SFL 260 Exam 2

Know the average amount of debt for each person in the United States (combining personal debt and the national debt of the United States)

$120,000

Know what homeowners insurance generally covers

*Structure*: cost of rebuilding or repairing the home *Contents*: cost of replacing personal property that is damaged, destroyed or stolen *Liability*: responsibility for injury to people or damage to property

Know the 5 C's of credit

-character -capital -capacity -collateral -conditions

Know what LDS leaders have said are potentially legitimate types of debt

-education -modest home -basic automobile

According to church leaders, what are potentially legitimate types of debt?

-modest home mortgage -education -basic transportation

Know what categories make up the FICO credit scores

-payment record -total amount you owe -length of your credit history -application history -credit mix

Know what items are totally deductible

1) Home mortgage interest 2) Charitable donations 3) State and local income taxes paid (up to $10,000) 4) Real estate taxes paid 5) Medical and dental expenses (amount that is over 7.5% of AGI)

Know the steps for getting out of debt

1. recognize and accept that you have a debt problem 2. stop incurring debt. Don't buy anything else on credit 3. make a list of all your debts 4. look for many different ways fo reducing debt, not just one 5. organize a repayment or debt-reduction

Know on which income tax form you report itemized deductions

1040 form, schedule A

Know the FICO score range for those with excellent credit

720+ (excellent) 680-719 (good) 620-679 (fair) less than 620 (poor)

Which is the correct sequence for finding your family's federal income tax?

AGI, taxable income, tax liability, taxes due (refund)

Know the four ways to manage risk

Avoid, Reduce, Assume, Transfer

Know which tax credit yields the greatest benefit to married BYU students with children and modest incomes

Earned income tax credit (EITC)

Know what the numbers for liability insurance mean

Example: 100/300/50 $100,000 per person for bodily injury liability coverage $300,000 per accident for bodily injury liability coverage $50,000 per accident for property damage

Know who needs life insurance

If you have anyone that substantially depends on your income (spouse, children, etc.) you need insurance

Know the cardinal rules when using credit cards

Pay off credit card on time (or earlier) every month Keep track of spending as you go If you can't do these things, perform "plastic surgery" on your cards

Pam and Jim have been happily married for 30 years and have been successful as partners in a family scrapbooking company. Now they are now ready to retire and their residual income will put them in the 35% marginal tax bracket. Thankfully they made a wise investing decision in the lean, early years when their tax rate was only 10%. Now they will save greatly on their tax liability. What type of investment account will allow them to make tax-free withdrawals?

Roth IRA

Know the different types of taxes

Taxes on purchases (sales tax, excise tax) Taxes on property (property taxes, personal property taxes) Taxes on wealth (estate taxes, inheritance taxes Taxes on earnings (income and payroll taxes)

Know ALL of the differences between whole and term life insurance

Whole life insurance: premiums cover death benefit plus an investment plan with modest but guaranteed returns -investments create cash value -eventually you have "paid up" life insurance and no premiums -much more expensive per month Term life insurance: premiums cove death benefit only, pure insurance -contains no cash value -much less expensive per month

When you combine the total personal debt in the United States with the national debt of the United States, how much debt is there for each person in the United States?

about $120,000

Know what is included in gross income

active and passive income, alimony, business income, distributions from taxable individual retirement accounts, tax refunds, royalties, farm income, etc.

According to the textbook, how often should you review your credit report to ensure its validity?

at least annually

Elder Marvin J. Ashton stated that it is necessary to have four types of insurance. What are they?

automobile, medical, homeowner's, and life insurance

Know the proportion of total income that the average person pays in overall taxes

average of 25-35%

Which of the following is(are) not an advantage(s) of term life insurance?

builds cash value

Understand collision vs. comprehensive auto insurance

collision: pays for damage of your car resulting from any collision with another vehicle or non-living object regardless of whose fault it might be comprehensive (OTC): covers damage of hailstorm, earthquake, lightning strike, windshield, etc.

_______ automobile insurance covers the insured person's vehicle against things such as hail damage, theft, falling objects, collision with a giraffe, and windshield damage.

comprehensive

The "Tax Planning Step 2" video talks about common itemized deductions. Which of the following expenses does NOT count as an itemized deduction?

contributions to a traditional IRA

According to the video called "Credit Ahoy!" found in the introduction of the module on Credit and Loans, Dr. Israelson points out how the per capita debt levels in the US have changed from 1970 to 2010. Which statement best reflects Dr. Isrealson's observations?

debt levels have gone up by more than double

Which of the following is not a feature of the Affordable Care Act (ACA)?

dental checkups are fully covered

Which tax credit would yield the greatest financial benefit to a married BYU student earning $19,400 per year with three children?

earned income tax credit

True or False. If you do not use a credit card, you generally should close the credit card account.

