Module 2
True or False? Consumers who go into debt always know how long it will take to repay it
False
True or False? Consumers who want to get a reward rarely buy items they don't need just to get the reward.
False
True or False? Going into debt to pay for everyday expenses always allows you to get ahead and retain control of your life
False
True or False? Members always have control of the circumstances that led to their financial difficulties
False
True or False? Most members who consult a financial counselor can easily describe the events or circumstances that led to their current situation
False
True or False? Rewards are offered only to consumers with "elite status" who make up 25% of credit card purchases.
False
T or F? Most millionaires work 80 hours or more every week
False: most do work hard but they work 45-55 hours a week
T or F? Most millionaires got a head start on accumulating their fortune with an inheritance
False: most millionaire worked for their money
T or F? Most millionaire wear expensive clothes and drive the newest cars
False: they live below their means and wear normal clothes and drive older cars
True or False? A reward program usually has a higher net value to a consumer than a lower interest rate
False; a lower interest rate typically has a higher value to a consumer tha n a reward program
True or False? Once consumers receive a reward, their spending immediately drops.
False; getting one reward often encourages the consumer to continue spending to get another reward
When buying a new car, which financing options will save a member the most? The rebates, 0% offers, or credit union financing?
Take the rebate and use credit union financing instead of taking the 0% offer.
What is the most important factor in determining the "amount owed" segment on a credit score?
The percentage of available credit used
True or False? As consumers near the level of points or spending required to get a specific reward, they spend money more quickly. True or false?
True
True or False? Credit cards with reward programs often have higher interest rates and annual fees
True
True or False? Learning to spend wisely is just as important as the ability to spend big
True
True or False? Most members who can see the long-term impact of their actions will learn to do more with less
True
T or F? A millionaire is likely to stay in the same home fo e20 years or more
True: it inceaces the homes value
T or F? 2 incomes are required per household to produce millionaires
True: ½ the spouses did not work outside the home but were skilled in planning and budgeting
T or F? Most millionaires work for themselves instead of large corporations
True: ⅔ are self employed
True or False? Consumers pay for the rewards they get.
True; payments come in the form of interest, fees, and purchase acceleration
ways to reduce housing/living costs
share the load (roommates) buy insurance wisely examine utility costs restrain your housing choices (size) live closer to work avoid renting storage
T or F? Millionaires favor accounting and law as professions for their children.
true : its a handy profession
your decision on the best deal when shopping for credit should be based on the following factors
-eliminating or minimizing balance transfer fees -getting the lowest interest rate for the longest time -eliminating or minimizing the annual fee -compare the interest rate charges and maximums after the introductory period
How many hours does it take to pay for your vehicle? formula
(Annual miles drive) x (75.8 cents per mile) / ($ earnings per hour) = the number of hours worked per year to support our car
the credit card accountability responsibility and disclosure (CARD) act of 2009 provided protections and regulations against
- arbitrary interest rate increases - penalizing cardholders who pay on time - charging late fees if the cardholder presents proof of mailing payment not less than 7 days before the due date -card holders can set limits on their credit -it sets how card companies can allocate payments -it limits fees -it puts requirements on subprime credit cards that typically target vulnerable consumers -it requires clear account disclosures, like how long it will take to pay off the debt if only paying the minimum payment -it limits credit cards to teens and college students -it requires posting of credit card agreements on the internet - it establishes gift card standards
when renting is best
--likely to move in a year or two -enjoy the freedom of having landlord do maintenance -lack funds for a down payment -easier to move in and move out -renting is generally less expensive than owning, given -the low cost to maintain
disadvantages of leasing a car
-early termination fees if the car is stolen or destroyed in an accident -higher insurance costs if the lease is used to allow you to drive a more valuable vehicle -mileage is restricted per year or extra fees will be charged -fees for excessive wear and tear can be levied at the end of the lease -lack of equity in the car -high credit requirements -a lease contract ties you to a vehicle for a specific period. it can be difficult to end the contract early
When buying is best
-likely to remain in the home for many years -enjoy home maintenance and earn enough to set aside money for repairs -have a down payment -prefer pride of ownership -monthly payment is akin to forced savings which along with appreciation, build equity in the property
Advantages of leasing a car
-lower monthly payments -the ability to afford to drive a nicer of newer vehicle -lower up front costs - no down payment -the option to use a down payment to further lower your monthly payment -a factory warranty that covers most vehicle repairs throughout the lease term
Negative credit card behaviors
-making late payments -paying only minimum payments -maxing out card -charging items that can't be paid off immediately -owning too many credit cards
Positive credit card behaviors
-pay card balances in full every month (live within means) -pay bills on time -apply for credit cards only when needed -keep track of charges by keeping receipts and using a check register -compare receipts to credit card statement
advantage of owning a car
-you own in - you can customize it and drive it as far as you want without paying extra -your payments will end when it is paid off and then it is all yours -you can sell when car when needed, if you get into a financial bind you can sell it an pay off the loan -you're not locked into a contract
How many american families spend $20 or more every month to rent storage space?
