Personal Finance Chapter 1
Long terms
More than 5 years
Intermediate goals
2 to 5 years
Higher interest rates
Individuals with poor credit ratings pay...
Consumer spending is an economic factor that can impact...
Inflation, employment, wage, global, interest
Future value
The amount to which current savings will increase based on a certain interest rate and a certain time period
Lenders
inflation has more of a negative impact on:
Personal values, economic factors, life situtation
3 main elements that affect overrall financial planning
False
CPI is an accurate measure of inflation in the U.S.
Present value
Current value for a future amount based on a particular interest rate for a future time. Aka discounting
Deflation
Decline in prices
Money
Interest rates represent the true cost of...
Consumable product
Items used relatively quickly; food, clothing, entertainment
Time value of money
Key factor in making financial decision is...
Time value of money
Measures the increase in the amount of money in a savings account as a result of interest earned
Opportunity cost
What a person gives up by making a choice
Short term goals
Within a year; Vacation, small debts
opportunity costs
You can invest your money in the stock market now; however that would require a trade-off or:
increased spending-increased demand
a cause of inflation is a decrease in supply of products when there is..
Durable product
infrequently purchased, expensive items; cars, appliances; tangible items
demand and supply of goods and services
interest rates are affected by the following:
Rule of 72
72/percent
Inflation
A rise in the general level of prices
True
An increase in demand of goods and services increases employment potential
Consumer price index
Measure of the average change in the prices urban consumers pay for a fixed basket of goods and services
True
More imports than exports reduces funds available for domestic spending, investment
Federal Reserve system
Nation central bank
Personal factors that impact financial decisions
Personal beliefs, age, income, household size
Present value
The current value for a future amount based on a certain interest rate and a certain time period; also referred to as discounting
Risk premium
The extra amount that you can expect to receive for investing in an instrument due to factors such as expected inflation and
consumer spending, business expansion
The fed attempts to make adequate funds available for...
Federal reserve
The fed is maintaining an adequate money supply
Demand
The main cause is an increase in consumer spending (demand) without equal increase
Adult Life Cycle
The stages in the family situation and financial needs of an adult is called the
Decrease
When consumer saving and investing increase
an intermediate goal that affects a long-term goal
saving for four years for a down payment on a house affects how soon you are able to purchase a home
setting an action-oriented goal
saving money now for retirement
Future value computations
Compounding allows the future value of a deposit to grow faster than it would if interest were paid only to the original deposit
Financial Plan
formalized report that summarizes your current financial needs and recommends future financial activities
necessities; nonessential
hidden inflation exists when the cost of ___ rise at a higher than items
persons with fixed incomes
the demographic that is most affected by inflation is:
supply
the main cause of inflation is an increase in consumer spending (demand) without equal increase in:
Financial Planning Process
1. determine current financial situation 2. determine financial goals 3. alternative courses of actions 4. asses and consider other factors 5. create and implement financial action plan 6. review and revise financial plan
number and age of household members, age, employment, martial status
what are the four situational influences for financial decisions?
Annuity
Series of deposits or payments
Financial Planning Activities
Obtaining Planning Saving Borrowing Spending Managing Risk Investing Retirement and Estate Planning
Labor force, government, business
What institutions collectively create the national economy
decrease
When the level of exports of U.S. made products is lower than imported goods, this will typically cause the money supply to: