Personal Financial Literacy

debt

something that is owed or due, usually money

When you pay with checks, cash or a debit card, you have money at the time of purchase, but when you use a credit card, you are _________ money to make the purchase.

borrowing

income

Money earned from investments and employment.

variable expenses

expenses that occur regularly but can change from month to month

Credit card A has an interest rate of 15% and an annual fee of $25. Credit card B has an interest rate of 18% and an annual fee of $0 the first year, then $35. Which is the best option and why?

Credit card A is the better option because it has the lowest interest rate and annual fee after the first year

What is the compound interest on a three-year, $100.00 loan at a 10 percent annual interest rate?

$33.10

A high-risk investment is characterized by 1. a greater percentage chance of loss. 2. superior prospects for short-term gains. 3. a smaller percentage chance of loss. 4. lower interest and compound interest rates.

1

Which of these could you find on a credit report? Check all that apply. 1. previous address 2. current employer 3. highest level of education completed 4. bankruptcy and a civil court case 5. monthly income 6. late credit card payments

1, 2, 4, 6

Which best describes the purpose of recording past income and spending in a budget? 1. to know the historic cost of goods 2. to serve as the basis for future planning 3. to learn why having savings is important 4. to learn why expenditures are likely to increase

2

Mason has decided to purchase a new bike, which he will ride for fun. He has a very strict weekly budget, and has found a bike he can afford. If Mason wants to consider his short-term and long-term goals, which questions should he ask? Check all that apply. 1. Will other kids think my new bike is cool? 2. Do I want the bike this month, or should I wait and buy it during the summer? 3. Will buying the bike keep me from reaching another goal, like buying a car? 4. Do I really need the bike, or can I get by with my old one for a while longer? 5. How many of my friends have new bikes?

2, 3, 4

A good rule of thumb is to spend no more than ___-___% of your gross income on housing.

25-30%

Which is the best question for Joe to ask himself when deciding whether to open a checking or savings account? 1. Is there an ATM near my home or work? 2. Does the bank offer free checking? 3. If I need a loan, will they give it to me? 4. Why am I opening a bank account?

4

compound interest formula

A = P(1+r/n)^nt

three credit bureaus

Equifax, Experian, TransUnion

balance

amount of money in an account

comparison

an examination of how things are the same or different

personal finances

an individual's assets and management of them

marginal benefit

benefit received from purchasing one additional item the point at which it is no longer beneficial to buy one more is where the benefit drops below the cost

_____ is most liquid by definition.

cash

local income tax

collected by towns and cities to fund city programs

federal income tax

collected from most workers, who pay up to 39.6% of their earnings (based on how much they make)

liabilities

debts owed

Three types of income tax

federal, state, and local

What items does one need when opening an account?

identification, proof of address, money to start the account (amount varies based on type of account), social security number, and customers under 18 must have parent co-sign or share the account

If having a warranty on a car is important, a person should buy a car that is _____.

new

Marlene has decided to save $3,500 so that she can attend the nearby community college. Which step in the decision process should Marlene take?

take action

fees (loan)

the additional costs a lender charges for processing a loan

Which would be considered liabilities? Check all that apply. 1. motorcycle loan 2. own a house 3. car loan 4. credit card bill 5. mortgage

1, 3, 4, 5

annual percentage rate (APR)

the annual interest rate that is charged for borrowing money from an institution

Check Register/Ledger

The book in which you keep records of checks, deposits, debit card transactions, and ATM withdrawals.

A short-term financial goal might include saving for a down payment on a house. a piece of furniture. a child's college fund. one's retirement.

a piece of furniture

emergency fund

a savings account that you can access quickly to pay for unexpected expenses or emergencies

borrower

Someone who receives something with the promise of returning it or its equivalent

Bruce takes out a $1000 personal loan with a 10% annual simple interest rate for a trip. If he waits five years to begin paying back his loan, how much will he owe?

$1500

credit limit

The maximum amount of credit a lender will extend to a customer

retail bank

a bank that provides services to individuals and businesses for profit

lease

a legal agreement allowing a person to use a car or property over a period of time in exchange for payment

Every year, taxes are due on

april 15

garnishment

automatic removal of funds from a paycheck for money owed

conspicuous consumption

expenditure on or consumption of luxuries on a lavish scale in an attempt to enhance one's prestige.

collateral

something pledged as security for repayment of a loan, to be forfeited in the event of a default.

debit

withdrawing or taking money out of an account

Decide how each action would affect your credit score. [increase/decrease/no effect] 1. You make more than minimum payments before the due dates. 2. You missed a credit card payment in November and paid a late fee. 3. You opened three new credit card accounts in a month. 4. Your employer gave you a raise, so your income increased. 5. The balance on your credit card is close to the credit limit.

1. increase 2. decrease 3. decrease 4. no effect 5. decrease

When creating a budget, you must track both your budgeted expenses and your [actual/potential/likely] expenses.

actual

deposit

Adding money to an account

What do checks include?

the date, the name of the person receiving the money, the amount of money, your signature, and a memo

credit

the level of trustworthiness of a borrower

Which is the best way to achieve long-term financial goals? 1. Spend less on mandatory expenses. 2. Eliminate short-term financial goals. 3. Increase discretionary expenditures. 4. Save more money from net income.

4

When evaluating options for bank accounts, consider...

minimum balance interest rates overdraw protection ATM usage + fees annual fees monthly service charge

Bruce takes out a $1000 personal loan with a 10% annual compound interest rate for a trip. The loan compounds once each year. If he waits five years to begin paying back his loan, how much will he owe?

$1610,51

Lana owns a house worth $325,000 and has a mortgage of $245,000. She owns a guitar worth $750. She also owns a car worth $15,000 and has $9,000 in car loans. She has $8,000 in stock investments and $2,100 in a savings account. What is Lana's net worth?

