FSOS 3101 Final (Study Quizzes), (1-3), (4-6), (10-11), 13, 14, 15, 17, Consumer Credit Laws, Exam 1, 2, 3, 4 Personal Finance
A. Introductory APR
"teaser" rate for a short period to tempt you to borrow
What's a nice minimum for an emergency fund?
$1,000
1. The Thomas family projects a budget deficit of $250 in January and $450 in February with surpluses the rest of the year. Their revolving savings fund should be at least...
$250 + $450 = $700
a $1,000 tax deduction saves ______ in taxes if you are in the 25% bracket, but a $1,000 tax credit saves you ________.
$250; $1,000
2. Taxable Income Formula
(Total Income) - Exclusions, - Adjustments - Exemptions - Deductions = Taxable Income
Hit 5 Financial Marks While You Are in Your 30s
- have about 3-6 months of emergency savings - put 15% of your income into your retirement savings - buy a home - start an investment portfolio for non-retirement goals - pay off student loans and credit card debt
FED's goals? (3)
- inflation at 2% or a bit lower - interest rates at 3% or a bit lower - unemployment rate at 5% or a bit higher
Keys to Long-Term Financial Stability
- live below your means - have an emergency fund to handle financial surprises - pay off credit cards and student loans (debts) - save and invest for your future
4. HMO Insurance (4)
- smaller premiums - least choice - primary care MD needed - must stay in network
4. Adjustable life insurance allows you to change ____, ____, ____ on your policy. (3)
- the premium - the face amount - the rate of cash-value accumulation
2. Iris Rosales is an unmarried college student age 21, and is claimed as a dependent on her married parents' tax return. What is the maximum number of personal exemptions Iris can legally claim on her own tax return?
0
Snowball of Inflation (3 Steps)
1. In response to the increases in the costs of labor and raw materials, manufacturers will charge more for their products. 2. Lenders, in turn, will require higher interest rates to offset the lost purchasing power of the loaned funds. 3. Consumers will lessen their resistance to price increases because they may fear even higher prices in the future.
5 Points to Raise in an Interview
1. Let me tell you about the time that I solved a similar problem. 2. I would like to understand that better, please clarify. 3. I saw that announcement about your company on a website. 4. Why did you come to work here? 5. I would love the opportunity to join this company.
4 - steps in calculating your income taxes (8):
1. determine total income 2. determine gross income after subtracting exclusions 3. subtract adjustments to income 4. subtotal 5. subtract the value of your personal exemptions 6. apply tax table/schedule to determine liability 7. final tax liability minus tax credits 8. calculate balance owed or refund
Five Fundamental Steps in the Financial Planning Process
1. evaluate your financial condition relative to your education and career choice 2. define your financial goals 3. develop a plan of action to achieve your goals 4. periodically develop and implement spending plans to monitor and control progress toward goals 5. review your financial progress and make changes as appropriate
Victoria Basset Eau Claire, Wisconsin tax story on Tax Brackets: she has $59,000 of income: $10k is not taxed, the next $9k is taxed at 10%, the next $28k at 15%, the remaining $12k at 25%. Therefore, Victoria is in the __% marginal tax bracket because.... and her federal income tax liability is about $8k.
25%; the last dollar she earned is taxed at that level
Increasing the waiting period on a disability income policy from ___ to ___ days can significantly reduce the premium.
30; 90
Most homeowner policies cover contents and personal property for up to ___% of the insured value of the house.
50%
Most companies will not write disability income insurance policies for more than __%-__% of the insured's after-tax earnings.
60% - 80%
Consumer spending accounts for about __ (percent) of the total U.S. economy.
70%
1. The first step in the budgeting process is to
?
Consumer Installment Loan
A loan used to pay for personal expenses for you and your family over a set term or period of time.
Conditional Sales Contract
A sales contract that includes conditions that must be met either before or after the sale is completed.
low-balling strategy
A salesperson offers a product—for example, a car—for a very low price. Once the customer agrees, the salesperson may claim that the manager did not approve the price or that there will be additional charges.
Earnest Money
A sum of money given to bind an offer or agreement.
Investment Policy Statement
A written document that spells out the relationship between an investor and his or her financial advisor and guides how the advisor will invest the person's money; it should detail the person's investment philosophy, financial situation, and the risks he or she is willing to take, as well as what tasks the advisor will perform.
A successful financial plan includes: -specified values that underlie the plan -explicitly stated financial goals -logical and consistent financial strategies -all of these
All of these
APR
Annual percentage rate; the annual rate of interest that is charged for using credit
A. Personal Balance Statement
Assets - Debts = Net Worth
You should be contributing the maximum into any available tax-sheltered retirement plan before you consider _____________ as a retirement savings vehicle.
Cash Value Life Insurance
The two most useful financial statements are ____ and ____
Cash-flow statements and balance sheets
A. Debts Examples
College Loans, House Loans, Car Loans
How is inflation measured?
Consumer Price Index (CPI)
Health benefits provided under Medicaid are the same or differ from state to state?
Differ
Truth in Lending Act
Ensures that consumers are fully informed about the costs and conditions of borrowing; keep borrowers informed of APR; 3-day cooling-off period to cancel contracts; liable for first $50 on stolen/lost credit card
Current Yield
Equals the bond's fixed annual interest payment divided by its bond price
Future Value of Lump Sum
FV = (Present Value of Sum of Money)(1.0 +interest in decimal)^number of years FV = (PV)(1+i)^n
ATM cardholders are liable for only the first $50 of unauthorized use if they notify the issuing company within five business days after the loss or theft of their card or PIN
False
Both alimony and child support received are considered part of gross income for income tax purposes
False
Closing credit card accounts will increase your credit score
False
Contributions to a Roth IRA and a Coverdell education savings account are both tax-deductible and earnings accumulate tax-free
False
Credit unions typically offer the widest variety of financial services
False
Interest income is reported to the recipient on a W-2 form
False
Lenders are not allowed to discriminate among applicants
False
Misrepresenting a few small facts or exaggerating a bit during an interview is expected and should not have a negative impact during a job interview. Failure to obtain a job offer after an interview is most likely due to some failing during the interview
False
Numerous employee benefits are not included in gross income
False
Stock brokerage firms are federally insured institutions
False
Student loan interest paid may be taken as an itemized deduction
False
T or F: A living will addresses financial issues should one become mentally incapacitated.
False
T or F: Federal regulations require that interest must be paid on security deposits.
False
T or F: Insurance that covers the cost of one's annual vision checkup and one pair of glasses annually would typically be considered important insurance.
False
T or F: Life insurance sold on-line should be avoided?
False
T or F: Long-term care insurance replaces a portion of the income lost when you cannot work because of illness or injury.
False
T or F: Making the minimum payment on a credit card that you continue to use will bring your balance down over time.
False
T or F: Married couples who are both covered by a health care plan at work should maintain both plans for even broader coverage.
False
T or F: Needs and wants should both be considered necessities.
False
T or F: Premium payments for a cash-value life insurance are tax deductible.
False
T or F: Premium payments for a cash-value life insurance policy are tax deductible.
False
T or F: Social Security survivor's benefits end when the youngest child reaches age 21 or graduates from college, whichever comes first.
False
T or F: The best place to make your final purchase decision is at the place of purchase.
False
T or F: The death benefit of a life insurance policy is always the same amount as the face value.
False
T or F: The insured person retains all rights and privileges granted by a life insurance policy, including the right to amend the policy and the right to designate who receives the proceeds.
False
T or F: The large-loss principle recommends that you insure the losses you can afford to suffer and assume (accept) the losses that you cannot afford to suffer.
False
T or F: Uninsured motorist coverage is not recommended because it is expensive and state laws require all drivers to carry liability insurance.
False
T or F: Variable life insurance is also called flexible-premium variable life insurance.
False
The IRS disallows deductions for expenses for business-related trips
False
The money you receive back because you have overpaid your taxes is called a tax return
False
The most common mistake in a résumé is mentioning your specific accomplishments from previous jobs
False
There are no fees charged for a stop-payment order
False
True or False: A balance sheet describes an individual's financial progress over a period of time, generally a year
False
True or False: A business cycle is a pattern of economic activity that includes an expansion, peak, contraction, and trough
False
True or False: A family with two income earners will always need a greater amount of cash reserves than a family with one earner
False
True or False: An employee benefit is compensation for employment that takes the form of wages, salaries, commissions, or other cash payments
False
True or False: Compounding occurs when earnings are withdrawn from a savings or investment account each period
False
True or False: Financial planning focuses primarily on spending wisely
False
True or False: Financial planning is a single, customized plan regarding a person's financial affairs
False
True or False: Salaried employees are paid overtime, and the majority of college graduates have salaried positions
False
True or False: When faced with an unexpected major expense, you should consider withdrawing money from your retirement plan
False
True or False: the final step in career planning is career fields identification
False
You do not have to include your e-mail address or phone number at the end of the cover letter. After mailing off a cover letter, you should wait at least a month before you contact the employer
False
T or F: Arbitration binds both parties.
