Personal Finance Midterm
Many millionaires do not earn more than _____ a year
$100,000
How high can overdraft and late payment fees be?
$39
If you are more than 60 days late in making the minimum payment, the issuer may charge you the interest default rate, which is typically...
28 to 35%
How many days must customers be notified in advance of their accounts closing?
30
Default rate
Accelerated rate of interest charged on your credit balance as a penalty when you do not pay at least minimum payment or your payment is not honored by your bank
How soon must consumers with existing accounts be informed of rate increases or new charges?
At least 45 days in advance of the effective date
After one year or the introductory rate expires, the card holder must....
Be notified 45 days in advance of any rate change
Which do merchants prefer, credit or debit cards? Why?
Debit because the fees they pay to issuers or banks for each transaction (interchange fees) are about 1/3 the processing fees for credit cards
Wealth is a _____
Lifestyle-living the life you want and pursuing your passions
Interest
The cost of money paid by the borrower to obtain use of the principal or received by the lender for providing the principal. Often expressed as an Annual Percentage Rate ("APR") of the principal.
After one year, however...
There is no cap on fees
The best time to establish credit is...
When you don't need it
Under the Federal Reserve, your credit card company cannot charge you a fee of more than ___ unless one of your last six payments was late, in which case it may be up to ____.
$25, $35
How many Americans receives a Social Security check every month?
1 out of 6
A minimum payment is usually how much?
2.5 to 3% of the balance
Statements must be mailed at least ___ days before payment due date
21
Activation fees, annual fees, and other specified fees may not exceed...
25% of the credit limit during the first year of use.
Bottom 50% of US households pay less than
3% of income taxes. And 47% of households in the US pay no income taxes at all.
What does APR on payday loans oftentimes reach?
300%
The top 1% pay
40%
What percentage of children are born out of wedlock?
40%
How many people are receiving food stamps?
47 million people, or 15% of the population
How many people in the US claim a net worth of $1 million?
5%
____ of millionaires are self-employed or own a business
50%
The top 5% pay
60%
How many kids drop out of high school every day? So how many who start do not graduate?
7,000; 30%
The top 10% of households in the US pay ____ of total income taxes
70%
What percentage of US households have two people working?
78%
Debtor
A person or entity which owes or has the obligation to repay the debt
Certified check
A personal check the bank guarantees as being supported by funds in your account (immediately withdraws funds)
Payment due date should...
Be the same day each month
What is the cornerstone of wealth?
Being frugal, not cheap but value-oriented
What is frugality?
Being value-oriented
Bad debt
Borrowing money to live beyond one's means, shopping to feel good on a bad day, buying something to get a "high," shopping to kill time, keeping up with your peers
Most millionaires do what?
Budget and spend carefully, live within their means, work very hard, and desire financial independence
Adjustable rate
Changes at various specified times
What can't you do without a credit card?
Check into a hotel, rent a car
Cashier's check
Check purchased by you from a bank, payable to a third party designated by you (plus service fee)
Credit-limit increases for those under 21 must be subject to the...
Co-signor's permission
Credit card fraud
Commonly caused by a dishonest clerk, waiter, cashier, or thief who copies your account number and expiration date directly from your card or from a discarded receipt. Notify bank immediately.
Which credit cards do the rules of the Credit Card Accountability Responsibility and Disclosure Act ("Card Act") apply to?
Consumer, not business
Credit card theft
Credit card is missing or stolen. Contact bank immediately. Loss limited to $50 if you contact issuer within two days. Close account immediately. Ask for a new card. Always check your bank statements every month.
Revolving credit
Credit or funds made available to you for your use, at any time. Credit cards provide a revolving line of credit which require you to make minimum payment each month. Can continue making charges up to your limit if you make payments. So you reuse your credit line over and over again.
As global population ages and birth rates decline, governments will need to...
Cut benefits to seniors
Good debt
Education, car, mortgage, starting a well-thought out business
The burden of saving and investing for retirement and healthcare is shifting ever more from the ____ to the ____.
Employer to employee
How often must an issuer review consumer accounts to determine whether rate increases should be kept or dropped?
Every six months
If your credit card company increases your APR, it must reevaluate that increase how frequently?
Every six months
Balance transfer fee
Fee charged when you transfer balance from one credit card provider to another
If you are notified of a significant change in terms, the issuer must...
Give you the chance to close the account and pay off the balance at the old interest rate(s).
Payday loans
High interest, short term cash loan, intended to be repaid by future paychecks
What must cardholder statements show?
How many months it will take to pay your balance if only the minimum payment is made, as well as how much will have to be made if the entire balance is paid off in 36 months. A number for credit-counseling services must also be included. Must also have a "Late Payment Warning" and a "Minimum Payment Warning."
What does it mean that interest can be charged on penalties and fees?
If you carry a balance, in subsequent months you may be paying interest not only on your purchases but on the added penalties and fees, often at a higher interest rate
Credit report
Individual financial report card which tells you whether you have been making your credit card and loan payments on time
Prepaid cards
Initially designed to provide less affluent a way to carry money, but can be lucrative for financial institutions due to various fees including those for activation, inactivity, not carrying minimum balance, checking balance, using an ATM, etc.