$96,850

IRS

(Internal Revenue Service) Governmental agency responsible for collecting federal taxes, issuing regulations, and enforcing tax laws

Which expense is a bank least likely to extend a line of credit for? job training after high school a flat-screen TV improvements to a home a car to be used for transportation to and from work

a flat-screen TV

contract (financing)

a legal agreement required for many finance options contract includes payment info, interest rate, and length of payment term approval generally requires a credit check

mortgage

a legal agreement that determines repayment for a loan used to buy a home or other property

installment

a payment in a series that is made over a long period of time

creditworthy

a person who can be trusted to fulfill a contractual promise to pay back a loan in a timely manner

bad risk

a person who has a history of not making payments on time or in full

open-end credit/revolving credit

an agreement by a bank to loan a certain amount of money, which can be borrowed again once the original amount is repaid (ex: credit card, monthly lines of credit)

overdraft protection

an automatic loan made to you if you draw out more money than you have in your account

consequence

an event or outcome that happens as a result of previous decisions and actions

Which are shown on a balance sheet? assets liabilities age time period date of birth

assets, liabilities, time period

outstanding checks

checks that have been drawn and subtracted from the depositor's checkbook, but which have not yet been presented to the bank for payment.

In determining whether to issue a loan, banks are not allowed to ask about an applicant's employment history. date of birth. country of origin. income tax returns.

country of origin

closed-end credit

credit that is to be repaid in full by a specific date (ex: car or home loan)

Credit regulations require lenders to consider only borrowers' salaries. disclose credit terms to borrowers. use borrowers' personal information. attract borrowers as they see fit.

disclose credit terms to borrowers

consumption

disposable income being spent on consumer goods + services

discretionary

expenses that are optional

deductions

expenses that are subtracted from gross income

Which is not a good financial decision? building a savings account and taking out fewer and smaller loans in the future making monthly payments on a loan on time paying off a loan as soon as possible frequently spending more money than is earned

frequently spending more money than is earned

overdrawn

having more money that was available taken out of an account

expenditures

money spent

Long-term investments tie up money for [more than one year/less than one year]. One reason why individuals focus on long-term investments is to save for [immediate expenses/retirement]. A(n) [401(k)/IRA] allows both employees and employers to contribute to a retirement plan.

more than one year retirement 401(k)

Which is a possible benefit of having a good credit history? getting a high interest rate on a credit card offer obtaining a low interest rate on a loan obtaining a savings account having a paycheck garnished

obtaining a low interest rate on a loan

Most state and local income taxes are either

progressive or flat

Which expense category would be the most difficult to change or reduce? entertainment rent savings groceries

rent

Sanjay wants an account that will earn interest but still let him make withdrawals. He should get a [CD/savings/checking/savings bond] account.

savings

grace period

the extra amount the given to make a credit payment without penalty

to maximize your returns on investments, consider these three things...

- compound vs simple interest (compound interest makes more money) - liquidity (investments with more liquidity can be sold more quickly, resulting in being profitable faster) - time (money grows over time, more time = more money)

unsecured credit

- credit that is not backed by a valuable asset/collateral - lender cannot take back any property if the loan is unpaid - since this type of credit is more risky for lenders, the interest rates are higher - ex: personal loans

mutual funds

- high risk investment - allows investors to pool money to buy stocks, bonds etc - managed by a professional fund manager - includes the right mix of investments to meet the fund's strategy - can have high fees/expenses

401(k)

- long-term retirement account - can be created through an employer who will often match contributions - contributed to before taxes - includes federal limit to contributions - includes penalty for early withdrawals

money market account

- type of savings account that requires a high minimum balance and a higher interest rate than savings accounts - allows a limited number of checks to be written from it

Which actions should you have already taken? Check all that apply. 1. decided what kind of account I want 2. brought along my Social Security card 3. compared the services that different banks offer, and learned what they charge for them

1, 2, 3

What are the characteristics of an annual percentage rate? Check all that apply. 1. It can change over time for certain kinds of loans. 2. It is the interest charged each year for a loan. 3. It requires the borrower to pay all the principal at once. 4. It can be reduced to reflect the borrower's credit history. 5. It has little impact on the amount the borrower must repay.

1, 2, 4

Which questions should Freya answer before using a credit card to make a purchase? Check all that apply. 1. Can I pay at least the minimum payment each month? 2. Can I make payments on time and avoid late fees? 3. Will I have to take out a loan? 4. How much in finance charges can I afford to pay? 5. Should I talk to a consumer credit counseling service?

1, 2, 4

For which buyer would a lender most likely approve a $200,000 mortgage? 1. a person with a credit score of 800 with a large amount of debt who has recently switched to a lower-paying job 2. a person with a credit score of 760 with a small amount of debt who has had steady employment for many years 3. a person with a credit score of 650 with a large amount of available credit who has a low-paying, but steady job 4. a person with a credit score of 600 with a small amount of available credit who has recently switched to a high-paying job

2

What might you expect to find out about people who are described as credit risks? 1. They are usually given a low interest rate. 2. They have a history of not making their payments on time. 3. They find it easy to get a loan from the bank. 4. They have a history of paying in full each month.

2

When making a decision about housing, the first step should be... 1. visiting different housing locations. 2. gathering information on available housing. 3. analyzing the availability of housing loans. 4. comparing the cost of housing alternatives.

2

When planning a budget, the biggest consideration should be the 1. the monthly savings amount. 2. the total income available to spend. 3. the total housing or rent payments. 4. the monthly transportation cost.

2

Which is a short-term consequence of making a late payment on your bill? 1. It will be harder to buy a house because it affects your credit history. 2. There will be a late fee added to the bill. 3. It will be harder to secure a new loan at a low rate. 4. The bank will charge a fee for having a negative balance.

2

Maya always has the latest phone with all the best features, and when a new version of the phone comes out, she is always first in line to upgrade. Maya uses her credit card to pay, but she has a low-paying job, so making her credit card payments can get tricky. She has to cut back on her expenses for necessities because of her spending. What are the results of Maya's conspicuous consumption? Check all that apply. 1. a lack of debt 2. stress about paying bills 3. a lack of money for other expenses 4. access to a better job and nicer friends 5. great electronic connectivity

2, 3, 5

What are the advantages of following a strict repayment schedule? Check all that apply. 1. It eliminates the need for secured credit. 2. It prevents additional fees from being charged. 3. It guarantees the borrower possible new loans. 4. It prevents some interest rate increases. 5. It shows that the borrower is responsible.

2, 4, 5

Borrowers choosing an adjustable-rate mortgage 1. pay a higher interest rate during the first few years. 2. are often forced to sell their homes after the first year. 3. often pay a lower interest rate during the first few years. 4. agree to accept no risk when borrowing money.

