job that will provide enough income to support your credit use.

Character (Three Cs)

how well you handle financial obligations. An evaluation of how likely you are to repay your debts.

A prepaid card may look exactly like a credit card or a debit card. However,

instead of being linked to your bank account (like a debit card) or providing you a line of credit (like a credit card), a prepaid card lets you spend only the amount that's been pre-loaded onto the card. There are two kinds of prepaid cards: gift and re loadable.

Interest

is money the bank pays you for leaving it in your savings account

If the net amount is positive

it means you are living within your income level. It also means you can put EVEN MORE money into savings.

variable expenses

often fluctuate throughout the year.

credit CARD Act of 2009

place strict limitations on issuing cards to consumers under 21. If you fall in that age group, you have to have a co-signer or show proof of sufficient income to repay the debt.

How simple interest is calculated

principal x interest rate x time = interest earned

Examples of fixed expenses

rent, car payment, monthly bus or train pass

If the net amount is negative

that means your monthly expenses exceed your monthly income; in other words, you're operating at a loss.

Capital (Three Cs)

the assets you own, including real estate, savings and investments. Lenders often want to know if you have any assets you can use to secure the loan, in case you lose your job or default on a loan payment.

If you do not pay the full amount on a credit card

the balance on your card account becomes a loan to you from the card issuer and you begin paying interest on this loan.

The longer you agree to leave your money in a certificate of Deposit

the better the interest rate

When you pay the full amount of the balance on a Credit Card

the card issuer charges you no interest for this service.

interest rate

the percentage amount of your principal that the bank agrees to pay into your account.

Types of savings

traditional savings account, a checking account and a Certificate of Deposit, also called a CD

Banks are allowed to

use your savings bank money to fund loans and investments to other people.

Examples of variable expenses

utility bill, groceries, gasoline, phone bill

deposit

when you add money to your account

withdrawal

when you take money out of your account

how to determinehow to balanced your budget

you simply need to add up all your income and subtract all your expenses. The figure you arrive at is your net gain or loss.

if you have to withdraw money from a certificate of deposit before the agreed time is up

you will pay a significant penalty fee

Each month while using a credit card

you'll receive an account statement that lists all of your purchases and the total amount you have spent using the card that month. The total amount is called your balance.

High liquidity

your money can flow freely, like liquid.

In a savings account

your money grows not only when you deposit more money but also by accumulating interest.

Ways to prevent identity theft:

• Always keep track of your credit cards and credit card numbers. Carry a minimal number of cards with you and store the rest, and your bills, in a secure place. • Use the Internet to your advantage. Paying bills online will prevent physical, mailed bills from sitting in your mailbox where someone could walk by and steal them. • Shred all personal documents, including old bills, receipts, credit card and mortgage offers, and other documents that contain your personal information. • When ordering products or services online, use only secure websites that have https:// in their web address and utilize Secure Socket Layer (SSL) and certificates to keep your transactions safe from hackers. It's also smart to print out your receipt or confirmation immediately after the transaction to have as a record of purchase. • Beware of phishing schemes, which involve receiving emails pretending to be from legitimate organizations that prompt you to visit phony websites

what if Identity Theft happens to you?

• Contact the police immediately and file a report. • Use this police report to begin disputing fraudulent charges and accounts with your bank, creditors and credit bureaus. • Place a security freeze on your credit accounts before any new accounts can be opened in your name and further damage your credit.

Capacity evaluation questions

• Do you have a steady job? • What is your salary? • How many other loan payments do you have? • What are your current living expenses? • What are your current debts? • How many dependents do you have?

How much to save

• Experts suggest saving at least 10% of your income. • Save for emergencies. When you are an adult and living on your own, you should have three to six months' of living expenses saved

Character evaluation Questions:

• Have you used credit before? • Do you pay your bills on time? • Have you ever declared bankruptcy? • Can you provide character references? • How long have you lived at your present address? • How long have you been at your present job?

Main features to remember about prepaid cards:

• It's easy to budget and impossible to accrue debt, because you can spend only what you load onto the card. • No need to carry large amounts of cash. • Lets you make online purchases without a credit card. • Most provide the same type of "zero liability" protection as credit cards. • Some prepaid cards are limited to certain stores. • Many gift cards from retailers expire. Prior to the new Credit Card Accountability Responsibility and Disclosure Act (CARD Act) of 2009, gift cards typically expired after a year or two. The new law demands they don't expire for five years after issuance, or since last loaded with money, whichever occurred later. If you don't use all the funds on the card before that time, you lose the money. • Some prepaid cards charge fees, including a loading fee and monthly maintenance fee. Shop around for the best value.

Saving money will allow you to

• Meet a very specific short-term goal • Be ready for the unexpected expenses • Plan for a future goal

debit cards:

• They are an easy and safe alternative to carrying cash. • Most provide "zero liability" which means you aren't responsible for charges if the card is lost or stolen. • There is no interest charged. • You can't go into debt with a debit card. • However, be careful not to run out of funds in your account, or you will be charged an overdraft fee for each transaction.

Main features to remember about credit cards:

• They let you shop now (online, on the phone, mail order) and pay later, without using cash. Very convenient for purchases such as airline tickets, hotel rooms and rental cars. • Used wisely, they can help you establish a good credit history. Abuse them and they can damage your financial future. • Provides "zero liability" protection, which means that if your card is lost or stolen you will not be responsible for unauthorized charges. • Many credit cards offer a rewards program that let you earn free airline miles, merchandise or cash back on purchases. • Credit card purchases are loans and you will pay interest on these loans unless you pay the balance in full each month • Credit cards make impulse buying easier, which can throw off your budget and increase your level of debt.

Capital Evaluation questions

• What property do you own that can secure the loan? • Do you have a savings account? • Do you have investments to use as collateral?