DECA Personal Financial Literacy
Check Register
# column: enter any check #s associated with your transaction. Not always used. Date column: record transaction date 2 lines each transaction. 1st: record person/business transaction occurred. 2nd: record transaction reason. Thick black line separating each complete transaction entry. Check mark: record whether item has cleared w/ the bank. Mail a check to pay a bill: record in the register when you write check. May take days for check to be presented to bank & deducted from account. Once deducted, check column. Payment/Debit column: record transactions decreasing your balance. Deposit/Credit column: record transactions increasing your balance. -Balance Forward column first: explains any balance that was in account prior to starting this register. Blank fields: record new balance after you've subtracted a debit/added a credit. The amount of debit/credit should be recorded in the 1st line and the total balance in the account after the transaction should be recorded in the 2nd line
Chapter 7 Bankruptcy
(straight bankruptcy) is a liquidation form of bankruptcy that wipes out most debts in exchange for the giving up most assets. To get debts discharged, debtors must give up all their property except for certain exempted items. Exempted property is the possessions a bankrupt debtor is allowed to keep because they are considered necessary for survival
Chapter 13 Bankruptcy
(wage-earners plan) A reorganization form of bankruptcy for individuals that allows debtors to keep their property and use their income to pay a portion of their debts over three to five years
Saving Accounts
-A place for you to save money -You can make deposits and withdrawals -Banks typically pay interest on money in savings accounts -Interest is calculated as a percentage of what you have saved. -Minimum deposit required to open account -May charge fee if balance falls below specified minimum
Before granting you credit, a creditor will ask about your past credit performance:
-Did you pay your bills on time? -Did you pay your debts according to the loan agreement? -How much total credit did you receive? How much do you owe now? -How large are your payments?
Credit Card terms
1. Annual Percentage Rate (APR): The cost of credit expressed as an annual percentage. The Truth-in-Lending law requires lenders to include all loan costs in the APR. 2. Free Period (Grace Period) 3. Annual Fees 4. Transaction Fees 5. Method of Calculating the Finance Charge
Responsibilities of Consumer Credit (yourself)
1. Comparison shop for goods/services 2. Comparison shop for credit 3. Plan carefully 4. Buy for the right reasons 5. Understand your credit terms 6. Have the right attitude about using credit
Equal Credit Opportunity Act (1975)
1. Credit may not be denied solely because of religion, national origin, race or age (except when it may affect your ability to enter into contracts. Ex. minors are not "competent" parties)2. Credit may not be denied solely because gender or marital status3. A creditor may not ask any questions related to the aforementioned, and may not discourage a consumer for applying for credit
Creditors' responsibilities to you
1. Honesty in representing goods/services 2. Inform consumer about all terms 3. Use reasonable methods to contact consumer 4. Obey all truth-in-lending-laws
Responsibilities of Consumer Credit (creditors)
1. Pledge honesty and sincerity in the use of credit 2. Limit your spending to amounts you can repay 3. Make payments promptly and accurately 4. Communicate openly with creditor about inability to pay.
Credit Bureaus
A company that gathers, stores and sells credit information to business subscribers
Close-ended credit
A loan/flat amount issued for a specific period time. Installments paid until sum is paid in full (ex: mortgage/loan)
Chapter 11 Bankruptcy
A reorganization for businesses that allows them to continue operating under court supervision as they repay their restructured debts
Secured Loans
A secured loan, is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan Collateral: something pledged as security for repayment of a loan, to be forfeited in the event of a default. An example of a collateralized loan would be a car loan.
Deferred billing
A service available to charge customers at a later date, or to begin installment payments at a later date
Avoiding Unnecessary Credit Costs
Accept only the amount of credit that you need. Make more than the minimum payment. Do not increase spending as income increases. Keep the number of credit cards to a minimum. Pay cash for purchases under $25. Understand the cost of credit. Shop for loans. Take advantage of rebate programs.
Advantages and Disadvantages of Consumer Credit
Advantages- Purchasing power, Emergency funds, Convenience, Deferred billing, Proof of purchase, Safety
Advantages and Disadvantages of Bankruptcy
Advantages: Debts are erased, Exempted assets are retained, Certain incomes are unaffected, The cost is small Disadvantages: Credit is damaged, property is lost, some obligations remain, some debts can be reaffirmed, co-signers must pay.
Debts Not Forgiven/Discharged in Bankruptcy proceedings
Alimony and Child Support Student Loans Tax debt Criminal fines and debts Fraudulent debts (ex. CC debt within the last90 days) Dischargeable debt you incurred to pay off non-dischargeable debt
Consumer Credit Protection Act— (1968)
Also known as the Truth-in-Lending Law requires lenders to fully inform consumers about all costs of a credit purchase before an agreement is signed Lenders must: Disclose any finance charges State the APR Allow a grace period of three business days for a consumer to change their mind about a credit contract. Limit the consumer's liability to $50 after the consumer reports a lost/stolen credit card and $0 if the card is reported lost prior to its fraudulent use.
Service Credit
An agreement to have a service performed now and pay for it later (ex: Cable / Electric / Telephone / Gym Membership)
Unsecured Loans
An unsecured loan is a loan that is issued and supported only by the borrower's creditworthiness, rather than by any type of collateral. This is also called an uncollateralized loan. An example of a uncollateralized loan would be a personal loan or a student loan.
Financial Institutions
Are companies engaged in the business of dealing with the monetary transactions of individual and commercial clients -deposits, loans, investments and currency exchange Facilitate the flow of cash through the economy among consumers, businesses and government Are regulated by federal and state laws and monitored through the Federal Reserve System -central bank of the United States Include a wide range of organizations -such as banks, savings and loan associations, trust companies, credit unions and investment firms Exist to help individuals and businesses meet current and future financial goals -many financial service providers offer helpful information, interactive tools, practical strategies and more to their customers Offer many services and products, such as: checking accounts savings accounts personal loans business loans other loans debit cards credit cards trust accounts financial counseling
Depository Financial Institutions
Are organizations which accept deposits and provide loans Use deposits to provide personal and commercial loans Include: retail banks credit unions
Money Market Accounts
Banks offer customers money market accounts in order to have the funds to insure money market transactions • Similar to a savings account. • Requires a higher balance to avoid monthly fees. • Interest rates vary regularly based on money markets. • Limited check writing privileges. • Number of transactions limited- usually 6 per month
Getting Started with Credit
Begin with a savings account. Open a checking account. Open a store credit account. Get a small loan. Apply for a credit card.
Creditworthiness (5 C's of Credit)
Character, Capacity (ability), Capital (net worth), Conditions (external), Collateral (assets)
Why Credit Scores Matter?
Credit scores are decision-making tools that lenders use to help them anticipate how likely you are to repay your loan on time. Credit scores are also sometimes called risk scores because they help lenders assess the risk that you won't be able to repay the debt as agreed.
Fair Credit Billing Act
Creditors must resolve billing errors within a specified period of time and they must have a written policy for correcting such errors.
Checking Accounts
Easy access to your funds Write checks or use debit cards Different types of accounts with different options or packages Evaluate the different accounts' terms and benefits before deciding Many banks will require a minimum deposit of $50 - $100 to open a checking account
Credit Ratings
Excellent credit rating (A rating) Good credit rating (B rating) Fair credit rating Poor credit rating **You want to keep your credit score above 700.**
Major Credit Bureaus
Experian, TransUnion, Equifax
Fair Credit Reporting Act
Gives the consumer the right to know what is in their credit file and who has seen their credit file. If a consumer is denied credit, they may see their file at no charge within 30 days of credit denial.
Cashing a Check
If a check is written to you, it must be signed, or endorsed, before you are able to cash it.
Calculating Interest
Interest is a fee paid for using someone else's money. It is calculated as a percentage of the principal—the account balance or loan amount Simple interest is calculated based on the principal amount only. To calculate simple interest: Multiply the amount of Principal (P) times the Interest Rate (r) times the number of Time (t) periods that make up the duration of the loan.
Types of Bankruptcy
Involuntary, voluntary, chapter 11 bankruptcy, chapter 7 bankruptcy, chapter 13 bankruptcy,
Major Causes of Bankruptcy
Job loss Emotional spending Failure to budget and plan Catastrophic injury or illness
How to Choose a Bank
Make sure the bank is insured Check the fee schedule (maintenance fees, ATM fees, balance fees Determine the ease of depositing/withdrawing money (online deposits) Interest rates Online banking features Minimum balance requirements Branch availability Customer service Availability of funds
Average daily balance method
Most creditors use the average daily balance method for computing finance charges. Using this method, creditors calculate your balance on each day of the billing cycle and take an average for the billing period to calculate finance charges on Any payments made during the billing cycle become a part of the average as they reduce the average daily balance
Credit Unions
Offer many of the same services as banks -including checking and savings accounts, debit and credit cards, mortgage and auto loans and lines of credit Focus on helping their members save and borrow money and receive affordable financial services -offering higher savings rates and charging lower fees compared to most banks Are member-owned, non-profit financial institutions -owned and controlled by its members Are supervised and insured by The National Credit Union Administration Include: -Apple Credit Union -Navy Federal Credit Union -Pentagon Federal Credit Union (PenFed)
Deposit Slips
Printed forms provided by a bank on which customers can list all items being deposited; also known as deposit tickets
Retail Banks
Provide a wide variety of financial services for individuals, families and small businesses common services include checking and savings accounts, mortgages, credit cards and auto loans Brick and mortar or online only Are owned by shareholders and operate for a profit Include: Wells Fargo Bank of America PNC Insured by the FDIC- Federal Deposit Insurance Corporation (video) Insures your money up to $250,000 per financial institution. Not all financial institutions are FDIC insured. If you have more than $250,000 in cash accounts, you should consider splitting them into different financial institutions.
Sources of Credit
Retail stores, credit card companies, banks and credit unions, finance companies (ex. GMAC—General Motors), pawnbrokers, private lenders, life insurance policies
Protecting Yourself from Credit Card Fraud
Safeguarding Your Cards Sign cards immediately. Carry only cards you need. Keep a list of cards and information about them. Notify creditors when cards are lost or stolen. Watch card during transactions. Tear up any carbons. Do not lend cards or leave them lying around. Destroy expired cards. Don't give credit card information by phone to people or businesses you do not know. Keep receipts and verify charges on statements. Protecting Your Cards Online Deal with companies you know and trust. Look for secure site symbol. Review privacy policy. Look for site seal of non-profit watchdog group.
Types of Loans
Secured loans Unsecured loans Mortgages Auto loans Student loans Personal loan Payday loans
Why Credit Costs Vary
Source of credit Total amount financed Length of time you are making payments Ability to repay debt Type of credit selected Collateral Prime rate Economic conditions Business's cost of providing credit
Credit Reports
Summary of information (- and + items) Public record information (lawsuits, divorce, etc....) Credit information (listing of creditors) Account detail (account balances/credit limits) Requests for credit history (inquiries) Personal information
Solving Credit Problems
The 20/10 rule Credit cards are loans, so avoid borrowing more than 20 percent of your annual net income on all of your loans (not including a mortgage). And payments on those loans shouldn't exceed 10 percent of your monthly net income. Credit counseling Debt adjustment Credit repair Credit scams
Responsibilities of the Fed
The Federal Reserve System (FED) is the Central Bank of the United States -manages the nation's supply of money and credit and operates at the center of the nation's financial system; -keeps the wheels of business rolling with currency, coin, and payments services, such as electronic funds transfer and check-clearing; -serves as the banker for the federal government by providing financial services for the U.S. Department of the Treasury; -supervises and regulates a large share of the nation's banking and financial system; and -administers banking and finance-related consumer protection laws. -Provides financial services to the nation's banks -Regulates banks so that they follow the laws -Sets monetary policy
What's the Fed?
The Federal Reserve System is often known as the FED. It is our central banking system that has several functions. There are several Federal Reserve Banks in the United States, which are broken down into 12 districts.
Voluntary Bankruptcy
The debtor files a petition with a court to be declared " insolvent"
Your Credit Report and Score
The three major credit bureaus are: Equifax Transunion Experian The two most common types of credit scores: FICO Score and VantageScore. These are companies that calculate credit score. The two most common types of credit scores: - FICO Score - VantageScore. There are also industry specific scores.
Fair Debt Collection Practices Act
This law prohibits the use of threats, obscenities and false and misleading statements to intimidate the consumer into payment. It also restricts the time and frequency of collection practices.
State of VA Asset Exemptions
Up to $5000 in household goods and furnishings. Up to $1000 in wearing apparel. Up to $2000 in equity in a motor vehicle. Wedding and engagement rings, and the family bible, without a limit as to value. Up to $10,000 in "tools of the trade", plus additional articles if the debtor is engaged in agriculture. Up to $5000 in family portraits and heirlooms. A burial plot. Animals owned as pets. Medically prescribed health aids. 75% of disposable wages. IRAs, 401(k) Plans, and other retirement plans. Personal injury and wrongful death claims, awards, and the proceeds thereof.
Adjusted Balance Method
When creditors use the adjusted balance method, they apply the finance charge only to the amount owed after you've paid your bill each month
Previous balance method
When creditors use the previous balance method, they impose the finance charge on the entire amount owed from the previous month
Withdrawal Slip
When visiting a bank, you need to complete a withdrawal slip in order to withdraw funds from your account
Bankruptcy
a legal process that relieves debtors of the responsibility of paying their debts or protects them while they try to repay. Bankrupt debtors are said to be "insolvent", meaning that they have insufficient income and assets to pay their debts
Auto Loan
a loan used to purchase a car or truck
Mortgage
a loan used to purchase real property or real estate such as a house
Payday loan
a small dollar short-term advance used as an option to help a person with small, often unexpected expenses. These loans carry extremely high interest rates
Student loan
a type of loan designed to help students pay for college tuition and related education expenses
Credit Report
a written statement of a consumer's credit history, issued by a credit bureau to its subscribers
Account Statement
allows you to view how you have managed your money for the month. The statement will reflect a summary of all transactions, and a breakdown of every transaction within the period. Easiest way to detect any errors that might cocur
Personal Loan
are known as "unsecured" debt because they are not backed by collateral
Compound Interest
calculated based on the principal and on any interest that has already been added to the principal
Credit
money borrowed to buy something now, with the agreement to pay for it later
Line of credit
pre-established amount that can be borrowed on demand with no collateral
Open-ended credit
revolving; credit as a loan with a certain limit on the amount of money you can borrow for a variety of goods and services (ex: credit card)
Loan
the act of giving money, property or other material goods to another party in exchange for future repayment of the principal amount along with interest or other finance charges
Credit History
the complete record of your borrowing and repayment performance
Certificate of Deposit
• Allows you to invest your money with a set interest rate for a pre-set period of time. • Higher interest rate, as money is inaccessible. • Life of a certificate ranges from a few months to several years. • Early withdrawal carries substantial penalty.
Here are some of the tasks you can complete either online or through mobile banking:
• Check account balances • View transactions • Transfer money • Deposit checks • Pay bills • Manage account information • Manage account preferences • Contact the bank