Charge cards
Issued by retailers who offer discounts at register on purchases made that day in order to entice you to open an account. Seems great but really high rates of interest. Some offer no grace periods either.
Why is a cashier's check also known as a "good check"?
It is issued after the bank has received your funds. Bank essentially makes certain your check will go through by using funds from your account-they are responsible for ensuring so.
Using debit cards for hotels or car rentals might result in a _____ for several days...
Large hold put on your account
Universal default
Lender can unilaterally change terms of a loan upon learning that their customer has defaulted or missed a payment to another lender
Installment debt
Money borrowed to purchase large items such as furniture or a car, paying installments over time until loan paid back in full
Why is longevity a big issue in the US today?
Most people are living long past they planned for, saved too little along the way, and have depleted their assets
Variable rate
Moves up and down based upon a benchmark interest rate not controlled by lender. Unlike adjustable rate, variable rate is based on prime rate-what banks charge their best customers. Commonly used by credit card issuers.
For an account in good standing, interest rate increases can only be applied to...
New charges
Are issuers allowed to solicit students on or near campuses?
No
Can credit card issuers raise interest rates on prior charges?
No
Can late payment fees be greater than your minimum payment?
No
Can you be charged an inactivity fee on a credit card?
No
Does using a debit card help you establish good credit?
No
Under the Card Act, when a new account is opened, can interest rates increase?
No, not for the first 12 months unless introductory rate has come to an end, or you are more than 60 days late with a payment. When introductory rate expires, reverts back to "go-to" rate plus variable rate.
Can an unused credit hold create an overdraft charge?
Not unless the hold is executed
How many people in the US achieve financial security?
Only 5%
Why do lenders like credit cards?
Over 50% of card holders do not pay off their balances each month. The average American household carries a monthly balance well over $9,000 in credit card debt and may have several credit cards. 75% of college undergraduates have at least one credit card, and the average balance owed exceeds $3,000.
Millionaires
People who are financially able to take care of themselves through their adult lives, and live the life they want to live without help from government programs such as welfare, Medicare, and Social Security
Grace period
Period in billing cycle during which no penalty is due as long as the payment is received on time
Deferred interest plan
Plan enabling consumer to purchase big-ticket items with low "teaser" rate over a promo period, but if entire balance not paid off by end of the period, interest will begin and consumer could be retroactively charged for the interest on the entire balance during the promo period
Which periods must be for a minimum of six months?
Promotional periods
"Go-to rate"
Rate you are charged on unpaid credit card balances, in addition to variable rate, to determine the total rate of interest on your account. Based on your credit history.
Payments are "on-time" if...
Received by 5pm on the due date or the next business day after a holiday or weekend.
Bankruptcy
Relieving oneself from the debts they owe to creditors. Settled in federal courts. Can negatively impact your credit score up for up to 10 years. Additional credit, if it is even available, will be at increased rates of interest. Oftentimes makes it difficult to rent an apartment or buy a car. Always get legal advice before declaring.
Fixed rate
Remains at a predetermined rate for the life of the loan
Stop payment
Requesting bank to reject payment of a check when presented
Debit cards are a...
Secured line of credit-money is taken directly out of your account to pay for your purchases
How can you reduce your credit card debt?
Stop using it, save first and then make purchases, take an extra job to allocate money to pay down the balance, use gifts and bonuses to pay off highest interest rate charges, call your credit card issuer and ask for a lower rate
Gift cards
Stored value cards specific to a retailer/merchant
What kind of debt exceeds credit card debt?
Student loans
Credit
The amount of money a lender is willing to lend subject to repayment terms and conditions such as interest, fees, and penalties
Principal
The amount of money borrowed or loaned
Payments in excess of the minimum must first be applied to...
The balance with the highest interest rate
Overdraft fees may not be charged unless...
The cardholder agrees to allow them.
The more often interest is calculated or compounded...
The higher the interest rate becomes
Debt
The state of owing something such as money
How do financial institutions make money?
Through the interest, fees, and penalties they charge you when you borrow money
What is the biggest financial challenge facing future generations?
Too many undereducated and unemployed workers need to be supported at the same time as the growing number of elderly citizens. Not enough people to work to support the aging population. And, huge federal debts need to be repaid.
True or false: finance charges, penalties, and fees cannot be charged prior to the 21st day
True
True or false: you cannot be charged more than one fee for a single transaction or event that violates your cardholder agreement
True
True or false: there is no legal cap on interest rates on outstanding balances
True! Buyer beware!
When should you make credit card payments?
Two days before due date if paying online, or five days before due date if paying by mail. Payment must be received, not postmarked, when mailing.
Credit cards are an...
Unsecured line of credit-lender is willing to lend you money based upon your good faith and credit history
If an applicant is under 21, can he or she have a credit card?
Yes if he or she has a responsible co-signor (usually a parent or guardian)
Can a lender access your credit reports?
Yes, to help decide whether to loan you money