3

From what part of income should someone take savings? 1. what otherwise would be fixed expenses 2. gross income, before other deductions 3. what otherwise would be discretionary income 4. gross income, along with other deductions

3

In which situation would a savings bond be the best investment to earn interest? 1. if you need access to your cash quickly 2. if you are saving each month for a new car 3. if you are putting aside a chunk of money to purchase a house in five years 4. saving to pay a tax bill in four months

3

Alex has not been keeping his banking records up to date. On his latest bank statement, he found that he had been charged an overdraft fee for writing a bad check. In addition to his being charged a fee, which of these is another possible consequence of an overdraft? 1. The bank will close the merchant's account. 2. The merchant who received his check will be charged an overdraft fee. 3. The bank will cancel his debit card. 4. The merchant who received his check will expect repayment and a penalty fee.

4

progressive tax

A tax for which the percentage of income paid in taxes increases as income increases

introductory rates

A temporary lower interest rate, advertised as a low APR to entice customers to apply for a credit card. After the introductory period, the interest rate will increase to the regular APR.

Why is compound interest preferable to simple interest when investing?

Compound interest pays interest both on the principal and the interest earned in each period.

gross pay

On a paycheck, the total amount of money earned before any deductions are made

A dishwasher is priced at $475. There are two options offered to reduce the price: either a 15% discount off the price or a rebate of $75. Which is the better choice, and what is the extra amount saved?

The rebate is better; it saves $3.75 more.

assets

things you own that have economic value

Individual Retirement Account (IRA)

- long-term retirement account - can be set up as a pretax or after-tax investment - includes federal limit to contributions - includes penalty for early withdrawals

certificate of deposit (CD)

- low risk, medium-term investment - it is an interest-earning deposit that can be purchased at a bank for different amounts depending on how much the individual wants to invest - funds must remain deposited for a fixed term, and a withdrawal of the funds before the term expires results in a fee -most CDs held for a year or less but can be held for as long as 5 years - has higher interest rates than savings accounts

decision making process steps

1. identify the choices 2. gather information 3. evaluate alternatives 4. make decision 5. take action 6. evaluate results

simple interest formula

A = Prt

Glenn and Maggie own a regional chain of juice bars and are looking for a loan in order to expand their business in the coming year. Which type of banking institution is most suitable for Glenn and Maggie's business? a credit union a savings and loan a commercial bank an investment bank

a commercial bank

credit report

a detailed, written report of one's credit history

budget

a financial plan based on how much money is needed for a family to live that balances available resources and expenses

Which types of credit are most similar to each other? auto loan and mortgage loan auto loan and personal loan credit card and mortgage loan mortgage loan and personal loan

auto loan and mortgage loan

Yuri has $100 to spend at the store. He spots a pair of designer jeans with a $98 price tag on them but knows that he can buy three pairs of $30 jeans for about the same price. He still decides to buy the $98 pair. What is most likely Yuri's motivation behind buying the pricier pair?

conspicuous consumption

Filing for bankruptcy can ________ debt but can _____ an individual's chances of receiving additional credit.

decrease

Simon bought a computer and made monthly payments. By the end of the month, Simon had no money left for groceries. Which step in the decision-making process should Simon now take? Taking action. Making a decision. Evaluating results. Gathering information.

evaluating results

Why should variable expenses be planned after fixed expenses?

fixed expenses are required and constant, but variable expenses are more flexible

Big cities tend to have a [higher/lower] cost of living than smaller cities.

higher

liquidity

how easily an investment can be exchanged for cash - liquid investments can be sold quickly, as they have a ready market of buyers

Which is a possible benefit of having a good credit history? having a checking account low interest rate on a car loan high interest rate on a credit card offer bankruptcy

low interest rate on a car loan

If you were planning a budget, you would base it on your _____ income.

net income (take home pay)

refinance

obtaining a new mortgage to replace an existing one

lenders

organizations or individuals that loan money

diversification

practice of putting money into more than one kind of investment at a time - protects against loss in one investment type - can raise overall return and reduce risk

Angela has $2,000 that she wants to invest. She knows that she will not need this money for at least six months, but she might need it within the year. She is looking for an investment that is guaranteed to make her money. Which investment option should Angela choose? stocks commodities saving accounts mutual funds

saving accounts

easy-access credit

short-term loans not based on credit history that typically have higher interest rates and can be used for emergencies (ex: two-week payday loan, title loan with collateral)

income tax

tax paid on personal income that goes to the government

propensity

tendency to do soemthing

finance

to buy something on credit

record

to monitor or track a change

upfront costs for renting

usually two months' rent and a security deposit

Why is net income lower than gross income? fixed spending budgets withholdings discretionary spending

withholdings

What is a benefit of obtaining a personal loan? 1. getting money with special repayment terms 2. getting money with favorable interest rates 3. getting small amounts of money to use immediately 4. getting large amounts of money to use immediately

4

formula for calculating fixed rate mortgage payment

M = P x (R(1+R)^n)/((1+R)^n -1) M = monthly payment, P = principal, R = monthly interest rate, n = total number of monthly payments

outstanding

unpaid

three ways to deposit money

ATM, deposit slip, online transfer of funds, EFT

Electronic Funds Transfer (EFT)

system of moving money from one account to another without any paper money exchanging hands

Carl's bank statement balance is $109.75, but he has an outstanding debit of $58. What is the correct amount of money in Carl's checking account?

$51.75

Paying rent is a [risk/return/need/want], while buying a new video game is a [risk/return/need/want]. If you buy a new video game, you cannot pay your cell phone bill. This is an example of setting a short-term goal/setting a long-term goal/realizing opportunity cost .

1. need 2. want 3. realizing opportunity cost

What is on a credit report?

1. personal info (name, address, ssn, date of birth, etc) 2. anything in public records (credit score, bankruptcy, etc) 3. info from collection agencies (missed payments, garnishment etc.) 4. credit accounts and loan info 5. inquiries (list of people that have requested a copy of the report)

overdraft

a deficit in a bank account caused by drawing more money than the account holds.

What best determines whether a borrower's interest rate on an adjustable rate loan goes up or down? a fixed interest rate a bank's finances a market's condition a person's finances

a market's condition

what is the w-4 form? what is it used for?

the w-4 form determines the amount of taxes withheld from an individual's paycheck. it allows you to take deductions based on personal info that the IRS uses to calculate withheld tax.

