Personal Finance Chapter 3

SHORT ANSWER: Explain why inflation makes it difficult to save long-term in a traditional savings account

Because the inflation rate is usually greater than 1% so the purchasing power of your money decreases.

what is impulse shopping?

Buying on a whim or without giving it much thought.

SHORT ANSWER: give 3 reasons to start saving or investing for retirement as early as possible

1-more time for interest to build up and compound 2- you can save up a lot to have safe for emergencies 3- You can totally safely build your money without risking a lot in investments

Which ranks as the best savings options from highest to lowest?

1. a ten year CD 2. A 5 year CD 3. An online savings account (pays a little more than traditional) 4. Traditional bank savings account

Scenario of a girl who's trying to split her paycheck b/w savings and checking. What advice would you give her?

10-20% to savings and the other 80-90% to checking

A representation of a realistic interest rate for nowadays

2% is the correct answer

Experts recommend that you accumulate ____________________ of expenses in your emergency fund?

3-6 months

50-20-30 Rule

50% of your income goes towards necessities, 20% goes towards savings, debt, and investments 30% goes towards "wants"

which accounts allow you to write checks from their account? (Checking, savings, money market)

Checking- yes savings- no money market- yes but limited

What are 3 options an 18 year old opening their first savings account should consider?

FDIC insurance, interest rate of at least 0.01%, and a minimum deposit of $50

True or false: historically, savings accounts earn higher returns than investments in the stock market

False, stocks tend to have much higher returns than savings accounts. They vary more, but it still tends to be higher

A new cellphone, college tuition, and a house down payment might be examples of a short-term, medium, and long-term goals

I think it's asking for examples so these are good

SHORT ANSWER: Why would it be a great idea to set up an automatic transfer every pay period into your savings account?

If you set up automatic transfer you don't have a chance to accidentally spend your savings money as it goes directly where it needs to. Like taking out taxes from each paycheck before you even see your money, automatic transfer to your savings will set you up so you don't feel like you're losing money particularly.

SHORT ANSWER: provide 3 important factors to consider when choosing between two different savings account options

Interest rates, fees, ATM locations, online banking options, ability to withdraw or transfer funds.

Why is investing a better option than saving when it comes to planning for retirement?

Investments historically have higher returns than the inflation rate, so your money can actually grow.

If you follow the 50-20-30 rule of budgeting, the 50% you put your _________, the 20% you put towards ___________, and the 30% you put towards____________?

Needs, savings, wants

Pick best description of a savings account from 4 descriptions

Pays you interest on the money you put away for later.

When should you start saving for your retirement?

Pretty much as soon as you can when you have a full-time job

Describe savings vs investing

Saving is putting away money for later use in a safe place, Investing means taking some risk and buying assets that will ideally increase in value and provide you with more money than you put in, over the long term

Simple interest vs. compound interest?

Simple interest is calculated only on the principal amount of a loan. Compound interest is calculated on the principal amount and also on the accumulated interest of previous periods, and can thus be regarded as "interest on interest."

True or false: saving a certain percentage of each paycheck and depositing it directly into your savings account is an effective strategy for personal saving?

True

How is an online savings account different from a traditional savings account?

Typically higher rates and can only access online.

SHORT ANSWER: explain the difference between saving and investing

When saving, you put your money into a safe place (like a bank) so that it stays there until you need it. Banks give low interest rates that will make you a tiny bit of money as your money just sits there. Investing is more risky as you buy things like stocks that both rise and fall. However, when done in a smart way, investing will return a lot more profit than saving.

What does "Keeping up with the Joneses" mean?

You want something just because someone else has it.

Certificate of Deposit

a type of savings account usually issued by commercial banks, which restricts your access to the money you invest but offers much higher interest rates than those associated with regular savings accounts

What does it mean when a bank says that their savings account earns 1% interest over a certain period of time? (what is the period of time?)

apparently it's annually

Be able to understand "living paycheck to paycheck" and the percentage of Americans today that live paycheck to paycheck

living paycheck to paycheck = all the money in a paycheck is spent on current expenses like food, housing, and other bills and necessities. Then, there is nothing left to save or invest. The percentage varies but google just said 54%

Do you typically need at least $10,000 to open a savings account?

no

true or false: the majority of Americans do not have an adequate emergency fund or sufficient amounts saved for retirement

true