Personal Finance Final Review: Short Answers

What is the opportunity cost of going to the football game on Friday night instead of working at the mall for $10.30 an hour for 6 hours?

$61.80 Opportunity cost is the cost of pursuing one option instead of another expressed as the value of the activity you gave up $10.30 times 6 hours

What is a deductible?

A deductible is the amount of money a policyholder pays prior to the insurance company's payment

What is a down payment?

A down payment is an initial payment when something is bought on credit. When buying a car, you make a down payment and then pay the rest of the price off monthly with interest charged

What is the difference between a fixed and variable expense?

A fixed expense is an expense that does not fluctuate from time to time, such as rent or gym membership payments. A variable expense will likely vary, such as grocery store and gas purchases

Define a liquid asset and give an example of one

A liquid assets are things you might have that can be rapidly converted to cash without a risk of significant loss. An example is a checking account or a savings account

What is an IRA? How has the government provided people with an incentive to use IRAs?

An IRA is an Individual Retirement Account, a type of savings account created by the government to encourage people to save for retirement. The government offers tax benefits that allow investors to reduce their income taxes

Why is health insurance likely to become a bigger and more complex issue in the future?

As people are living longer and having more needs for health care and health insurance, it has grown very expensive and many employers are cutting or dropping healthcare benefits. Fraudulent claims have also led to the increased cost of healthcare.

What are two advantages of using a credit card? What's one disadvantage?

Credit cards allow you to improve your credit score to apply for future loans and allow you to make emergency purchases or spendings with a overdraft protection. However, this can lead to debt when overdraft charges occur and more money is spent than the credit card holds

The insurance policy provided by Daniel's company has a $1,000 deductible and a 20% co-pay. How much will he have to pay for an elbow surgery that costs $9,000.

Daniel will have to pay $2,600. Daniel will have to pay the $1,000 deductible plus 20% of the remaining amount $1,000 + .20($9,000- 1,000)

List at least four ways you can protect against identity theft.

Don't print your Social Security number Mail bills at the post office Make sure there's no personal information in your wallet or purse Shop online only on secure sites

What is FICA? Explain its components.

FICA is the Federal Insurance Contributions Act tax that taxes your income for Social Security and Medicare 7.65%. Social Security allows for you to save for retirement while Medicare pays health insurance for the disabled and elderly

Define a long term goal and give an example

Goals that will take over five years to accomplish, such as saving for the down payment on a house

Define an intermediate term goal and give an example

Goals you plan to accomplish within the next one to five years, such as buying a car

Define a short term goal and give an example

Goals you plan to accomplish within the next year, such as buying a new phone

Explain what "reconciling your bank account" means.

It means to keep record of withdrawals from your bank accounts, such as purchases, ATM withdrawals, or checks

How it net worth calculated? Describe its components.

Net worth is the difference between what you own and what you owe: assets-liabilities

Does having wealth reduce a person's need for financial planning?

No, bankruptcy can happen to anyone regardless of wealth. Irresponsibly using credit cards and other debts can pile up, and emergencies can can serious financial trouble if there is a lack of savings.

What is overdraft protection? How can this help and hurt you?

Overdraft protection is a credit card feature that allows one to exceed their credit limit. This helps in providing you to make necessary purchases without your card being denied, but makes it incredible easy to just keep spending, increasing overdraft charges drastically

What is personal financial planning and why is it needed in the United States?

Personal financial planning is the process of planning every aspect of your personal finances. It's important in the United States because many people do not pay attention to the long term effects of using credit cards, loans, and other types of debt. Personal financial planning forces people to think about the future and possible unexpected expenses such as emergencies.

Paula just sold a new prom dress for $175. The customer bought the dress with a MasterCard. Assuming Paula receives 97% of the sale after paying the 3% credit card fee, how much will she actually receive from the sale?

She will receive $169.75 175 times 0.97

Describe at lease two tactics used by identity thieves to obtain information

Shoulder surfing is when someone looks over your shoulder in a public place with the intent of overhearing a conversation or viewing your information Skimming is when credit or debit card information is copied often using a reading device at an ATM

Describe the relationship between education and a person's earning power

Someone who goes to school longer typically earns more money

What is the purpose of the FDIC?

The FDIC provides insurance on bank deposits. If something happens to the bank, $250,000 of your money is insured or saved. This was meant to restore faith in banks after the Great Depression

What is a W-2 and what is its purpose?

The W-2 form is a year-end summary of all relevant income and tax withholding information. You will receive one from your employer shortly after the end of the year

If a young person had to choose between purchasing health insurance and purchasing life insurance, what should they chose?

The person should chose health insurance. Health insurance will protect you if an accident occurs at any point in life, and life insurance will protect your dependents if you die. As a young person, it is more likely that a more minor accident will occur in comparison to the likelihood of death

What is the purpose of a tax return?

The purpose of a tax return is to report to the IRS all the information relative to your income taxes

What is the Rule of 72?

The rule of 72 calculates how long it will take an investment to double its value in regard to a given interest rate. For example, if Tyson has an investment with a value of $792, it will take 11 months to double because 792 divided by 72

What is a bear market?

This term means the market is doing poorly and investors are not purchasing stocks or selling stocks already owned

What is a bull market?

This term means the market is doing well because investor s are optimistic about the economy and are purchasing stocks

Why are stocks not considered liquid assets?

You cannot sell a stock and quickly receive the exact amount of money you paid for it. The value may have increased or decreased, and it will take time to retrieve this value if you are looking to sell

Maya borrowed $6,000 to buy a car and she will make 36 monthly payments of $185.81 to repay the loan. How much interest will she pay over the life of the loan?

You don't know the interest rate???

Since lenders are careful about who they lend to, why do you think so many people get into credit trouble?

idk