Sofia has saved $10,000. She wants to be sure that she is earning interest on her money and can add to her savings. She also wants to be able to access her money if the need should arise. Which type of account is most suitable for Sofia's needs? a money market account a certificate of deposit a savings bond a checking account

a money market account

rebate

a partial refund of the price of a product

advantages and disadvantages of renting a house/apartment

advantages- fewer upfront costs, no maintenance/repair costs disadvantages- no ability to build equity, increasing payments over time

Omar has earned $2,000 this month, and an additional $500 in commission. His expenses include food ($100), rent ($700), transportation ($100), clothing ($50), and medical insurance ($50). What is his net income for this month?

$1500

Which would be considered assets? Check all that apply. 1. own a guitar 2. checking account 3. student loan 4. stocks and bonds 5. monthly rent 6. own a motorcycle

1, 2, 4, 6

What are some benefits of paying taxes? Check all that apply. 1. ensuring that the needs of the nation are fulfilled 2. paying for public works such as highways and museums 3. reducing the amount of money consumers can spend 4. slowing growth in the economy 5. paying for government programs that help citizens

1, 2, 5

flat tax

a tax system in which all people pay the same percentage of their income

opportunity cost

the most desirable alternative given up as the result of a decision the cost of using one resource over another

equity

the value of ownership in an asset in excess of debts owed on it (total value minus amount owed on the asset)

revenue

total income received from an economic plan

finance charges

The total cost of credit, including interest and transaction fees.

Which of the following is not an example of income? 1. wages 2. food 3. tips 4. allowance

2

Credit Card Bill Car Loan Bonds Piano Bank Account Bicycle Which are liabilities?

credit card bill, car loan

Food, an electric bill, clothing and health insurance are all examples of ________.

expenses

You allow for 5% of your net pay of $2,989.12 to be budgeted for medical expenses. This would be

$149.46

Carrie is creating a personal balance sheet. The heading includes the period of time that the balance sheet represents. Which could be the heading of Carrie's balance sheet? 1. Carrie's Balance Sheet (January 1, 2021) 2. Carrie's Balance Sheet (January) 3. Carrie's Balance Sheet (Friday, January 3) 4. Carrie's Balance Sheet (January 2011 - January 2021)

1 (must be over a period of a month and have the year)

Frankie's weekly budget includes a long-term goal of purchasing a car. He is saving $15 a week toward that goal. He is considering saving up his money to purchase his grandmother's older car. Frankie knows his grandmother has maintained the car and it is in good condition. She is also giving him a greatly discounted price of $800. What should Frankie consider before buying the car? Check all that apply. 1. what he will be giving up if he spends $800 on the car 2. the cost to maintain (oil, tires, gas, brakes) and insure the car 3. how many of his friends have cars 4. his short- and long-term financial goals 5. if an alternate mode of transportation, such as a bicycle or the bus, is sufficient for his needs

1, 2, 4, 5

Which results are more likely for someone without personal finance skills? 1. larger long-term credit or loan costs 2. less preparation for emergencies 3. fewer utility expenses 4. simple long-term investment strategies 5. increased long-term challenges

1, 2, 5

What types of information does a W-2 form contain? Check all that apply. 1. how much has been earned 2. how much sales tax has been paid 3. how much has been withheld for taxes 4. how much property tax has been paid 5. how much additional tax is due 6. how much withheld tax will be refunded

1, 3

What are the main purposes of a budget? 1. to record past income and spending 2. to take out a student loan from the bank 3. to plan future income and spending 4. to apply for a mortgage 5. to balance available resources and expenses

1, 3, 5

A person bought food at a cafe for $10. They paid 85 cents in sales tax. What is the sales tax rate?

8.5%

Examples of income include bonuses, hourly wages and gas, while expenses include entertainment, tips and food. True or False?

False. income= bonuses, hourly wages, tips expense= gas, entertainment, food

Roberto decided to use his investments to pay off his car loan. How will that decision affect the difference between his assets and liabilities?

The difference between the assets and the liabilities will remain the same.

Martin's gross pay is $30,135 per year. His federal income tax percent that is withheld from his paycheck is 15%. The amount of money that he owes the government after federal deductions is $4,150. Martin [will get a refund/owes] ____.

a refund of $370

balance sheet

a summary of your assets, liabilities, and net worth at a specific period in time; usually calculated monthly or quarterly

Jasper's assets consist of cash ($1100), investments ($2300), a car ($12000), and a guitar ($400). His liabilities consist of a credit card ($500), rent ($900), and a car loan ($3000). What is the total value of his assets, and what is the total value of his liabilities? What is his net worth?

assets- $15800 liabilities- $4400 net worth- $11400

Jamal is a nurse and earns $48,000 per year. His sales tax rate is 8 percent. Diamond is an accountant and earns $50,000 per year. Her sales tax rate is 9.5 percent. Who would pay more in federal income taxes? Who would pay more in sales taxes when making purchases?

diamond, diamond

fixed expenses

expenses that occur regularly and do not change from month to month

property tax

tax on value of land, buildings, cars and other kinds of personal assets

payroll taxes

tax on wages and salaries to finance Social Security and Medicare costs

cost of living

the amount of money needed to sustain a certain level of living

risk

the chance or possibility of loss

social security tax

used to provide financial support to retired and disabled workers

medicare tax

used to support healthcare costs for retired workers

In American society, which of these is an example of a want? food shoes video games utility bills

video games

sales tax

tax collected on the purchase price of goods or services

form 1040

tax form that ensures that citizens have paid the correct amount of federal tax (tax return)

What is the W-2 form? What is it used for?

the w-2 is a form that documents income and taxes withheld during the year. it is received each year.

Terrill and Natalia want to buy a home valued at $150,000. The property tax in their community is 1 percent of the property's value per year. How much will Terrill and Natalia be required to pay in property tax per year?

$1500

Amala has $850 in her credit card balance, a car worth $2,200, $125 worth of jewelry, a student loan of $2500, $1200 in her savings account, and $1500 in stocks. What is the total of Amala's liabilities?

$3350

The Menendez family has a net income of $4,500. They spend 10% of their income on transportation. How much do they spend on transportation?