1 in 10 families
10 truths at the core of creating a stable financial future
1.not everyone needs to use debt to live lavishly 2.choosing a different path can lead to financial freedom 3. spending less can lead to a bigger rewards 4. paying on time is vital to gaining respect as a responsible consumer 5. every decision regarding debt deserves thoughtful consideration 6. you pay the price for credit cards advantages on every statement 7. paying off debts is always better than settling for minimum payments 8. debt saps the potential from your future, while saving creates new possibilities 9. freedom from debt is truly priceless 10. you can determine your own financial future
transportation costs make you how much of the average consumers budget?
1/5
jackrabbit starts and stops can slash your highway gas mileage by ___%
10%
how long does a credit account have to be open before it makes a positive impact on your credit score?
2 years
renting is best when you will be living in the area for less than ___
2 years
If you drop your thermostat by one degree, how much will it cut your heating costs?
3%
How much of the payment history makes up a member's credit score?
35% of the score
What type of savings is achieved by increasing the deductible on auto insurance from $240 to $1,000?
40% of the policy's cost
US house size difference between 1975 and 2018
48% bigger and 70% more expressive in 2018
fuel efficiency peaks at about ___MPH
60 MPH
What is a hard hit as it pertains to the "new credit accumulation" segment of the credit score?
A hard hit is a request for new credit that impacts your score
How do home equity loans compare with home equity line-of-credit loans (LOCs)?
A home equity loan is an installment loan with set payments. A home equity LOC is a revolving loan with a variable monthly payment
Which of the following describes a "closed-end" lease?
A lease which typically allows consumers to make monthly payments to use the car and not owe anything when the contract ends
credit score
A measure of an individual's credit risk; calculated from a credit report using a standardized formula
What typically determines the amount of income earned by workers who are paid on commission?
A significant percentage of income is based on sales made, rather than time worked
What is a credit score?
A snapshot of a particular time period in your credit behavior
How many homeowners nationwide routinely decide not to take the tax deduction for mortgage interest and property tax because they have minimal expenses, want to file a basic return, own their home outright, or fail to qualify for the deduction?
About ½ of homeowners
How should adults in the family handle information about financial problems?
All family members should be told of there are financial problems
For the average American family, how much of the budget is given to transportation costs?
Almost ⅕ of the budget
What can greatly increase the cost of having a credit card?
Applications fees, annual fees and processing fees
How do adding more telecommunication lines affect a household's budget?
As the number of lines increases, the costs will increase
Buy or Rent? Virgil planned to own a home by the time he was 30. Now at 29, he's not sure if he wants to remain long term in his home state
Rent
What is the advantage of buying bundled services for cell phones, internet, and cable TV?
Bundled services can decrease the cost of standard services
Buy or Rent? Ann, who took a number of woodworking classes, hopes to buy a fixer upper in a town she wants to live in all her life. She'll use her savings and her skills to make the necessary improvements.
Buy
Buy or Rent? Jim lives in a "hot" market where prices continue to rise quickly. He plans to live there for at least the next 5 years and has saved enough for a sizable down payment. He has a stable job and likes to work around the house
Buy
Buy or Rent? John has a stable job, likes working around the house, nad has no lans to move. He earns a good salary. Pays his credit cards in full each month, and always has left over cash. But he only saves a small amount and makes occasional savings deposits.
Buy
Buy or Rent? With 2 cats, a dog and 2 kids, Stacy and Luke have outgrown their 2 bedroom apartment. Although they don't have a large amount saved for a down payment, their monthly payment for a modest home, including taxes and insurance, would be less than renting a bigger apartment. They completed a first time homeowners program at their CU.
Buy
How can homeowners lower the cost of obtaining insurance?
By finding discounts and doing comparison shopping
What is the best way for a typical car owner to save money on maintenance?
By learning to perform basic maintenance tasks, but leaving more complex tasks to expert mechanics
What is the value of informing children about financial problems and asking them to help develop solutions?
Children learn how to deal with or avoid similar financial issues when they are adults
What is the difference between credit union credit card programs and other types of providers?
Credit unions charge the lowest interest rates and fees
What is the relationship between credit ratings and driving risk?
Drivers with a high credit rating have a lower risk of accidents
What type of credit experience should a member have to create a more favorable impact on the "types of credit used" segment of the credit score?
Experience with both installment and revolving credit
How can you reduce the cost of owning or renting a place to live?
Get a roommate or tenant, either on your own or through a HomeShare program
What kind of goals are most effective in helping an individual or family achieve change?
Goals which focus on what you want
What employment benefits must self-employed workers typically pay for by themselves or do without?
Health insurance, disability, life, social security, retirement, vacation pay, sick pay, and transportation
Which statement correctly describes a benefit of homeownership?
Homeownership is a forced savings program that builds assets through mandatory monthly payments
What is a potential advantage of using a home equity loan to refinance credit card debts?
It allows the member to repay debt with lower monthly payments while deducting the interest cost on tax returns
What is the impact of just one late car payment on a credit score?
It can drop a credit score by 98 points
What is a potential consequence of accepting a new credit card with a teaser rate?
It may entice you into incurring additional debt
How can role playing support financial changes within a family?
It prepares family members for situations where they must say "no" or take a different approach to restrain spending
Which of the following statements accurately describes the belief that "rent is like throwing money away"?
It's a myth
What is the value of writing a game plan for family finances?
It provides a document for all family members to consult when questions arise
How is the use of storytelling helpful in financial counseling?
It provides concrete examples of how others successfully tackled financial problems
What is the likely outcome of making only the minimum payment on credit cards and other forms of debt?
It traps the borrower in an endless cycle of debt
You have 2 credit cards that are more than 10 years old. Because money is tight and the holidays are near, you decide to buy all your gifts with new credit cards that offer discounts of at least 10%. You end up with 6 new accounts. Will this make your credit score do up or down?
It'll go down, opening more accounts in a shorter amount of time will lower the average age of your accounts
What are some potential disadvantages of leasing a car?
Leases sometimes allow dealers to charge additional fees for exceeding the contracts mileage or causing high "wear and tear" on the car
What is an advantage to a "closed-end" contract for leasing a car when compared to buying a new car?
Leasing combines lower monthly payments with lower up-frint costs
How can you reduce the likelihood of making an impulse purchase?
Leave your extra cash and credit and debit cards at home
Select 7 discounts offered by insurers for auto insurance policy holders:
Low-mileage driver (less than 100 miles/week) Insuring multiple vehicles with the same company Policy holder with auto and home policies with the same company Accident-free driver for more than 3 years Driver who graduated from defensive driving course Long-time customer Over 55
You've never had an installment loan, but you have 6 separate revolving loan accounts. You're sure your score is as high as it can be. Are you right?
No, adding installment loans will create a better mix of credit and will increase your score
You shop for a new car and financing over four weekends, which means numerous hits are made on your credit score. Does it affect your credit score?
No, if your shopping is within a 45 day window, they appear as "soft hits" on your record.
What is a secured credit card?
One that requires the cardholder to maintain a savings account as security for the card's line of credit
When comparing cell phone plans with landline phone plans, what should you keep in mind?
Only a phone postpaid require a credit check
You used a "0% interest for 6 months" offer to make a bog purchase, but did not pay it off and the card company will start charging 25% interest. You expect a bonus this week. Should you use the bonus to pay off the credit card or should you accept a new offer from a competing card company for 1.9% interest for 12 months?