false

True or False. Installment loans are also known as balloon loans. Normally these loans are used for short-term lending of one year or less. This type of loan is repaid in one lump sum, including interest, at the end of the specified term.

false

True or False. Tax credits are not as valuable as itemized deductions because they only reduce your taxable income.

false

Barney and Betty have been married for just under a year now, and the exciting time has finally come for them to pay their taxes together! Which of the following is their first step in calculating how much they owe in taxes?

finding their adjusted gross income

Know all of the steps for calculating one's federal income tax

gross income minus adjustments equals AGI minus deductions equals taxable income times tax rate equals tax liability minus tax credits equals tax due or tax refund

variable-rate loans

have and interest rate that is adjusted at different intervals over the life of the loan

Against what losses should you most likely insure yourself (transfer risk to others)?

high severity and low frequency

Know the popular benefits of the Affordable Care Act

if anyone gets extremely sick, insurance companies cannot terminate coverage or limit the amount of coverage wellness and pregnancy exams are now free to the patient young adults may stay on their parents health insurance until the age of 26

Know when you should purchase renters insurance

if you have items in your apartment or house that are worth a lot of money

Understand the "grace period" as it applies to credit cards

if you pay the balance in full within the grace period, the interest is forgiven if you do not pay back within the grace period, you are liable for all the interest charged from the moment you made the purchase *pay things off before the grace period ends

Which two taxes are levied against the earnings of workers?

income tax and payroll tax

President J. Reuben Clark Jr. once warned that "Once in debt, ________ is your companion every minute of the day and night, you cannot shun it or slip away from it . . . and whenever you get in its way or cross its course or fail to meet its demands, it crushes you."

interest

In the "Earned Income Tax Credit" video, Dr. Hill said working BYU students with children can "make out like a bandit" by utilizing the earned income tax credit. How is this?

it brings your tax liability to zero and gives you a dollar for dollar refund after that

family loans

least expensive loans

When federal income taxes were first established in 1913, what percentage of the population was required to pay federal income taxes?

less than 1%

convertible loans

loans in which interest rate structure can change

fixed-rate loans

maintain the same interest rate for the duration fo the loan

Know what your goal should be in relation to taxes

minimize the amount of money you pay in taxes in order to maximize your resources to enhance your financial stewardship

student loans

often used to pay for higher education and have low, federally subsidized interest rates

Know how to improve you FICO credit score

page 58

Know the greatest contributor to your FICO credit score

payment record

In return for covering certain losses, you pay the insurance company a __________ on a regular basis.

premium

Whole life insurance pros and cons

pros: -builds cash value -premiums stays level -some policies can pay their own premium with internally generated dividends -tax-deferred growth of cash value cons: -very expensive compared to term -high commissions -low rate of return compared to stock investments -complex -illustrations can be misleading

Term life insurance pros and cons

pros: -inexpensive -easy to understand -low commissions -can convert to a permanent policy later cons: -premiums increase as the insured ages -no cash value -generally can not be purchased after age 65

installment loans

repaid at regular intervals-each payment includes part of principal and some interest (usually used to purchase cars)

Focus on the Affordable Care Act

requires nearly everyone in the US to have qualifying health insurance or to pay a penalty

Know the recommended number of credit cards that you should actively use

rotate active use among two or three cards at any one time

automobile loans

secured by the automobile the loan is paying for

payday loans

short-term loans of one or two weeks and are secured with a postdated check

unsecured loans

signature loans, do not require collateral and are generally offered only to borrowers with excellent credit histories

Know whether or not your spouse's credit score will be considered when you apply for a mortgage

the credit scores of both husband and wife are considered

Know what "marginal tax rate" means

the rate at which the next dollar earned is taxed

True or False. It may be useful to obtain and use a credit card in order to build up a credit history to enable you to qualify for a home mortgage when the time comes to buy a home.

true

True or False. Secured loans use one of your assets, such as a car or boat, as collateral to guarantee that the lending institution will get the loan back even if you fail to make payments.

true

True or false. A higher premium payment generally means you'll have a lower deductible.

true

True or false. Purchasing insurance and investing products separately usually results in a higher yield on investment than if you were to bundle the two together (e.g., whole life insurance).

true

The American Opportunity credit is a partially refundable tax credit that many students can qualify for. Which of the following expenses count toward this credit?

tuition, school fees, and required materials like textbooks

Know the relationship between deductibles and premiums

typically higher deductibles have lower premiums and lower deductibles have higher premiums

security loans

use one of your assets as collateral to guarantee that the lending institution will get the amount of the loan back even if you fail to make your payments

single-payment loans (balloon loans)

used for short-term lending of one year or less may be used to temporarily finance a purchase until more permanent, long-term financing can be arranged repaid in one lump sum including interest at the end of the term