$450

Theresa owes $9,000 on her car loan. If the value of her car is $15,000, what is her equity in the car?

$6000

Keisha owns a house worth $275,000 with a mortgage of $195,000. She owns a car worth $12,000 and has $7,500 in car loans. She has $3,000 in investments, $2,700 in a bank account, and owes $1,500 on a credit card. What is Keisha's net worth?

$88,700

To assess the risk and return involved in a purchase decision, which practical questions should a potential buyer ask? 1. What can go wrong? 2. What are the alternatives? 3. How will it affect my status in society? 4. What is the likely return? 5. Is the risk worth the return?

1, 4, 5

How can you use an annual net worth statement?

organize personal finances each year [assets] [liabilities] [total] [total] [net worth]

net pay (take-home pay)

the pay after amounts such as federal withholding, social security, medicare etc. are taken out

Citizens file income taxes to ensure that they will receive a [refund/penalty] if they paid too much in taxes throughout the year. Employers supply a [W-2/W-4] to help citizens file their tax returns. Taxes returns can by filed either by mail or [in person/online].

1. refund 2. w-2 3. online

Frankie already has a pair of shoes that he can wear for a basketball tryout, which makes the new pair a [want/need]. If Frankie did not have a pair of basketball shoes for the tryout, the new shoes would be considered a [want/need].

1. want 2. need

Frankie has a strict weekly budget and has only enough money this week to make one large purchase. Before he saw the condition of his old basketball shoes, he was planning to purchase a new winter coat that he saved for over several weeks. Now, Frankie must choose if he is going to purchase the new shoes and wear his older winter coat, or vice versa. Based on what you have read, which economic concept is Frankie faced with? 1. needs vs. wants 2. opportunity cost 3. risk and return 4. goal setting

2

Nevan's gross pay was $45,150 last year. The federal income tax withholding from his pay was 16% of his gross pay. Nevan determined the federal income tax he owes is $6,150. Nevan [owes/will recieve a refund of] ____.

Nevan will receive a refund of $1074.

Shona is buying a rug for her room. Store A has the rug for $45 with a 10% discount. Store B has the same rug for $46 and is offering a $10 off coupon. The sales tax is 6% on either purchase. If Shona only has $40 to spend, which store will she purchase the rug from, and how much will she have left over?

Shona can afford the rug in store B and will have $1.84 left over.

income statement

a statement of net income, or revenues minus expenses

net worth statement

a statement of the difference between what is owned (assets) and what is owed (liabilities), usually calculated annually

What is the best definition of income tax? a tax on the purchase price of goods a tax on the value of property a tax on money earned a tax set aside each month for health care

a tax on money earned

expenses

money you spend

_____ are items such as utilities, rent, and food—items that one can't do without.

needs

How can you use a personal balance sheet?

organize assets and liabilities on a monthly bases [assets] [liabilities] [asset] [liability] [asset] [liability] [asset] [liability] [total] [total]

How can you use an income statement?

organize monthly income and expenses [income] [expenses] [total expenses] [net income]

The ___ oversees the collection of federal taxes.

IRS (internal revenue service)

The w-2 form shows... 1. how much a person paid in taxes, and how much more is due. 2. how much a person earned, and how much was withheld in taxes. 3. how much a person earned, and how much tax is to be refunded. 4. how much a person paid in taxes, and whether they have a spouse.

2

Which would you use to determine how much money you have left over to save each month? 1. balance sheet 2. income statement 3. net worth statement 4. paystub

2

Julio has a house worth $220,000. He has a $175,000 mortgage. Julio says that in this situation, his asset equity is really only $45,000. Is Julio correct?

Julio is correct because the $45,000 equity in the house is the real asset.

Dan budgeted $100 for food this month and spent $95. He also budgeted $100 for discretionary spending but spent $140. Did Dan stay on budget this month? What does he need to do next month to stay on budget?

No. Next month, Dan should reduce his discretionary spending.

Which is an example of a short-term investment? savings bond savings account retirement fund checking account

savings account (a checking account is not an investment because it offers none or very little interest.

Amir lives in Washington, DC. He wants to buy a new computer for college, and it will cost him $1,000. In Washington, DC, his sales tax rate is 6 percent. In a nearby town in Virginia, the sales tax rate is 5 percent. A few miles away in Maryland, the sales tax rate is 9 percent. To spend the least amount total, Amir should buy the computer in _____. Amir would pay the most sales tax in _____. Amir would pay $60 in sales taxes in _____.

virginia, maryland, washington dc

Ava's gross pay is $2,500 per month. Her deductions include the following: Federal income tax $290 State income tax $85 Social Security $112 Medicare $35 What is Ava's net pay each month?

$1978

If a home is valued at $250,000 and the property tax rate is 2 percent, how much will the owners pay in property taxes?

$5,000

The Porters need to buy a dining set for their new house. The same dining set has a retail price of $1,500 at three different stores. Each store is offering a different promotion. Store A: 20% off sale Store B: $150 off coupon Store C: $200 rebate Which deal is the best?

Store A

A sofa sold at four different stores has a retail price of $1,200. Each store is offering a different promotion. Store A: 10% off sale Store B: $100 off coupon Store C: $75 off coupon Store D: $150 rebate Which offers the best deal?

Store D

index funds

- has a mix of investments that closely mirrors a common index - low fees (no fund manager) - good choice for investors with less money

bonds

- have very low risk and a guaranteed return - sold by government, can be held for up to 30 years, returned with interest

stocks

- high risk investment - investment in a company's progress and profits - can pay dividends - buy shares at a low price, sell them for a higher price

mortgage loans

- loan that can be used to purchase a home or property - bank lends borrower money and borrower agrees to make regular payments to the bank for a long time

personal loans

- one lump sum of money is issued to the borrower - the terms of repayment are agreed on upfront before the money is lent

auto loans

- similar to mortgage loans, banks loan money to consumers to buy vehicles, loan is payed back over many years

risk and return

- the higher the risk, the higher the return - high-risk investments have a greater chance of loss (ex: stocks and real estate) - low-risk investments have a smaller chance of loss (ex: CDs, bonds, mutual funds; these are lower risk because you are spreading your investment over many different companies/industries)

What does reconciling an account involve? 1. checking one's financial records against the bank's 2. making sure a paycheck arrives on time 3. calculating the interest owed on a savings account 4. identifying instances of identity theft

1

What is one benefit of purchasing saving bonds? 1. Saving bonds are purchased from the government and guaranteed to increase in value. 2. Saving bonds are purchased from commercial banks and guaranteed to increase in value. 3. Saving bonds are short term investments backed by the government to protect from loss. 4. Saving bonds are long term investments created to help first time home buyers obtain a mortgage.