False - may or may not.
What government administers the National Flood Insurance Program?
Federal
FICA
Federal Insurance Contributions Act
Which HO form is especially written to meet the needs of condo owners?
HO-6
People with hazardous occupations (police officers) or dangerous hobbies (skydivers) are sometimes required to pay (higher or lower) insurance premiums?
Higher
A. Assets Examples
House, Car, Savings Account
Roth IRA
IRA funded with after-tax money (and thus it is not tax deductible) that grows on a tax-deferred basis; withdrawals are not subject to taxation
Coverdell Education Savings Account
IRS approved way to pay for future education costs for a child younger than 18 where the earnings accumulate tax-free and withdrawals for qualified expenses are tax-free
People are (de/inc)reasingly using the internet to shop for big ticket items.
Increasingly
Is Inflation a good thing?
Inflation can be beneficial in moderation bc it encourages job creation and economic growth
Is insurance underwriting done by the insurance agent or the insurance company?
Insurance Company
Long Term Care Insurance
Insurance coverage that provides a daily monetary benefit to people who are chronically ill and who require living assistance either at home or in a residential facility
4 - IRS
Internal Revenue Service
Investment Philosophy
Investor's general approach to tolerance for risk in investments, whether it is conservative, moderate, or aggressive, given the investor's financial goals
A. What is a good Liquidity Ratio?
It is preferred to have 3 to 6 months of liquid assets in an emergency fund - this would be a ratio of 3 or 6
When does low-balling typically occur?
JUST before the close of a sale
4. What kind of insurance is it difficult to apply the principle of indemnity for?
Life Insurance
Term Life Insurance
Life insurance that pays a death benefit if the policyholder dies within a specific time period, but has no value outside of this.
What kind of insurance is most often overlooked by individuals?
Long-Term Disability Income Insurance
When considering insurance, what is more important to consider... loss frequency or loss severity?
Loss Severity
Fair Debt Collection Practices Act
Prevents abuse by professional debt collectors; does not apply to banks or other businesses that collect their own accounts; collectors can contact a person other than the debtor only to receive the debtor's location; debtor cannot be contacted at an inconvenient time/place; all harassment prohibited, including violence, annoying phone calls, etc.
Equal Credit Opportunity Act
Prohibits discrimination in giving credit on the basis of sex, race, religion, marital status, age, or receipt of public assistance; questions about these areas may only be asked if they relate directly to repayment of the loan; applicants must receive notice of decision within 30 years; must have reasons if denied the loan
Fair Credit Reporting Act
Protects the privacy and accuracy of information in a credit check; if refused credit, a consumer can request from the lender the name and address of the credit bureau issuing the report; the credit bureau must provide if asked; bureau must correct/explain any errors pointed out in consumer's file
Term Life Insurance is also referred to as ______ ________.
Pure Protection bc because it pays benefits only if the insured person dies within the time period of the policy
Insurance addresses speculative risk or a pure risk?
Pure Risk
4. The decision not to buy collision insurance on an old car is called...
Risk Retention
Interest Rate Risk
Risk that interest rates will rise and bond prices will fall, thereby lowering the prices on older bond issues
Standardized Expense Table
SEC-required information that describes and illustrates mutual fund charges in an identical manner so that investors can accurately compare the effects of all of a fund's fees and other expenses relative to other funds
Fair Credit Billing Act
Sets up a procedure for the quick correction of mistakes that appear on consumer credit accounts; consumers have 6o days to notify a creditor about the issue; when mistake is checked, the consumer withhold payment of disputed sum if there is no explanation; consumer can withhold payment for defective merchandise sometimes
Leading Economic Indicators
Statistics that change before the economy changes, thus helping predict how the economy will do in the future
health insurance premium
The amount health insurance companies charge each month for coverage
health insurance deductible
The amount you pay for covered health care services before your insurance plan starts to pay.
Periodic Rate
The interest rate the card issuer applies to your outstanding account balance to figure the finance charge for each billing cycle.
Dow Jones Industrial Average (DJIA)
The most widely reported of all stock market indexes that tracks prices of only 30 actively traded blue-chip stocks, including well-known companies such as American Express and AT&T
A. Asset to Debt Ratio
Total Assets/ Total Debt (want high ratio)
A. Liquidity Ratio
Total Liquid Assets/ Total Current Debts
1. Studies have found that money is the #1 thing about which couples argue? T or F
True
A money order is a checking instrument bought for a particular amount
True
A mutual fund is an investment company that raises money by selling shares to the public and then invests that money in a diversified portfolio of investments
True
About 75% of employers review job applicants' Facebook postings and credit reports when performing background checks
True
After a job interview, you should immediately send thank-you notes expressing your appreciation for the opportunity to interview and restate your interest in the position
True
Bonuses given by employers must be reported to the IRS on your income tax return
True
Chronological format (information in reverse order with the most recent first), skills format (aptitudes and qualities), and functional format (career-related experiences) are three résumé formats
True
Credit scores can dictate whether you will be granted credit and at what interest rates
True
Employers can obtain your credit report and may use the information contained in the report to make an employment decision. About 20 states prohibit employers from using credit reports when hiring
True
Interest is the charge for the privilege of borrowing money
True
It is a smart move to consolidate all your student loans into one loan once you graduate from college
True
Liquidity is the speed and ease with which an asset can be converted to cash
True
Monetary asset management includes setting money aside in a savings account for use later when spending or investing
True
Money withdrawn from a CD before the end of the specified time period is subject to interest penalties
True
One must file a tax return to receive the earned income credit
True
Personal income taxes are paid only on your taxable income
True
Prior to a job interview, you should learn how the company makes money, its operations and history, profitability, expansion plans, and other recent developments. You should also research the company's competitors, and the industry
True
Section 529 college savings plans are state-sponsored
True
Stock brokerage firms earn commissions on clients' stock transactions
True
T or F: A group health care plan is sold collectively to an entire group of persons rather than individuals.
True
T or F: Auto insurance agents need to be informed when a student keeps a car at college.
True
T or F: Homeowner's insurance will pay for bodily injuries to visitors regardless of who is at fault for the loss.
True
T or F: Open-Enrollment periods are common in group healthcare plans.
True
T or F: Premiums for newly purchased cash-value policies are always higher than those for term policies providing the same amount of coverage.
True
T or F: Service contracts are generally very profitable for sellers.
True
T or F: The United States spends a higher percentage of its gross domestic product than any other country on life insurance.
True
T or F: The primary reason for buying life insurance is to obtain a high-quality investment?
True
T or F: You should ignore net cost calculations provided by a life insurance agent when evaluating the cost of a life insurance policy.
True
Taxpayers are required to pay taxes throughout the year via either payroll withholding or by paying estimated taxes
True
The APR can be used to compare credit contracts with different time periods, finance charges, repayment schedules, and amounts borrowed
True
The interest rate in force when a CD is purchased typically remains fixed for the entire term of the deposit
True
The most commonly used forms of credit by consumers are loans and credit cards
True
True and False: Inflation is defined as a steady rise in the general level of prices
True
True or False: 401(k), 403(b) and 457 plans are example of tax-sheltered retirement plans offered by employers
True
True or False: A cash-flow statement shows flows of income in and expenses out of your finances for a given period of time
True
True or False: A net surplus in your monthly budget cannot be carried forward to the next month
True
True or False: According to the U.S. Census Bureau, adults (ages 25-34) with an advanced degree earn approximately $63,000 more per year than adults with only a high school diploma.
True
True or False: According to the U.S. Census Bureau, getting an advanced degree has a bigger impact on annual income (as compared to a bachelor's degree) than getting a bachelor's degree (as compared to graduating from high school)
True
True or False: Deflation involves falling prices
True
True or False: Financial literacy is your knowledge of facts, concepts, principles, and technological tools that are fundamental to be smart about money
True
True or False: Marginal cost is the incremental cost of one more incremental unit of something
True
True or False: Paying off debts is an example of a financial goal even though it does not involve a direct purchase
True
True or False: Present value is the current value of an asset (or stream of assets) that will be received in the future
True
True or False: Professional networking is the process of establishing and using contacts to obtain and exchange career information
True
True or False: The U.S. economy is capitalism
True
True or False: The act of recommending someone to another for possible employment is a job referral
True
True or False: The major purpose of budgeting is to reach your financial goals
True
True or False: a career plan provides guidance to help attain your career goals
True
When you leave an employer, you have the right to continue your health insurance coverage for a specified period of time by paying the premiums yourself
True
You should change the marital status linked to your credit card account should you become married, separated, or divorced
True
True or False - Inflation is always supposed to be happening.
True: Some level of inflation is the typical condition in any economy.
What is a policy for liability losses that can be an affordable way to follow the large-loss principle when buying insurance?
Umbrella-Liability Policy
Redeems
When an investor sells mutual fund shares
When is Inflation a problem?
When inflation is as high as 5-6%, workers begin to demand higher wages. This adds to the cost of production.
Medicare Tax
a 1.45 percent tax paid by both the worker and employer on all the worker's employment income
FICA Taxes
a 6.2 percent tax paid by both the worker and employer on the worker's employment income up to the maximum taxable yearly earnings
Consumer Price Index
a broad measure of changes in the prices of all goods and services purchased for consumption by urban households
Deflation
a broad, sustained decline in prices of goods and services that is hard to stop once it takes hold... this causes less consumer spending, lower corporate profits, declining home values, rising unemployment, and lower incomes
Cash Account
a brokerage account that requires an initial deposit and specifies that full settlement is due to the brokerage firm within three business days after a buy or sell order has been given
Estimate of the Required Rate of Return on an Investment
a calculation that multiplies the beta value of an investment by the estimated market risk and adds the risk-free t-bill rate that suggests to investors the return required to put their money at risk
Fixed-Time Deposit
a certificate of deposit that has a specific time period that the savings must be left on deposit - otherwise a penalty is assessed for early withdrawal
multiple indemnity clause
a clause in a life insurance policy that typically doubles or triples the policy's face amount if the insured dies in an accident
2. Tiered Pricing
a concept which allows lenders to offer lower interest rates to applicants with the highest credit scores and higher rates to more risky applicants
2. Dependent Care Credit
a credit based on the taxpayer's cost of caring for dependents
2. Earned Income Credit
a credit used to reduce tax liability for low-income taxpayers
Defined-Contribution Retirement Plan
a defined-contribution retirement plan is a retirement plan in which a certain amount or percentage of money is set aside each year by a company for the benefit of each of its employees
checking account
a deposit account held at a financial institution that performs transactions that allow for withdrawals and deposits
savings account
a deposit account that provides security and a modest interest rate
Hardship Withdrawal
a distribution from a 401(k) plan to be made on account of an immediate and heavy financial need of the employee, and the amount must be necessary to satisfy the financial need
Fiduciary Standard
a financial advisor must always act in the best interest of the client regardless of how it might affect the advisor
tax-sheltered investment
a financial arrangement that results in a reduction or elimination of taxes due
Earnings Per Share (EPS)
a firm's profit divided by the number of outstanding shares
Rule of 72
a formula for computing how long it will take to double money invested at a given interest rate: 72/x interest rate Ex: 72/6 = 12 years for your money to double
Rule of 70
a formula to determine how long it will take for the value of a dollar to decline by one-half
T-Bill
a government IOU of less than one year
4. Provider-Sponsored Network
a group of physicians and hospitals who have banded together to offer a health insurance contract in areas where there is no available HMO
4. Mortgage
a long-term loan extended to someone who buys property
Turnover Rate
a measure of a mutual fund's trading activity, and connected to the funds turnover rate
Beta Value (Beta Coefficient)
a measure of stock volatility; that is, how much the stock's price varies relative to the rest of the market; predicts future stock prices
1. Time-Value of Money
a method by which one can compare cash flows across time, either as what a future cash flow is worth today (present value) or what an investment made today will be worth in the future (future value) is called...
Stagflation
a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)
Beneficary
a person or organization designated to receive a benefit
Heir
a person who inherits or is entitled by law or by the terms of a will to inherit some asset
certified check
a personal check that the bank guarantees or certifies to be good
Dividend
a portion of a company's earnings that is paid to stockholders
Sponsor
a powerfully positioned champion who leans in with you by advocating and guiding you towards key players and assignments
Which of the following best describes a preexisting condition? -A previously diagnosed medical condition -An exclusion -An injury that results from an accident -Cancer, heart condition, or other serious disease
a previously diagnosed medical condition
A "Best Buy" is...
a product or service that, in the buyer's opinion, represents acceptable quality at a fair or low price for that level of quality
A. Fixed APR
a rate that does not change throughout the year, unlike an introductory APR that change after a specific period of time
C. Recession
a recurring period of decline in total output, income, employment, and trade, usually lasting from six months to a year and marked by widespread contractions in many sectors of the economy
Tax Credit
a reduction in one's tax liability on a dollar-for-dollar basis that is a direct subtraction of your tax liability
10-Q Report
a report required by the SEC prepared by the company showing its financial results for the quarter, a discussion from management, a list of material events and other risk factors that have occurred, forecasts of the company's future, and notes of any significant changes or events in the quarter
Sustainability Standard
a requirement followed by financial advisors, consultants, and specialists that requires them to act in the best interest of their clients
Simplified Employee Pension/Individual Retirement Account (SEP/IRA)
a retirement savings account for a person's self-employment income and those with one or more employees who are looking to save only in profitable years
Pure Risk
a risk that presents the chance of loss but no opportunity for gain
3. Rule of Three
a rule that says to compare at least three alternatives before making a major purchase decision
Front-End Load
a sales charge paid when an individual buys an investment, reducing the amount available to purchase fund shares
Back-End Load (Contingent Deferred Sales Charge)
a sales commission that is imposed only when shares are sold; often charges are on a sliding scale, with the fee dropping 1 percentage point per year that the investor stays in the fund
Social Networking
a set of connection of friends, colleagues, and other personal contacts with common interests who use websites or other technologies to communicate with each other and share information and resources
Elevator Speech
a short persuasive summary of your experiences and skills when networking
Market Correction
a short term price decline in the stock markets of at least 10 percent in a stock, bond, commodity or index to adjust for a recent price rises
Speculative Risk
a situation in which either profit or loss is possible
Financial Well-Being
a state of being wherein a person can fully meet current and ongoing financial obligations and feel secure in their financial future, and make choices that allow them to enjoy life
Income Stock
a stock that may not grow too quickly, but year after year pays a cash dividend higher than that offered by most companies
Value Stock
a stock that tends to trade at a low price relative to its company fundamentals (dividends, earnings, sales, and so on) and thus is considered undervalued by a value investor
Career Plan
a strategic guide for your career through short-, medium-, longer-, and long-term goals as well as future education and work-related experiences
CD laddering
a strategy in which an investor divides the amount of money to be invested into equal amounts to certificates of deposit (CDs) with different maturity dates; it decreases both interest rate and reinvestment risks
Bond Premium
a sum of money paid in addition to a regular price
Pension
a sum paid regularly to a person, usually after retirement
Cash-Flow Statement
a summary that shows total income and spending for a given time period
Inheritance Tax
a tax imposed by eight states that is assessed on the decedent's beneficiaries who receive inherited property
Early Withdrawal Penalty
a ten percent penalty over and above the taxes owed when money is withdrawn early from a qualified retirement account
Living Trusts
a trust that takes effect while the grantor is still alive
PEG Ratio (Price-Earnings Growth)
a way to rationalize buying a stock that has high growth is to calculate by dividing the P/E ratio by the company's projected growth rate
Job Boards
a website devoted to helping employers find suitable new employees by providing job listings, job sites, job search tips, job search engines, and related articles; some allow posting of resumes
Gig Economy
a workplace economy that allows independent contractors to move from one temporary job to the next without benefits
Limited Warranty
a written warranty that does not meet the standards of a full warranty
2. Which of the following is generally not part of the process of opening a credit account? a. appraisal of assets b. credit history investigation c. credit card application filing d. credit scoring of your application
a. appraisal of assets
4. Risk Retention
accepting that some risks simply arise in the course of one's life and consciously retaining that risk
Margin Buying
account at a brokerage firm that requires a substantial deposit of cash or securities and permits the purchase of other securities using credit granted by the brokerage firm
student checking account
account offered by credit unions and banks better for students than traditional banking accounts; may offer small fees, low minimum balance, free checks, free debit cards, etc
Spousal IRA
account set up for spouse who does not work for wages; offers tax-deferred growth and tax deductibility
Social Security Credits
accumulated quarterly credits to qualify for social security benefits obtained by paying FICA taxes
Average Share Cost
actual cost basis of the investment used for income tax purposes, calculated by dividing the total amount invested by the total shares purchased
Marginal Cost
additional cost of one more incremental unit of some item
Selecting a longer waiting period allows for a purchaser of long-term care insurance to be able to...
afford long-term coverage and still keep premiums affordable.
Disposable income is income
after all employer withholding including taxes
Retirement investments can easily be made with
after-tax dollars
Full-Benefit Retirement Age
age at which a retiree is entitled to full Social Security benefits; 67 for those born in 1960 or later
Nominal Income
aka money income - income that has not been adjusted for inflation and decreasing purchasing power
All of the following are key steps to successful career planning EXCEPT: -aligning yourself with historical employment trends -targeting preferred employers -taking advantage of networking -identifying your values
aligning yourself with historical employment trends
Probate Property
all assets other than non probate property
A factor in the development of credit scores is: -All of these -amounts owed -types of credit you use -payment history
all of these
Credit bureaus compile information from: -banks -creditors -court records -all of these
all of these
When illness or injuries strike which of these issues may affect your finances? -All of these -recuperative care costs -rehabilitation costs -direct health care expenses
all of these
Which of the following could incur fees and penalties on a checking account? -The account balance falls below a set minimum amount. -A customer asks the financial institution to not honor a particular check. -The account holder uses an -ATM not owned by the financial institution. -All of these
all of these
Effective Marginal Tax Rate
all taxes on a person's income, including federal, state, and local income taxes as well as Social Security and Medicare taxes
Exchange Privilege
allowance for mutual fund shareholders to easily swap shares on a dollar-for-dollar basis for shares in another mutual fund within a mutual fund family. Also called switching, conversion, or transfer privilege
Beneficiary Designation
allowance of fund holder to name one or more beneficiaries so that the proceeds bypass probate proceedings if the original shareholder dies
Basic Retirement Benefit (Primary Insurance Amount)
amount of Social Security benefits a worker would receive at his or her full-benefit retirement age
One-Rollover Rule
an IRS rule that says investors can make only one rollover form one IRA to another in any 12- month period
Employer-Sponsored Retirement Plan
an IRS-approved retirement plan offered by an employer (also called qualified plans)
Emergency Fund
an account used to set aside funds needed in the event of an emergency such as the loss of a job, an illness, etc
Employment Agency
an agency that finds employers or employees for those seeking them
Standard Deduction
an amount of money set by the IRS that is not taxed
Annual Exclusion Amount
an annual amount of $14,000 that can be given to a relative or a friend to reduce one's total taxable estate
An Economy
an economic and political system of managing the productive and employment resources of a country, state, or community
Procyclic Indicator
an economic indicator that moves in the same direction as the economy
Automatic Escalation
an employment clause that allows employees to save more for retirement by agreeing to raise their contribution amounts each year
Investment Plan
an explanation of your investment philosophy and your logic on investing to reach specific goals
Bond Rating
an impartial outsider's opinion of the quality—or creditworthiness—of the issuing organization
Roth IRA Account
an individual retirement account of investments made with after-tax money; the interest on such accounts is allowed to grow tax-free - withdrawals are also free
Insurance Deductible
an initial portion of any loss that must be paid before the insurance company will provide coverage
Financial Planner
an investment professional who evaluates the personal finances of an individual or family and recommends strategies to set and achieve long-term financial goals
Risk Tolerance
an investor's willingness to weather changes in the value of your investments, that is, to weather investment risk
12b-1 Fee (Distribution Fee)
annual fees that some "no-load" fund companies deduct from a fund's assets to compensate salespeople and pay other expenses
Joint and Survivor Benefit (Survivor's Benefit)
annuity whose payments continue to a surviving spouse after the participant's death; often equals at least 50 percent of participant's benefit
Variable Annuity
annuity whose value rises and falls like mutual funds and pays a limited death benefit via an insurance contract
Immediate Annuity
annuity, often funded by a lump sum from the death benefit of a life insurance policy or lump sum from a defined-contribution plan, that begins payments one month after purchase
Index Mutual Funds
are those funds whose investment objective is to achieve the same return as a particular market index by buying and holding all or a representative selection of securities in it
Irrevocable Living Trust
arrangement in which the grantor permanently gives up ownership and the right to control of the property, to change the beneficiaries, and to change the trustees
Withdrawal Options
arrangements with a mutual fund company for shareholders who want to receive income on a regular basis from their mutual fund investments
Deleveraging
as expansion is choked off (B) = a time period when credit use shrinks in an economy instead of expanding as during normal economic times - when businesses and consumers use less debt, home and car sales decline as does employment: this can lead towards a decline or negligible growth of the economy
B. Ending of Expansion Phase of Economic Cycle
as the demand for credit increases, short-term interest rates rise because more borrowers want money - consumers and businesses purchase more goods; this exerts upward pressure on prices... eventually prices and interest rates climb high enough to stifle consumer and business borrowing - this sends stock prices down - this chokes off the expansion
Federal Estate Tax
assessed against a deceased person's estate before property (real estate, stocks and bonds, business interests, and so on) is transferred to heirs or assigned according to terms of a will or state intestacy laws
Target-Date Retirement (Life-Cycle) Funds
asset allocation funds that offer investors premixed portfolios of stocks, bonds, and cash that investors of a certain age and risk tolerance might prefer, and they are often named for the year one plans to retire
Investments
assets purchased with the goal of providing additional future income from the asset itself
Monetary Assets/Liquid Assets/Cash Equivalents
assets that can easily be converted to cash
A balance sheet includes _________, __________, and __________
assets, liabilities, net worth
A personal identification number (PIN) is required when using a(n)
automated teller machine an point-of-sale terminal
Portfolio Tracking
automatically updates the value of your portfolio after you enter the symbols of the stocks you own and the number of shares held
Below-Average Costs
average costs of an investment if more shares are purchased when the price is down and fewer shares are purchased when the price is high
1. Rita and Jose Hernandez want to assess their financial progress over the next few years. They have decided to take a reading of their status every New Year's Day. Which financial statement would they prepare each year? a. will b. balance sheet c. cash-flow statement d. federal income tax return
b. balance sheet
3. If finance charges are not assessed on new credit card transactions during the period between the posting date and the due date, this period is called the ____ period. a. free b. grace c. convenience d. repayment
b. grace
4. Which of the following is a not peril? a. fire b. smoking c. wind d. frozen water pipes
b. smoking
Projected P/E Ratio (Forward Price/Earnings Ratio)
because investors need to look to the future rather than the past, this measure divides price by projected earnings over the coming four quarters. Also known as forward price/earnings ratio
Testamentary Trust
becomes effective upon death of the grantor according to the terms of the grantor's will or a revocable living trust. Such trusts can provide money or asset management after the grantor's death for the heir's benefit
Employee Stock-Ownership Plan (ESOP)
benefit plan in which employers make tax-deductible gifts of company stock into trusts, which are then allocated into employee accounts
Financial Records 3 Examples
bills, receipts, credit card statements, bank records, tax returns, paycheck stubs, brokerage statements
Sinking Fund
bond feature through which money is set aside with a trustee each year for repayment of the principal portion of the debt at maturity
Registered Bond
bondholder's name is recorded so that checks or electronic funds transfers for payment of interest and principal can be safely forwarded when due
1. The purpose of a revolving savings fund is to...
both accumulate funds for large, irregular expenses, and meet occasional deficits
A. What are some ways you can use your credit card wisely?
buy things and pay them in full every month
Buying Long
buying a security (especially on margin) with the hope that the stock price will rise
2. The full additional cost of credit measured in dollars is called the... a. finance fee b. ARP c. finance charge d. interest
c. finance charge
1. A ____ is the most important part of your employment search. a. reference letter b. cover letter c. job interview d. job application
c. job interview
Average Share Price
calculated by dividing the share price total by the number of investment periods
Trailing P/E Ratio
calculated using recently reported earnings, usually from the previous four quarters
Financial Ratios
calculations designed to simplify evaluation of financial strength and progress
a refundable tax credit
can reduce your tax liability to below zero - the excess amount is refunded to you
Are credit card interest rates usually higher on cash advances or purchases?
cash advances
Cash Dividends
cash profits that a firm distributes to stockholders
One is more likely to need to raise the standard 50% limit on personal property coverage when one selects replacement-cost protection rather than...
cash-value protection.
Discount Brokers
charge commissions to execute trades that are often 30 to 80 percent less than the fees charged by full-service brokers, but also offer fewer services
Which form of compensation is not considered an employee benefit? -commissions -retirement plan -health insurance -paid holiday
commissions
Residual Volume
common stockholders have a right to share in the income and assets of a corporation after higher-priority claims are satisfied
3. Deed Restrictions
community and housing development rules that govern such things as minimum lot size, the outside appearance and landscaping of the property, allowable secondary buildings, parking of vehicles, and other aspects of the use and appearance of the property
Trailing Commissions
compensation paid to salespeople for months or years in the future
Financial Statements
compilations of personal financial data that describe an individual's or family's current financial condition
1. In preparation for a job interview, you should...
compile some personal stories and anticipate interview questions and prepare responses
The first step in creating an insurance contract is
completing an application
If your windshield is broken by a rock as you drive down the road, the damages would be covered by your ____ coverage
comprehensive
____ make both secured and unsecured small loans and require repayment on a monthly installment basis
consumer finance companies
Annuity
contract made with an insurance company that provides for a series of payments to be received at stated intervals (usually monthly) for a fixed or variable time period
A preferred provider organization is a group of health care providers who...
contract with a health insurance company to provide services at a discount.
Probate
court-supervised process that allows creditors to present claims against an estate and ensures the transfer of a decedent's assets to the rightful beneficiaries according to a properly executed and valid will or, when no will exists, to the people, agencies, or organizations required by state law
Automobile Liability Insurance
covers the insured when they are held responsible for losses suffered by others
Grantor
creator of a trust—the person who makes a grant of assets to establish a trust. Also called the settler, donor, or trustor
2. Your continuing record of credit usage is called your credit....
credit history
The Federal Deposit Insurance Corporation (FDIC) insures accounts in
credit unions
____ typically pay the highest rates of interest on savings
credit unions
Market Interest Rate
current long- and short-term interest rates paid on various types of corporate and government debts that carry similar levels of risk
Price-to-Book Ratio (P/B Ratio)
current stock price divided by the per-share net value of a firm's plant, equipment, and other assets (book value).
1. A net surplus at the end of the month could be... a. invested in a retirement account b. used to pay down credit card debt c. carried forward to the next month d. all of these
d. all of these
3. Before you begin comparison shopping for a new vehicle, which of the following are part of pre-planning/preshopping tasks? a. deciding between needs and wants b. fitting the purchase into your budget c. determining the value of your trade-in d. all are necessary steps to do to get ready to comparison shop
d. all of these
3. Pre-shopping research for new cars should focus on... a. financing b. trade-in-value c. prices d. all of these
d. all of these
4. What kind of insurance is required in most states? a. homeowner's b. health c. umbrella liability d. automobile
d. automobile
2. Lucy and Max, ages 28 and 30, have earned income of $30,400 and adjusted gross income of $29,500,500. They spent $4,200 on child care for their young son so that they could both work part time and finish their college degrees. Which of the following tax credits could reduce their taxes? a. earned income credit b. dependent care credit c. neither dependent care credit nor earned income credit d. both dependent care credit and earned income credit
d. both dependent care credit and earned income credit
2. Taxable income is determined by subtracting all but which one of the following from gross income.... a. exclusions b. exemptions c. adjustments d. credits
d. credits
4. The person on whose life a life insurance policy is written is called the... a. policy holder b. beneficiary c. contingent beneficiary d. insured
d. insured
4. If one converts his or her convertible term life insurance policy and wants the cash- value to build up in the policy beginning with the date of the conversion which of the following is (are) true? a. the evidence of insurability will be required b. the premium amount will be based on his or her age when the original policy was written c. all of these d. the premium will be based on his or her age at the time of the conversion
d. the premium will be based on his or her age at the time of the conversion
1. Mike and Patty are saving monthly so they can buy a home, but they are currently renting an apartment. The apartment is part of... a. their standard of living b. personal inflation rate c. their savings d. their level of living
d. their level of living
Maturity Date
date upon which the principal is returned to the bondholder
Long-Term Noncurrent Liability
debt that comes due in more than one year
Liabilities
debts that you owe
In times of moderate to high inflation, buying power _________ rapidly, and people on ______ incomes suffer the most.
declines; fixed
Capital Loss
decrease in paper value of an initial investment; only realized if sold
4. Traditional health insurance plans typically have ____ and ____ requirements that result in out-of-pocket costs for the insured.
deductibles & coinsurance
You may still owe money after repossession if there is a
deficiency balance
Cash-Balance Plan
defined-benefit plan funded solely by an employer that gives each participant an interest-earning account credited with a percentage of pay on a monthly basis
2. When you file your federal income tax, you may take a subtraction from your taxable income called "an exemption" for each person legally defined as your....
dependent
Balance Sheet
describes an individual's or family's financial condition on a specified date by showing assets, liabilities, and net worth
lifeline banking account
designed for low income customers that has low balance requirements, no monthly fees
Potential Return
determined by adding anticipated income (from dividends, interest, rents, or other sources) to the future value of investment and then subtracting the investment's original cost
Capital Gains Distributions
distributions representing the net gains (capital gains minus capital losses) that a fund realizes when it sells securities that were held in the fund's portfolio
Ordinary Income Dividend Distributions
distributions that occur when the fund pays out dividends from the stock and interest from the bonds it hold in its portfolio; these are passed onto the investor quarterly
Insurance companies can easily rig their _______________ to look especially good at specific points in time and thus produce favorable interest-adjusted cost indexes.
dividend and cash value accumulations
2. Tom and Mindy want to keep $420,000 in cash equivalents that are federally insured. They could accomplish this by....
dividing it equally into two different joint accounts in two different federally insured savings banks
Nonprobate Property
does not go through probate; includes assets transferred to survivors by contract (such as beneficiaries listed on retirement accounts and bank accounts held with another person)
3. Homeowner's Equity
dollar value of the home in excess of the outstanding mortgage debt
When the contract is signed, the seller keeps __________ as a deposit against the purchase price.
earnest money
liquidity
ease with which an asset can be converted to cash
Economic Indicators
economic statistics that suggest how well the economy is doing and how well the economy may do in the future
EBT Cards: Electronic Benefit Transfer
electronic system that allows state welfare departments to issue benefits via a magnetically encoded payment debit cards
Matching Contribution
employer benefit that offers a full or partial matching contribution to a participating employee's account in proportion to each dollar of contributions made by the participant
Profit-Sharing Plan
employer-sponsored plan that allocates some of the employer profits to employees in the form of end-of-year cash or common stock contributions to employees' 401(k) accounts
Defined-Benefit Retirement Plan (DB)
employer-sponsored retirement plan that pays lifetime monthly annuity payments to retirees based on a predetermined formula
Tax Sheltered Retirement Plan
employer-sponsored, defined-contribution retirement plans including 401(k) plans and similar 403(b) and 457 plans
Stock-Screening Tools
enable you to quickly sift through vast databases of hundreds of companies to find those that best suit your investment objectives
Vesting
ensures that a retirement plan participant has the right to take full possession of all employer contributions and earnings
Assets
everything you own that has monetary value
Expense Ratio
expense per dollar of assets under management
Fixed Expenses
expenses often in the same amount that occur in fixed intervals
Variable Expenses
expenses over which you have substantial control
Principal
face amount of a bond
A living will addresses financial issues should one become mentally incapacitated
false
An insurance application must be approved by the insurance company before any legally binding insurance contract is formed
false
If one is covered by workers' compensation, he or she probably does not need additional health insurance coverage
false
Social Security disability income payments are available to covered workers who are either partially or totally disabled
false
The official name of the 2010 health insurance reform law is Obamacare
false
When the other driver is at fault, damages to your car must be paid by the other driver's property damage liability coverage
false
You can make changes in your group health care plan at any time during the year
false
adjustments to gross income are permitted only if you itemize deductions (t or f)
false
all income received from social security benefits must be reported as gross income on your tax return (t or f)
false
all of a taxpayer's income is subject to federal income taxes (t or f)
false
because of their tax-exempt status, municipal bonds offer higher nominal returns than taxable alternatives (t or f)
false
contributions to Roth IRA and Coverdell education savings accounts are both tax-deductabe and earnings accumulate tax-free (t or f)
false
homeowners who appreciated principal residences can avoid tax on gains of up to $500,000 if married and filing jointly and up to $250,000 if single. The home must have been owned and used as the taxpayer's private residence for two out of the last three years prior to the date of the sale (t or f)
false
if you earn enough extra income to be placed in a higher tax bracket and have a higher marginal tax rate, the new rate will be applied to all of your taxable income (t or f)
false
most tax shelters are methods permitting an investor to avoid taxes forever
false
personal income taxes are paid on all of your income (t or f)
false
the IRS disallows deductions for expenses for business-related trips (t or f)
false
Spousal Consent Requirement
federal law that protects the surviving rights of a spouse or ex-spouse to retirement or pension benefits unless the person signs a waiver of those rights
1. Financial Success is Defined as the Achievement of...
financial aspirations that are desired, planned, or attempted
depository institutions
financial institutions in the United States that are legally allowed to offer checking and savings accounts to individuals and businesses as well as provide loans
Financial Services Industry
financial institutions that help consumers, businesses, and governments with monetary asset management
Traditional health insurance provides protection against _____________ resulting from the perils of illness and injury.
financial loss
Property Insurance protects you from...
financial losses resulting from damage or destruction to your property/possessions.
Bond Funds
fixed-income funds that aim to earn current income higher than a money market fund without incurring undue risk by investing in a portfolio of bonds and other low-risk investments that pay high dividends and offer capital appreciation
The cash value of a variable life insurance policy can...
fluctuate up and down.
Asset Allocation
form of diversification in which the investor decides on the proportions of an investment portfolio that will be devoted to various categories of assets
Low-Load Funds
funds carrying sales charges of perhaps 1 to 3 percent; sold by brokers, via mail, and sometimes through mutual fund retailers located in shopping centers
After-Tax Money
funds put into regular investment accounts after paying income taxes
Value Funds
funds specializing in stocks that are fundamentally sound whose prices appear to be low (low P/E ratios) based on the logic that such stocks are currently out of favor and undervalued by the market
No-Load Fund
funds that allow investors to purchase shares directly at the net asset value (NAV) without the addition of sales charges
Growth and Income Funds
funds that invest in companies that have a high likelihood of both dividend income and price appreciation; less risk-oriented than aggressive growth funds or growth funds.
Aggressive Growth Funds (Maximum Capital Gains Funds)
funds that invest in speculative stocks with volatile price swings, seeking the greatest long-term capital appreciation possible. Also known as maximum capital gains funds and capital appreciation funds.
Balanced Funds
funds that keep a set mix of stocks and bonds, often 60 percent stocks and 40 percent bonds, in order to earn a well-balanced return of income and long-term capital gains.
Tax-Exempt Money Market Fund
funds that limit their investments to tax-exempt municipal securities with maturities of 60 days or less
Growth Funds
funds that seek long-term capital appreciation by investing in common stocks of companies with higher-than-average revenue and earnings growth, often the larger and well-established firms
Examples of Tangible Assets (2)
furniture and vehicles
Durable Power of Attorney
gives designated person virtually absolute power to manage your financial affairs
Trade Off
giving up one thing for another
Revocable Living Trust
grantor maintains the right to change the trust's terms or cancel it at any time, for any reason, during his or her lifetime
3. Lenders in the sub-prime market offer loans to...
higher-risk applicants
Prospectus
highly legalistic information presented by a firm to the SEC and to the public with any new issue of stock
Your continuing record of credit usage is called your credit -score -history -rating -pattern
history
Which of the following expenses on a home is not tax deductible annually? -Property taxes -Interest paid on a second mortgage -Interest paid on a first mortgage -Homeowners insurance premium
homeowners insurance premium
What else does Marginal Tax Rate tell you?
how much of any extra taxable earnings from a raise, investment income, or money from a second job you must pay in income taxes
What is the first step in the risk-management process?
identify sources of risk
tax evasion
illegal; deliberately and willfully hiding income from the IRS, falsely claiming deductions, etc cheating the government out of taxes owed
Self-Directed
in defined-contribution plans, employees control the assets in their account - how often to make contributions to the account, how much to contribute, how much risk to take, and how to invest
A good time to invest in stocks is when the economy is: -in the through of a recession -in a depression -in the prosperity of the expansion stage -entering the recovery stage
in the trough of a recession
Total Return
income an investment generates from current income and capital gains
Tax-Exempt Income
income from an investment whose earnings are free, or exempt, from taxation
Real Income
income measured in constant prices relative to some base time period - it reflects the actual buying power of the money you have as measured in constant dollars
Savings
income not used for current consumption
Mutual Fund Dividend
income paid to investors out of profits earned by the mutual fund from its investments
Tax-Sheltered Income
income that is legitimately exempt from income taxes and may or may not be subject to taxation in a later tax year
4. Life insurance debt repayments can be handled through either... debt repayment needs or ______ needs.
income-replacement
Capital Gains
increase in the value of an initial investment (less costs) realized upon the sale of the investment
Price Appreciation
increased value of the underlying securities is reflected in the NAV of fund shares
Countercyclic Economic Indicators and one example
indicator moving in the opposite direction from the economy Example: Unemployment Rate bc it gets larger as economy gets worse
Automobile medical payments insurance will pay for the driver's...
injuries resulting from an auto accident up to the policy limits.
Whole Life Insurance
insurance that is kept in force for a person's entire life and pays a benefit upon the person's death, whenever that may be
High severity low frequency losses should be _________ and low severity high frequency losses should be ________.
insured; accounted for in one's budget
Compound Interest
interest earned on both the principal amount and any interest already earned
unearned income
interest from a savings account, bond interest, alimony, and dividends from stock that comes from investments
3. Credit Variable Interest Rates
interest rates that go up and down according to interest rates in the economy as a whole
Corporate Bonds
interest-bearing certificates of long-term debt issued by a corporation
CD: Certificate of Deposit
interest-earning savings instrument purchased for a fixed period of time (6 months, 1, 2, 5 years)
Robo Advisor
internet-based companies that dispense low-cut customized, computer-generated financial advice
Pretax Money
investing before income taxes are calculated, thus gaining an immediate elimination of part of your income tax liability for the current year
4. The best use of the money saved when you buy term versus cash-value life insurance is for...
investing for the future; especially retirement
Mutual Funds
investment companies that pools funds by selling shares to investors and makes diversified investments to achieve financial goals of income or growth or both
Mutual Fund Family
investment management company that offers a number of different funds to the investing public, each with its own investment objectives or philosophies of investing
Buy and Hold/Buy to Hold
investment strategy in which investors buy a widely diversified mix of stocks and/or mutual funds, reinvest the dividends by buying more stocks and mutual funds, and hold onto those investments almost indefinitely
Open-Ended Mutual Fund
investment that issues redeemable shares that investors purchase directly from the fund (or through a a broker for the fund)
Asset Allocation Funds
investments in a mix of assets (usually stocks, bonds, and cash equivalents and sometimes international assets, gold, and real estate); they buy and sell regularly to reduce risk while trying to outperform the market
Automatic Reinvestment
investor's option to choose to automatically reinvest any interest, dividends, and capital gains payments to purchase additional fund shares
Selling Short
investors selling securities they do not own (borrowing them from a broker) and later buying the same number of shares of the security at a lower price (returning them to the broker)
Market Timers
investors who attempt to predict the short-term movements of various markets (or market segments) and, based on those predictions, move capital from one segment to another in order to capture market gains and avoid market losses
Moderate Investment Philosophy (Risk Indifference)
investors with this philosophy accept some risk as they seek capital gains through slow and steady growth in investment value along with current income
Conservative Investment Philosophy (Risk Aversion)
investors with this philosophy accept very little risk and are generally rewarded with relatively low rates of return for seeking the twin goals of a moderate amount of current income and preservation of capital
Aggressive Investment Philosophy (Risk Seeker)
investors with this philosophy primarily seek capital gains, often with a short time horizon
Seculative Risk
involves the potential for either gain or loss; equity investments might do either
Taxpayers can take the greater of their ______________ or the ___________ but not both.
itemized deductions or standard deduction
professional abilities
job-related activities that you can perform physically, mentally, artistically, mechanically, and financially
Husbands and wives who own a checking or savings account together would most likely want to set up the account with
joint tenancy
Financial Literacy
knowledge of facts, concepts, principles, and technological tools that are fundamental to being smart about money
Treasury Securities
known as Treasuries, securities issued by the U.S. government, including bills, notes, and bonds
Treasury Bills (T-Bills)
known as t-bills, U.S. government securities with maturities of less than one year
non-sufficient funds (NSF)
lack of money in an account to pay a payment - sometimes resulting in a fee (ex: $35)
Trust
legal arrangement between you as the creator of the trust and the trustee, the person designated to faithfully and wisely manage any assets in the trust to your benefit and to the benefit of your heirs
Codicil
legal instrument with which one can make minor changes to a will
Tax Exemption
legally permitted amount to reduce one's taxable income based on the number of people supported by the taxpayer's income (dependents)
tax avoidance
legally reducing tax liability
Annual report
legally required yearly report about financial performance, activities, and prospects sent to major stockholders and made available to the general public
2. Subprime Lending
lending designed specifically for borrowers with low credit scores
Debts
lending investments that typically offer both a fixed maturity and a fixed income
The type(s) of insurance you carry but which covers losses suffered by others is called ____ insurance
liability
Drawbacks of an HMO include
limited choice of physicians
Professional Interests
long-standing topics and activities that engage your attention
Municipal Government Bonds (Munis)
long-term debts (bonds) issued by local governments (cities, states, and various districts and political subdivisions) and their agencies
Speculative-Grade Bonds
long-term, high-risk, high-interest-rate corporate (or municipal) IOUs issued by companies (or municipalities) with poor or no credit ratings; also called junk bonds or high-yield bonds
Disability income insurance plans may cover ______-term but not ______-term disability.
long; short
One's average tax rate is lower or higher than marginal tax rate?
lower
3. An advantage of variable-rate loans is (are)...
lower initial APR
A life insurance policy with a (lower/higher) interest-adjusted cost index [IACI] is generally a better buy than a comparable policy with a (lower/higher) IACI.
lower; higher
The FED ________ the federal funds rate to boost the economy in slow economic times. It _____ the federal funds rate to slow down an overheated economy.
lowers; raises
Professional Networking
making and using contacts with individuals, groups, and other firms to exchange career information
Bear Market
market in which securities prices have declined in value by 20 percent or more from previous highs, often over the course of several weeks or months
Bull Market
market in which securities prices have risen 20 percent or more over time
Gross Domestic Product
market value of all the goods and services produced in a country
Securities Exchange (Stock Market)
market where agents of buyers and sellers can find each other easily by providing an orderly, open plan to trade securities
a nonrefundable tax credit
may reduce your tax liability to zero but not below
Financially Responsible
means that you are accountable for your future financial well-being and that you strive to make wise personal financial decisions
Purchasing Power
measure of the goods and services that one's income will buy
Securities Market Index
measures the average value of a number of securities chosen as a sample to reflect the behavior of a more general market
Loss Control
mechanisms designed to reduce loss frequency and loss severity
Long-term custodial care is covered by
medicaid
1. A ____ is an experienced person, such as a senior coworker, who offers friendly career-related advice, guidance, and coaching to a less experienced worker.
mentor
Big Ticket Items
merchandise that is expensive such as cars, furniture, or vehicles
Who most needs long-term care insurance protection?
middle-income persons
1 Example of Limited Warranty
might cover car parts but not labor
After-Tax Profit
money left over after a firm has paid expenses, bondholder interest, and taxes
Retained Earnings
money left over after a firm has paid expenses, bondholder interest, taxes, preferred stockholder dividends, and common stockholder dividends
Discretionary/Controllable Expenses
money left over after necessities such as housing and food are paid
after-tax dollars
money on which an employee has already paid taxes
Current Income
money received while you own an investment; usually received regularly as interest, rent, or dividends
Insurance Premium
monthly or annual cost paid for insurance
4. In a dual-income household where both employers provide a health care plan, it is important to choose to be covered under the plan that provides ____ and is ____.
more protection & less expensive
Common Stock
most basic form of ownership of a corporation
Joint Tenancy with Right of Survivorship
most common form of joint ownership, especially for husbands and wives, in which each person owns the whole of the asset, such as a bank account or home, and can dispose of it without the approval of the other owner(s)
Zero-Coupon Bonds
municipal, corporate, and treasury bonds that are issued at a sharp discount from face value and pay no annual interest but are redeemed at full face value upon maturity
Load Funds
mutual funds that always charge a "load" or sales charge upon purchase; the load is the commission used to compensate brokers
aptitudes
natural abilities and talents that individuals possess
Securities
negotiable instruments of ownership or debt, including common stock, preferred stock, and bonds
Book Value (Shareholder's Equity)
net worth of a company, determined by subtracting total liabilities from assets
Letter of Last Instructions
nonlegal instrument that may contain preferences regarding funeral and burial, material to be included in the obituary, and other information useful to the survivors, such as the location of important documents
Default
not repaying bond investors
credit unions
not-for-profit institutions that accept deposits and make loans, and the members/owners all share some common bond, such as having the same employer, working for or attending the same school, or living in the same community
Short Term Liability
obligation paid off within one year
General (Full-Service) Brokerage Firms
offer a full range of services to customers, including investment advice and research
Target-Risk (lifestyle) Funds
offer an easy way to diversify one's portfolio based on risk tolerance (such as conservative, moderate, or aggressive)
Investment-Grade Bonds
offer investors a reasonable certainty of regularly receiving periodic income (interest) and retrieving the amount originally invested (principal)
Freelancing
one chooses to be employed with a more flexible work arrangement than full-time on a contract basis, often working at home, for a variety of companies, as opposed to working as an employee for a single company
Basis Point
one-hundredth of a percentage point
Social Security Estimate
online information that the Social Security Administration makes available to all workers, which includes earnings history, Social Security taxes paid, and an estimated benefit amount
Cash Basis
only transactions involving actual cash received or cash spent are recorded
Principal
original amount of money invested
Equities
ownership equities such as common or preferred stocks, equity mutual funds, real estate, and so on that focus on capital gains more than on income
Money Topics to Discuss with your Partner
p.90
Ways to Cut Spending
p.99
Cash dividends are paid only on...
participating life insurance policies.
The law requires employers to do all of the following after hiring a new employee EXCEPT: -pay Social Security taxes to the federal government -provide unemployment insurance -pay all of the employee's health care expenses -provide workers' compensation benefits to employees injured on the job
pay all of the employees health care expenses
4. A person who wants to continue health insurance coverage through your COBRA rights must....
pay the full premiums & a 2% administrative fee
Net Assest Value (NAV)
per-share volume of a mutual fund
Fire, theft, illness, and accidents are all examples of
perils
Fund Screener/Fund-Screening Tool
permits investors to screen all of the mutual funds in the market to gauge performance
Trustee
person charged with carrying out the trust for the benefit of the grantor(s) and heirs
Guardian
person responsible for caring for and raising any child under the age of 18 and for managing the child's estate
Executor (Personal Representative)
person responsible for carrying out the provisions of a will and managing the assets until the estate is passed on to heirs
Tangible/Use/Lifestyle Assets
personal property easily converted to maintain your everyday lifestyle
Traditional Individual Retirement Account (IRA)
personal retirement account to which a person can make contributions that provide tax-deferred growth
Securities Markets
places where stocks and bonds are traded (or in the case of electronic trading, the way in which securities are traded)
Secured Bond
pledges specific assets as collateral in indenture or has the principal and interest guaranteed by another corporation or government agency
Business Failure Risk
possibility that an investment will fail to pay a return to the investor
Portfolio Diversification
practice of selecting a collection of different asset classes of investments (such as stocks, bonds, mutual funds, real estate, and cash) that are chosen not only for their potential returns but also for their dissimilar risk-return characteristics
Mutual Fund Ask Price (Offer Price)
price at which an investor can purchase a mutual fund's shares; current NAV per share plus sales charges
Values
principles, standards, or qualities that you consider desirable
Diversification
process of reducing by spreading investment money among several different investment oppurtunities
Stockbroker (Account Executive)
professional who is licensed to buy and sell securities on behalf of the brokerage firm's clients
A tax that requires a higher-income person to pay a higher percentage of his or her income in taxes is called a ____ tax
progressive
insurance companies
provide property, liability, health, life, and other insurance products
Profile Prospectus (Fund Profile)
publication that describes the mutual fund, its investment objectives, and how it tries to achieve its objectives in lay terms rather than the legal language used in a regular prospectus
Cash Value of an Asset
purchase price of property minus depreciation
4 - Marginal Tax Rate
rate at which your last dollar of income is taxed
Over-the-Counter (OTC) (Off-Exchange Trading)
refers to stocks that trade via a dealer network made using a telephone and computer system rather than on the floor of a centralized exchange
Level of Living
refers to the level of wealth, comfort, material goods and necessities one is currently living
Book Value Per Share
reflects the book value of a company divided by the number of shares of common stock outstanding
Tax-Free Withdrawals
removal of assets from a retirement account with no taxes assessed
Fully Insured
requires 40 credits and provides workers and their families with benefits under the retirement, survivors, and disability programs; once status is earned, it cannot be taken away even if the eligible worker never works again
Functional Format
resume that emphasizes career-related experiences
Skills Format
resume that emphasizes your aptitudes and qualities
Chronological Format
resume that provides your information in reverse order, with the most recent first
Examples of Procyclic Indicators (5)
retail sales, industrial production, new orders for durable goods, number of employees on nonagricultural payrolls, and the gross domestic product
Tax-Sheltered Retirement Plan
retirement account for which all earnings from the invested funds are not subject to income taxes
Real Rate of Return
return on an investment after subtracting the effects of inflation and income taxes
To protect your credit card privacy, which of the following is recommended?
review your credit bureau report at least once a year
Pre-Emptive Right
right of common stockholders to purchase additional shares before a firm offers new shares to the public
Random/Unsystematic Risk
risk associated with owning only one investment of a particular type (such as stock in one company) that, by chance, may do very poorly in the future due to uncontrollable or random factors that do not affect the rest of the market
Marginal Utility
satisfaction or usefulness obtained from acquiring one more unit of a product
Payable-on-Death Designation
satus granted to individuals who are not joint tenants and who might need to access accounts without going through probate; the deceased signs the designation before death, and the designee simply presents a death certificate to access the accounts
1. The study of personal finance involves how people ______, _____, _____ their financial resources. (3 words)
save, spend, invest
Examples of Monetary Assets (2) and Primary Use
savings or checking accounts - primarily used for maintenance of living, emergencies, and bills.
Interest Inventories
scaled surveys that assess career interests and activities
Graduated Vesting
schedule under which employees must be at least 20 percent vested after two years of service and gain an additional 20 percent of vesting for each subsequent year until, at the end of year six, the account is fully vested
Fundamental Analysis
school of thought in market analysis that assumes each stock has an intrinsic (or true) value based on its expected stream of future earnings
Security's Street Name
securities certificates kept in the brokerage firm's name instead of the name of the individual investor
tax planning
seeking legal ways to reduce tax liability
Do-It-Yourself (DIY)
selecting no-load mutual funds in which to invest is relatively easy to do
Buyer's Agent or Broker
serves as the buyer's representative in the real estate negotiations and transaction.
