Personal Finance Midterm Review (Chapters 1-6)

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Savings Account

A bank account that earns interest

Money Market Account

A bank account that typically pays a high yield, but has limited accessibility

Revolving Credit

A borrower is allowed to borrow money a little at a time as he/she needs it and repay that amount over time.

Credit Report

A detailed report of a borrower's credit history.

Truth in Lending Act

A federal law that requires lenders to tell borrowers important information about a loan.

Finance Charge

A fee charged for the use of credit.

Title

A legal document that shows ownership of property other than real estate.

Deed

A legal document that shows ownership of real property.

Bankruptcy

A legal proceeding involving a person or business that cannot repay their debts.

Installment Loan

A loan for a fixed amount of money that is paid off in equal amounts over a set period of time.

Bond

A loan given to a business or government entity, with the hopes of receiving interest on the maturity date

Consolidation Loan

A loan that combines two or more loans into a single loan.

Secured Loan

A loan that is backed by property of the borrower.

Unsecured Loan

A loan that is not backed by collateral.

Mortgage

A loan used to purchase a house or other real property.

Promotional Rate

A low interest rate used to entice someone to sign up for a credit card.

Garnishment

A mandatory deduction from a person's wages.

Credit Score

A number between 300 and 850 that lenders use to determine a person's creditworthiness.

Budget

A plan for spending and saving

Credit History

A record of a borrower's ability to repay debts.

Line of Credit

A revolving credit arrangement where a bank allows borrowing up to a maximum limit and repayment over time.

Certificate of Deposit

A savings instrument with a fixed maturity date and interest rate; purchased from a bank

Depression

A severe or extended negative downturn

Cash Advance

Allows a credit card holder to withdraw cash from an ATM.

Home Equity Loan

Allows a homeowner to borrow against the ownership stake in his/her home.

Equity

Amount you own (in stocks, a house, assets)

Credit Rating

An assessment of the creditworthiness of a borrower.

Collateral

An asset used to secure a loan.

Recession

An economic downturn

Co-signer

An individual who agrees to serve as your "back-up" if you cannot repay a loan.

Joint Account Holder

An individual with whom you share a credit account. Equally responsible for paying the loan with you.

Fixed Interest Rate

An interest rate that does not change during the life of a loan.

Variable Interest Rate

An interest rate that goes up and down during the life of the loan.

Windfall Income

An unexpected gain in income, such as gaining an inheritance

Net Worth

Assets-minus liabilities

Usury

Charging interest that is illegally high.

Internal Revenue Service

Collects taxes

Consumer Credit Counseling Services

Counseling agency providing credit/debit repayment plans

Electronic Money

Debit cards, credit cards, gift cards, prepaid debit cards, checks, and money orders

Liability

Debt

Consumer Debt

Debt that is owed on the purchase of consumer goods.

Predatory Lending

Dishonest actions by a lender to entice a borrower into a bad loan deal.

Emergency Fund

Enough money to live off of for 3-6 months

Variable Expense

Expense that changes from billing cycle to billing cycle

Fixed Expense

Expense that stays the same every billing period

Needs

Food, clothing, shelter

Employee Benefits

Given as an incentive to employees

Pay Yourself First

Having money sent directly from your paycheck to your savings account

Realistic

How likely is it that you are going to purchase something

Interest

In the context of credit, Interest is the amount of money you will pay over the life of a loan as the price of borrowing the principal. In this sense, interest is also known as the "cost of capital". In the context of investment and savings, Interest is the amount of money you earn as a return on your savings or investment.

FDIC

Insures deposits of up to $250,000

NCUA

Insures savings in most credit unions

Compound Interest

Interest that is added back to the principal amount of an investment or loan. The original principal plus the added interest amount becomes the new principal amount for the next compounding period.

Simple Interest

Interest that is paid only on the original principal amount of a loan or investment. Simple interest can be calculated using the formula I = P x R x T.

Bureau of Engraving

Manufactures U.S dollar bills

U.S Mint

Manufactures circulating coin in the U.S

Store of Value

Money can be saved and used at a later date

Medium of Exchange

Money is accepted by everyone to facilitate transactions

Measure of Value

Money is used as a standard to determine the values of goods and services

Restraint

Not spending too much now

Discretionary Income

Surplus in you budget after you have paid for all of your needs

Opportunity Cost

The #1 thing you give up when making a choice

Credit

The ability to buy something now and pay for it later.

Interest Rate

The amount of Interest that a bank or other lender charges as the cost of borrowing. The Interest Rate is usually expressed as a percentage of the loan amount.

Disposable Income

The amount of money you make after taxes are taken out; take home pay

Annual Percentage Rate

The annual rate for borrowing. Includes all fees and costs associated with a loan.

Liquidity

The ease with which assets can be converted into cash

Default

The failure to repay a loan.

Rule of 72

The formula used to calculate how long it will take for a sum of money that you have saved or invested to double at a given rate of interest.

Inflation

The gradual increase in overall prices over time.

Federal Reserve

The independent federal agency that regulates banks and controls interest rates and the money supply.

Fed Funds Rate

The interest rate that the Federal Reserve charges commercial banks to borrow money from the Fed.

Lien

The legal right of a lender to sell a borrower's property if the borrow cannot repay a loan.

Credit Limit

The maximum amount that one can charge on a credit card.

6

The number of time you can withdraw from your savings account each month

Principal

The original sum of money that you borrow, in the case of a loan, or that you invest or save. In the case of consumer loans (car loans, mortgages, etc.), the principal usually equals the purchase price of the good or service.

Time Value of Money

The principle that the value of a dollar today is greater than the value of a dollar in the future.

Buying Power

The quantity of goods and services you can buy with your money.

Minimum Payment

The smallest amount due on a credit card bill.

Grace Period

The time between a credit card purchase and the due date of a credit card bill.

Balance Owed

The total amount owed to a lender.

Personal Income

The total of your earnings (job + investments + spouse's income)

Wants

Things you would like to have but can live without

Prepayment

To repay a loan before the term of the loan expires.

Endorse

To sign a check for deposit

Gross Income

Total income earned before any deductions are taken out

Department of the Treasury

U.S Dept. with the goal of promoting a stable economy, economic and job opportunities, and managing financial resources

Non-Contributory Benefits

Vacation and sick days

Foreclosure

When a bank or mortgage lender seizes a house because the homeowner cannot pay the mortgage loan.

Repossession

When a bank or other lender takes property from a borrower who cannot repay a loan.

Liquidation

When a person's assets are sold in bankruptcy.

Deficit

When expenses exceed income

Balanced Budget

When income and expenses meet

Surplus

When income exceeds expenses

Deflation

When the prices of goods and services fall

Intermediate Goal

Your expenses annually (ex. vacation)

Long Term Goal

Your expenses for the future (ex. kids)

Short Term Goal

Your expenses now, or monthly expenses (ex. rent)

Fiat Money

money based on the belief that it will not fail

Trade Offs

weighing the costs and benefits before making a choice


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