1

Which is a long-term consequence of making late payments on your bills? 1. It will be harder to secure a new loan at a low rate. 2. The balance in your checking account will be negative. 3. There will be a late fee. 4. The number of payments will increase.

1

Which is the most important consideration when deciding to purchase or lease a vehicle? 1. all current monthly expenditures 2. the amount of cash saved 3. the cost of gas and insurance 4. all monthly car payments

1

Why might variable expenses change a great deal at different times of year? 1. Heating and cooling costs might vary considerably. 2. Income taxes and withholdings may increase or decrease. 3. Car loan payments become higher in certain seasons. 4. Discretionary spending may rise when fixed expenses rise.

1

What steps can an individual take to improve a credit score? Check all that apply. 1. make all loan payments on time 2. check credit reports for accuracy 3. avoid opening credit accounts that are not needed 4. apply for several new credit cards 5. use all available credit 6. keep balances low

1, 2, 3, 6

Amanda wants to buy a new car. What questions of financial responsibility should she ask herself before she makes the purchase? 1. Do I need this car or should I walk, bike, and take the bus to save money? 2. Is this a reliable vehicle or will I have to make costly repairs? 3. What will my friends think when I buy this car? 4. Will I be able to afford the insurance, gas, maintenance of battery, oil, tires, and also repairs? 5. Will this new car be fast and my favorite color?

1, 2, 4

Anna is creating a personal balance sheet. She plans to list her bank account, jewelry, health insurance, and rent. Which statements about the balance sheet are correct? 1. Health insurance and rent will be listed in the liabilities column. 2. Anna will need to find the total value of her jewelry and bank account. 3. The period of the balance sheet will be one year. 4. Anna will add the value of the assets and subtract the value of the liabilities. 5. The items in the table will be listed in four columns.

1, 2, 4

Buying a new car can create a financial challenge because 1. car insurance rates will decrease over time. 2. car payments must become part of the budget. 3. car insurance rates will be higher than renter's insurance. 4. car payments are likely to exceed available income.

2

Freya wants to use her debit card to purchase a $135 tablet computer. What must Freya consider before using her debit card? Check all that apply. 1. She must be sure there is at least $135 in her bank account for the purchase. 2. She must check the interest rate on the debit card. 3. She must check to see if any automatic payments are scheduled for her account. 4. She must check her credit history. 5. She must make sure she will be able to make the monthly payments.

1, 3

How are balloon payment mortgages different from traditional mortgages? Check all that apply. 1. The term is shorter than for traditional mortgages. 2. Unlike traditional mortgages, the borrower pays no interest. 3. A large payment is due at the end of the term. 4. Balloon mortgages are not issued by banks. 5. Balloon mortgages are more commonly used by home buyers than traditional mortgages.

1, 3

You noticed a mistake: Your own records do not match the bank statement you just received. Which option describes the steps you should take to solve this situation? Check all that apply. 1. check my records first to see if the mistake is mine 2. call the bank first to demand a change to my statement 3. call the bank after making sure my records are correct 4. call a retailer before contacting the bank or reviewing my records

1, 3

Which statements about deposits are true? Check all that apply. 1. Deposits increase the checking account balance. 2. A deposit is money that is subtracted from a bank account. 3. Deposited money can be transferred electronically from one bank to another. 4. You cannot make a deposit at an ATM. 5. You can deposit a greater amount than the balance in the account.

1, 3, 5

Which transactions can increase the balance in a checking account? Check all that apply. 1. direct deposit of a paycheck 2. debit of $10 3. ATM withdrawal of $40 4. EFT from a different bank into the account 5. monthly bank fee of $5

1, 4

Choose the advantages of using a credit card. Check all that apply. 1. builds credit history 2. no monthly payments 3. no interest fees 4. small payments over time 5. emergency funds intact

1, 4, 5

APR = 14.5%, what is the monthly percentage rate?

1.21%

Fido wants to buy a new car. He will need to get a car loan. Fido decides to wait for a few months until his credit history improves. Which explains whether Fido is making a sensible decision? 1. Fido's decision is sensible because the selling price of the car should be less in a few months. 2. Fido's decision is sensible because the cost of the car loan should be less if his credit history improves. 3. Fido's decision is not sensible because he needs the car right away. 4. Fido's decision is not sensible because it does not matter if he buys the car now or in a few months.

2

Lenora is a college student with a student loan of $7,500. Her tuition is $3,200 per year. She owns $470 worth of text books and a has a laptop computer worth $950. She also has a meal plan at school for which she pays $250 per month. Which is one of Lenora's assets? 1. the meal plan 2. the text books 3. the student loan 4. the tuition

2

Sales tax is calculated 1. based on the number of items purchased. 2. using a percentage of the price of an item. 3. before a sale discount is applied. 4. as a percentage based on federal law.

2

When a person invests income, he or she... 1. spends no money in the short term and saves it all for the long term. 2. uses money in a way that will increase its value in the future. 3. spends income only on essential needs such as housing. 4. cuts out all discretionary spending for a set period to save money.

2

Which financial problems might cause a person to be considered a bad risk for a loan to purchase a home? Check all that apply. 1. applying for loans to pay for college 2. making late payments 3. having more debt than income 4. filing for bankruptcy 5. paying a credit card balance in full each month

2, 3, 4

Which of these outcomes become more likely for someone with strong personal finance skills? Check all that apply. 1. A person can avoid opportunity cost. 2. A person can be more prepared to meet basic needs. 3. A person can avoid financial decision-making. 4. A person can spend money thoughtfully to accumulate assets. 5. A person can spend wisely to avoid financial problems.

2, 4, 5

Henry is having trouble paying his rent and making minimum payments on loans and credit cards. Which should he consider? Check all that apply. 1. Apply for a larger loan at a different bank. 2. Create a budget to track income and expenses. 3. Apply for a credit card to pay for his other expenses. 4. Make less than the minimum payments on his loans and credit cards. 5. Talk to a consumer credit counseling service.

