Personal Finance Midterm Review (Chapters 1-6)
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