Pay off the debt, it has a better impact of your credit score
What is the disadvantage of postpaid cell phone plans?
Postpaid, no contract plans require a credit check
When are self-employed workers typically required to make estimated income tax payments?
Quarterly. Jan. 15, April 15, June 15, Sept. 15
Buy or Rent? Chelsea wants to buy a house, but her budget is already strained. With her fluctuating income, which is based heavily on sales commissions, she's not sure if she can keep up with property taxes and insurance
Rent
Buy or Rent? Kate wants to buy a home, but her job requires her to move every 6 to 12 months for the next 4 years
Rent
Buy or Rent? Matt hates to do home repairs. He loathes mowing the lawn, painting, and other chores, and can't afford to hire someone to do these chores
Rent
How do retail credit cards typically compare to most Visa or MasterCard credit cards offered by a reputable credit union?
Retail charges higher interest rates
How should savings fit into the financial plans of a member establishing self-employment?
Savings are essential to provide protection from income swings
Select the correct statement regarding seasonal work:
Seasonal work varies with the seasons of the year.
Successful or struggling? Judy has not made a single change on the action plan she developed with her financial counselor. Is she successful or struggling?
Struggling
Successful or struggling? Tony is happy to report that he kept himself from buying a new boat at a recant boat show. Unfortunately, he's unable to report any other progress. Is he successful or struggling?
Struggling
Successful or struggling? In the month since he began financial counseling, John has given up his habit of buying $5 worth of lottery tickets after work each day. He has yet to make any other changes to his financial practices. Is he successful or still struggling?
Successful
Successful or struggling? On the first Saturday of every month, Barbara used to meet her friends at a flea market where she often spent at least $50. For the last 3 months, Barbara has asked friends to meet her for a long walk in the park instead. Is she successful or struggling?
Successful
Successful or struggling? Zach has managed to stick within his spending plan by putting cash in envelopes marked with the designated category. Unfortunately, he tells the counselor he can't always stick to the plan because he says it's too hard. Is he successful or struggling?
Successful
Which factors are likely to influence your home costs for utilities, maintenance, and insurance?
The location, size, and style of your home
What must the member change to successfully use home equity refinancing to help reduce debt?
The member must change his or her lifestyle to avoid incurring additional debt
What is the grace period?
The number of days after a purchase is made before interest is charged
Which statement about the relationship between the economy and the number of self-employed workers is accurate?
The number of self-employed workers rises when times are tough and falls when the economy improves
What is the impact of older and newer credit lines on the "length of credit history" segment of the credit score?
The older the credit line, the higher it will score.
Which practice is common among 49% of credit card holders?
They only make the minimum credit card payments per month
Which statement correctly describes standard credit scores from all 3 major credit reporting companies?
The scores from the companies are very similar, but can vary by 50 points or more
In addition to salable skills, what qualities must every self-employed worker have to be successful?
The temperament and discipline to manage the business financially.
Why do alternative forms of credit scores help some low-income members prove they are credit-worthy?
These scores include data from non-traditional sources, such as payday lenders
How can members be successful with their long term financial health?
They can give up big spending and, instead, spend wisely.
What is often the most important role of the financial counselor?
They help the member see the pitfalls of past financial practices and learn better habits
What 3 basic things must a member do to prove they have been successful with their financial goals?
They make a small but significant change which moves them toward a financial goal The change toward their goal is lasting and not just a one time thing They feel she can handle things on her own
What is the first step members must take to improve their financial situation?
They must learn new ways to think about spending
How can members in financial difficulty regain the respect of borrowers and merchants?
They must pay bills on time
What mortgage or home equity lending practice is often used to subprime lenders?
They often make loans for more than the value of the home
How can members in a financial bind manage their credit cards to maintain a good credit score?
They should pay on time, even if they can only afford the minimum payment
How does excessive use of bathroom or kitchen fans affect energy bills?
They suck heated or cooled air out of the home, thus increasing utility bills
What is the potential effect of ignoring the input of some family members?
Those who are ignored are likely to sabotage the plan
Where do the greatest heating losses occur in a typical home?
Through unsealed leaks in the ceiling, walls, foundation, and other areas.
Why is it usually difficult to build tip income into a member's budget?
Tips are paid in small, inconsistent amounts and often in cash.
Why Is it smart to ask for the manufacturer's invoice price when negotiating the price of a new vehicle?
To compare it to the dealers price to see how inflated it is to cover the cost of rebates and special offers
T or F? A significant number of millionaires would complete a long questionnaire to get $1
True
What is the main source of conflict for members who are self-employed or work in seasonal jobs?
Unpredictable income
How does the cycle of work for self-employed, commission-based, and seasonal workers typically affect family time?
When income is high, the available time with the family is scarce
When is owning a home the best option?
When you are committed to the area and have a down payment
One credit card is issued to "Jane A Dow" while another says "Jane Doe". Does it matter?
Yes, use the same legal name on all accounts to receive full credit
In order to make a cost-effective car purchase, what should you consider before buying?
You should consider the cars cost to buy, cost to maintain, ability to meet your needs, and resale value
What information should you always have before you negotiate the price of a new or used car?
You should know the cars value
You close a 15 year old credit card account because you never use it and you want to decrease the credit lines linked to your credit history. Will this make your credit score go up or down?
Your credit score will go down
installment loan
a loan that's repaid with a fixed number of periodic, equal sized payments
adjustable rate mortgage (ARM)
a mortgage with an interest rate that increases or decreases during the life of the loan based on market conditions
credit report
a report on a person's creditworthiness that includes identifying information, credit cards, late payments, bankruptcies, and savings balances
what is a soft hit on a credit report?
an inquiry about the individual's credit and does not impact the credit score
what is a hard hit on a credit report?
any request for new credit and impacts your credit score.
credit unions as credit providers
bc we are not for profit we can serve our members without pressure to push profits to share holders as a result: -lower interest rates and fees -tighter credit approval standards
reduce cost of owning a vehicle
buy cheaper buy used drive less
banks as credit providers
higher fees and interest rates credit approval based less on ability to pay and more on ability to spend
5 year rule
if you aren't going to live somewhere for 5 years you most likely will not get your money back out of it
which is more shows a more favorable impact on a credit score? repaying installment loans or revolving debt
installment loans - but they want to see a diverse credit portfolio
store cards as a source of credit
interest rates: 21-29% determined by policies rather than by credit score offer incentives
commonly misunderstood or overlooked issues of the self employed:
irregular income estimated tax payments social security taxes the high cost health benefits other insurance business bookkeeping
subprime lenders
lenders who lend to borrowers who don't qualify for the best market interest rates because of colorful credit. subprime lending is risky for both lenders and borrowers due to the combination of high interest rates, poor credit history, and difficult financial situations often associated with subprime applicants
revolving loans
loans, such as credit cards, that have a balance that varies with purchases
the best way to raise our credit score quickly is to
maximize the average account age and to improve your credit utilization ratio or capacity (30% of your score) by paying down credit card debt
everyday decisions that can help you drive for less
shop for gas prices group your trips be an efficient driver( do speed, remove unnecessary items from your vehicle, avoid idling, use cruise control) practice regular maintenance handle some basic maintenance yourself get to know a good mechanic
what is the exception to a hard hit
shopping for vehicles or mortgages, they are typically all listed as one hit for inquiries with in 14 days
finance companies (like the guys that do financing for furniture companies) as credit providers
small loans at higher interest rates, purchase overdue accounts and collect on them
a dozen ideas for easy saving
stop borrowing leave your cash and cards at home make gift instead of buying them by up a size at sales for kids welcome hand me downs cut back on eating out reduce living expenses use coupons use church or community food programs never shop for recreation or entertainment wait a day before purchasing
sources of credit
store or retail cards, banks, credit unions, finance companies
Annual Percentage Rate (APR)
the rate of interest a borrower pays on a loan that represents the actual yearly cost of funds over the term of the loan. this includes any fees of additional costs associated with the transaction
You make just one late payment on your auto loan. Will this impact your credit score?
yes