2, 5

Mr. Morgan earns $38,000 a year as a salesperson and a 5% commission on all his sales. He has a mortgage of $910 a month and pays $175 a month for utilities. Mr. Morgan owns a rental property for which he receives $680 per month. Which is a liability? 1. the yearly salary 2. the commission 3. the mortgage 4. the rental property

3

Personal finance skills have the most significant impact on an individual's 1. career 2. education 3. quality of life 4. neighborhood safety

3

When should fixed and variable monthly budgeted expenses first be planned? 1. at the end of each month 2. day by day during the month 3. at the start of each month 4. at least twice per month

3

Which of these would require a significant but temporary budget revision? 1. paying a recurring credit card bill 2. adopting a kitten from a shelter 3. replacing a broken dishwasher 4. purchasing a newly released movie

3

credit score ranking

300-560 bad or no credit 560-660 fair 660-725 good 725-760 very good 760-850 excellent

Barbara has $70.00 in her pocket and a $20 gift card. Which purchase will she be able to make without having to use her credit card? 1. a portable radio for $65.95 and speakers for $29.99 2. five books for $18.95 each 3. headphones for $25.99 and eight CDs for 8.99 each 4. six puzzles for $11.99 each and a board game for $15.89

4

What is the first step in the decision-making process? Take action. Get information. Form a decision. Identify the choices.

4

What is the most acceptable and easy way to revise a budget to allow for the purchase of a new couch? 1. Cancel renters' insurance. 2. Skip a car payment for a few months. 3. Advertise for a roommate to reduce rent. 4. Cook dinners at home instead of going out to eat.

4

fixed-rate mortgage (FRM)

A mortgage in which the interest rate does not change during the entire term of the loan.

Neveah has some money she wants to save until she goes to college in two years. She wants an account that will earn a little more interest. She should get a Neveah has some money she wants to save until she goes to college in two years. She wants an account that will earn a little more interest. She should get a [CD/savings/checking/money market] account.

CD

marginal cost

Extra cost of producing one additional unit of production.

Adjustable-rate mortgage (ARM)

a mortgage with an interest rate that increases or decreases on a yearly basis according to federal reserve interest rates amount a rate can change is usually capped (not going to go over a certain amount) often offer lower initial interest rates

disposable income

Income remaining for a person to spend or save after all taxes have been paid (net pay)

What effect would a tax increase have on gross income?

It would not affect gross income.

credit union

a nonprofit business that performs banking services but is owned by its members

credit history

a person's record of borrowing and repaying loans

balanced budget

a budget in which the amount spent is less than or equal to the amount taken in

interest

a charge or fee in exchange for borrowing money

bankruptcy

a legal release from obligation to pay all or some of one's debts in exchange for a forced loss of asset

balloon payment mortgage

a mortgage where the borrower agrees to make regular payments for a short term (often between five and ten years). the borrower pays interest and repays some of the principal. at the end of the term, the remaining principal is due immediately good for people who plan to sell the house before the term is over

credit cards

a small plastic card issued by a bank, business, etc., allowing the holder to purchase goods or services on credit.

savings account

an interest-paying account in which money is placed for extended periods. good for saving money. - allows deposits and withdrawals within limits - limit access to funds by check - helps users earn interest on money kept in the account

credit counseling service

an organization providing financial management help and advice to people with debt troubles

Vijay owns a house worth $250,000 with a mortgage of $150,000. He has $3,000 in stock investments and $1,700 in a checking account. He owns a piano worth $1,800. He also owns a car worth $18,000 and owes $6,000 in car loans. Vijay wants to create a net worth statement. What are Vijay's total assets, liabilities, and net worth?

assets- $274,500 liabilities- $156,000 net worth- $118,500

In which column on a check register should the total current amount in the account be entered?

balance

Becky wants an account that will let her spend her money as much and as often as she needs. She should get a [CD/savings/checking/money market] account.

checking

To minimize risk, investors should [not invest when risk is high/diversify their investments/invest their money in one place]. Interest that builds on the principle and the interest already gained is [simple/compound] interest. Money invested in a CD [is more diversified/has greater liquidity/is at greater risk] than money used to purchase a home.

diversify their investments compound has greater liquidity

default on a loan

failure to fulfill an obligation such as repaying back a loan

origination fees closing costs

fees charged by lenders on entering into a loan agreement to cover the cost of processing the loan fees charged by lenders related to obtaining loans

initial and long-term consequences of poor financial decisions

initial- extra fees, longer time in debt long term- being a credit risk, getting higher interest rates/having higher payments, staying in debt, wage garnishment, bankruptcy

In general, more limitations in a savings account results in a higher _________ _____.

interest rate

A fixed expense is one for which the amount is [estimated/known/unknown], and it should be considered [before/after] other expenses. A variable expense is one for which the amount is [known/unknown/estimated], and it should be considered [before/after] fixed expenses. Discretionary spending is the most [variable/fixed] budget item and the easiest to change.

known, before estimated, after variable

comparison shopping

looking carefully at all your options before purchasing

four types of payment options

mailing a check- 5-8 days early, no need to share banking info submitting an online payment- 1-2 days early, quick payment processing phone- paid immediately, has fees automatic withdrawal- may have discounts, always submitted on time, need to make sure you have enough money in your account

A credit score is based in part on employment and race. income and location. employment and trust. payment history and total debt.

payment history and total debt

savings bond

purchased from the government and sold back later/redeemed for a higher amount (interest)

A lender may not consider _____, ________ and _______ when determining creditworthiness and cannot refuse to consider every ________.

race, sex, national origin source of income

Both mortgages and auto loans are riskier for lenders. are riskier for borrowers. require a down payment in general. require minimum payments.

require a down payment in general

Which is an example of an income deduction? an unexpected salary cut wages lost due to illness vacation budget retirement savings

retirement savings

Tom receives two options for personal loans worth $9000 in order to pay for education. The first option has simple interest with a rate of 11%, and the second one has compound interest with a rate of 8% compounded once a year. If he repays the principal in one lump sum after three years, how much interest would Tom pay on each one, and which personal loan would be a better option?

simple- $2970 compound- $2337 compound interest loan is a better option, saves tom $633

savings and loan association (S&L)

specializes in helping homeowners (provides loans)

commercial bank

specializes in providing services to large businesses (commerce = businesses)

down payment

the amount a borrower needs to have on hand to obtain a mortgage

What does the value of collateral or down payment affect? Check all that apply. the amount borrowed the interest rate the lender's perceived risk the repayment schedule the credit cards available

the amount borrowed the interest rate the lender's perceived risk

principal

the amount of money initially borrowed from a lender as part of a loan/the amount of a loan still unpaid

credit card balance

the amount of money owed to the credit card company

borrow

to obtain money by promising to repay it

Which best describes a way people can use personal loans? to buy a house to buy a bicycle to pay for college to pay for groceries

to pay for college

invest

to spend money or time on an asset with the hopes that it will increase in value over time

six ways to withdraw money

writing a check, withdrawal slips, ATM, debit card, online transfer of funds, make online bill payments (EFT)

advantages and disadvantages of buying a home

advantages- build equity, constant payments disadvantages- higher upfront cost, responsible for maintenance costs, property taxes

advantages and disadvantages of buying a used car

advantages- cheaper disadvantages- already have mileage, less likely to have warranties

advantages and disadvantages of buying a car

advantages- you own the car at the end of the loan term, no mileage restrictions, you can sell the car at any time disadvantages- payments generally higher

withholding

amounts removed from gross income to pay for taxes and other expenses

withholdings

amounts removed from gross income to pay for taxes and other expenses

Advantages and disadvantages of buying a new car

advantages- no initial mileage, more likely to have warranties (cover some repairs) disadvantages- cost far more than leasing, will depreciate about 50% in 5 years

advantages and disadvantages of leasing a car

advantages- payments generally lower disadvantages- car must be returned at end of lease period, mileage restrictions, penalties for ending lease early

Claire wants to take out a small personal loan to renovate her kitchen. She borrows $3,000. Her loan has an annual compound interest rate of 15%. The loan compounds once each year. If Claire does not make any payments, how much will she owe after ten years?

$12,136.67

Aliyah's beginning balance at the start of the month was $1258.95. She made a car payment of $342.36, a paycheck deposit of $426.36, and a payment of $47.93. What is her new balance?

$1295.02

The Porter family has a net income of $5,000 and spend 30% on housing each month. How much do they spend on housing per month?

$1500

Natalie is balancing her checking account and notices that a deposit of $75.00 made on May 1st is missing from the statement. The balance on her bank statement is $80.30. What is the balance in Natalie's checking account?

$155.30

Adam earned $3100 this month. His expenses include food ($150), rent ($850), transportation ($110), clothing ($70), medical insurance ($90), and car insurance ($40). What is Adam's net income?

$1790

Yarin's gross pay for the year was $3,500. The federal income tax withholding from his pay was 9% of his gross pay. Yarin determined the federal income tax he owes is $115. How much of a refund can Yarin expect?

$200

Georgia's gross pay was $35,600 this year. She is to pay a federal income tax of 16%. How much should Georgia pay in federal income tax this year? Round to the nearest dollar.

$5696

At the beginning of March, Janet opened a checking account with her first paycheck of $153.82. During the month, she withdrew $40 from the ATM, wrote a check for $54.12 to pay for her cell phone, deposited a check for $215.70, transferred $75.00 to her savings account, and had a debit of $130 for sports equipment. What is Janet's balance?

$70.40

rent-to-own programs

- allows consumers with poor credit to obtain financing - do not have down payment but have the highest overall costs

secured credit

- credit that is backed by a valuable asset/collateral that the lender can take if the loan is not paid properly - this is less risky for lenders, so it usually has lower interest rates - ex: mortgage and auto loans

installment plans

- for large purchases - interest rates generally very high

commodities

- high risk investment - goods such as raw materials, metals, food, natural resources etc are purchased with the belief that the price will increase in the future - buy low, sell high

Lupe is a student who wants to open a bank account. Which type of bank is most likely the best option for her needs? 1. a retail bank 2. a savings and loan 3. a commercial bank 4. an investment bank

1

Paying for transportation to and from work is an example of a... 1. variable expense 2. fixed expense 3. short-term expense 4. discretionary expense

1

Emma has decided that she needs to assess the risk and return of buying an extended warranty for her new laptop for school. Which of these practical questions should she ask herself to assess the risk? Select three options. 1. Will the warranty cover the cost of any physical damage? 2. Should I buy a different model? 3. Would it be better for me to buy a desktop computer? 4. Is the cost of replacement less than the cost of the warranty? 5. Is the laptop worth the extra expense of the warranty?

1, 4, 5

A balloon payment mortgage makes the best sense for borrowers who are 1. fearful of taking risks when borrowing money. 2. planning on selling their homes before the term of the loan ends. 3. looking to avoid borrowing money from banks. 4. anticipating losing their jobs in the next few years.

2

The W-4 form is completed by an individual when he or she first starts a new job. What does this form help to determine? 1. The amount of money that an individual should receive in income. 2. The amount of money that should be returned for paying too much in taxes. 3. The amount of money that should be withheld in federal taxes. 4. The amount of many that should be withheld in state taxes.

3

What is a major difference between retail banks and credit unions?

Retail banks operate in order to earn profit, while credit unions are nonprofit.

Julie bought a house for $315,000 and has a $285,000 mortgage. She claims she has $315,000 in equity. Is she correct? If not, how much home equity does she have? Explain.

She is not correct. Equity is the value of ownership in an asset minus any debts owed on it. $315,000 - $285,000 = $30,000, so Julie has $30,000 in home equity.

What best explains the relationship between a borrower's credit score and a down payment requirement?

Someone with a high credit score may be required to make a lower down payment.

financing

To buy an item with credit; paying over time

credit score

a numerical rating that lenders use to make loan approval decisions; it measures how worthy a person is to receive loans

bank statement

a statement received monthly from the bank that shows the depositor's bank transactions and balances

checking account

an account that enables its holder to easily transfer money to others. it is convenient to pay bills and make purchases with, and the money is federally protected - transfer money to others using checks or electronic payments - access money using a debit card (ATM)

When applying for credit, what information should borrowers research? Check all that apply. fees government regulations interest rates introductory rates required repayments

fees, interest rates, introductory rates