Federal Funds Rate
set by FEDS - short-term rate at which banks lend funds to other banks overnight so that the borrowing bank has sufficient reserves as mandated by the fed
Margin Rate
set by the Fed, percentage of the value (or equity) in an investment that is not borrowed--recently 25 to 50 percent
The first step in the budgeting process is
setting financial goals
There are now ____ marginal tax rates for federal income taxes
seven
Mutual Fund Bid Price
shareholders receive this amount per share when they redeem their shares, which is the same dollar amount as the NAV
Stocks
shares of ownership in a business corporation's assets and earnings
Employers are more likely to offer _____-term rather than ______-term disability income insurance as a free employee benefit.
short; long
Seller financing is generally a shorter-term or longer-term arrangement than financing with a financial institution?
shorter-term
Redemption Charge (Exit Fee)
similar to a deferred load but often much lower; used to reduce excessive trading of fund shares
Human Capital
skill set, knowledge, and other intangible assets of individuals that can be used to create economic value for the individuals, their employers, or their community
A lawsuit filed against a landlord for nonperformance may be heard in _____ ______ court.
small claims
Entrepreneur
someone who organizes, manages, and assumes the ownership risks of a business or enterprise
Fixed Maturity
specific date on which a borrower agrees to repay the principal to the investor
Fixed Income
specific rate of return that a borrower agrees to pay the investor for use of the principal (initial investment)
Call Option
stipulation in some indentures that allows issuer to repurchase the bond at par value or by paying a premium, often one years worth of interest
Examples of Leading Economic Indicators (3)
stock market, number of new building permits, consumer confidence index
Blue-Chip Stocks
stocks that have been around for a long time, have a well-regarded reputation, dominate its industry, and are known for being solid, relatively safe investments
Examples of Investment/Capital Assets
stocks, bonds, mutual funds, gold, 401ks, real property, IRAs
Disability Benefits
substantially reduced benefits paid to employees who become disabled prior to retirement
Online Discount Brokers
such brokers, also called internet or electronic discount brokers, have reduced the cost of executing a trade to perhaps $20 or even $10 because their primary business is online trading
Dollar-Cost Averaging/Cost Averaging
systematic program of investing equal sums of money at regular intervals, regardless of the price of the investment
Investment/Capital Assets
tangible and intangible items acquired for their monetary benefits
A tax deduction or exemption only lowers the amount of your taxable income; they do not benefit you as much as a tax credit. This is because tax deductions reduce your tax liability by your ______ for every dollar of the deduction.
tax rate
Marginal Tax Rate
tax rate at which your last dollar earned is taxed, and it refers to the highest tax bracket that your taxable income puts you in
Itemized Deductions
tax-deductible expenses that may be used to directly reduce income and reduce one's tax liability
HSA (Health Savings Account)
tax-deductible savings account into which individuals and/or their employers can deposit tax-sheltered funds for use to pay - medical bills (including deductibles and other out of pocket costs required by a high-deductible plan)
Keogh
tax-deferred retirement account designed for high-income self-employed and small-business owners
Filing Status
tax-filing group based on marital status and family situation on the last day of the year
The primary reason for giving a child an allowance is to
teach the child about how to manage money
Price/Sales Ratio (P/S Ratio)
tells the number of dollars it takes to buy a dollar's worth of a company's annual revenues; calculated by dividing company's total market capitalization by its sales for the past four quarters
Trial Hire
temporary workers that could last a weer of two to determine if candidates can do the work and fit in with the corporate culture
Under the Affordable Care Act, all health care plans must include
ten specified essential health benefits
FED
the Federal Reserve Board - an agency of the federal government
20 Percent Withholding Rule
the IRS requires plan sponsors to withhold 20 percent of an early withdrawal that is then sent to government to prepay taxes
Required Minimum Distributions (RMD's)
the amount that most qualified plan participants must begin distributing from their retirement accounts by April 1 following the year they reach age 70.5
The US government measures inflation using: -the gross domestic product -the index of leading economic indicators -the consumer confidence index -the consumer price index
the consumer price index
Price/Earnings (P/E Ratio)
the current market price of a stocks divided by earnings per share over the past four quarters; used as the primary means of valuing a stock
Market Price
the current price of a share of stock that a buyer is willing to pay a willing seller
Estate Planning
the definite arrangements you make during your lifetime that are consistent with your wishes for the administration and distribution of your estate when you die
Risk Premium (Equity Risk Premium)
the difference between a riskier investment's expected return and the totally safe return on the T-bill
Capital Gain
the difference between the selling price and purchase price that results in a financial gain for the seller
Earnings Yield
the earnings per share of a stock divided by its price; an inversion of the price/earnings ratio; helps investors more clearly see investment expectations
Market-Volatility Risk
the fact that all investments are subject to occasional sharp changes in price as a result of events affecting a particular company or the overall market for similar investments
Business-Cycle Risk
the fact that economic growth usually does not occur in a smooth and steady manner, and this impacts profits as well as investment returns
Tax Deferred
the individual does not have to pay current income taxes on the earnings (interest, dividends, and capital gains) reinvested in a retirement account
4. Principle of Indemnity
the insurer agrees to pay no more than the actual amount of the loss
Certificates of deposit (CDs) tend to pay higher rates of interest than money market accounts because
the investor agrees to leave his or her money in the CD for a specified period of time while he or she has free access to the funds in a money market account
Modern Code
the language of the digital world, which is writing the source code for a computer program
Market Volatility
the likelihood of large price swings in securities due to a company's success (or lack of it) and various market conditions
Maximum Taxable Yearly Earnings (MTYE)
the maximum amount to which the FICA tax is applied
Profit
the money left over after a firm pays all expenses and interest to bondholders
Contributory Plan
the most common type of employee-sponsored defined-contribution retirement plan; accepts employee as well as employer contributions
3. Never discuss ____ with an auto dealer.
the need for a loan
Market Risk/Systematic Risk/Undiversifiable Risk
the possibility for an investor to experience losses due to unknown factors that affect the overall performance of the financial markets
Investment Risk
the possibility that the yield on an investment will deviate from its expected return
Fair Market Value
the price a willing buyer would pay a willing seller in a free market
Interest
the price of borrowing money
Time Value of Money
the principle that a dollar received today is worth more than a dollar received in the future
Loss Frequency
the probable number of losses that may occur during some given time period
Loss Severity
the probable size of the losses that may occur
Inflation
the process by which the cost of goods and services tends to rise over time
Corporate Earnings
the profits a company makes during a specific time period that indicate to many analysts whether to buy or sell a stock
Liquidity Risk
the risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit)
Stated Commission
the sales charge as a percentage of the amount invested
Liquidity
the speed and ease with which an asset can be converted to cash
Growth Stock
the stock of a company that offers the promise of much higher profits tomorrow and has a consistent record of relatively rapid growth in earnings in all economic conditions
Countercyclical Stock
the stock of a company whose profits are greatly influenced by changes in the economic business cycle
Personal Finance
the study of personal and family resources considered important in achieving finance success; it involves how people spend, protect, save, and invest their financial resources
A disadvantage of first-to-die life insurance policies is that...
the survivor will have no coverage after the death of the first person.
5 - Monetary Asset Management
the task of maximizing interest earnings and minimizing fees on all of your funds kept readily available for day-to-day living expenses, emergencies, and savings and investment opportunities
Retirement
the time in life when the major sources of income change from earned income (such as salary or wages) to employer-based retirement benefits, private savings and investments, income from Social Security, and perhaps part-time employment
Distribution Phase
the time period during which you hope that your assets will last throughout retirement
2. Tax Evasion
the use of illegal actions to reduce one's taxes
2. Tax Avoidance
the use of legitimate methods to reduce one's taxes
Future Value
the valuation of an asset projected to the end of a particular time period in the future
Opportunity Cost
the value of the next best alternative that must be forgone
Accumulation Phase
the years during which you need to save for retirement
Cash-value insurance is more expensive than term life insurance because...
there is a savings element included in the cash-value policy
1. Professional Interests
topics and activities that engage your attention
Retirement Savings Goal/Retirement Nest Egg
total amount of accumulated savings and investments needed to support a desired retirement lifestyle
Yield To Maturity
total annual effective rate of return earned by a bondholder on a bond if the security is held to maturity- takes into consideration both the price at which the bond is sold and the coupon interest rate to arrive at effective rate of return
Net Worth
total assets minus total liabilities
Rate of Return/Yield
total return on an investment expressed as a percentage of its price
checking account also called
transaction account
A student who has lost group health care coverage under his or her parent's employer group plan due to the parent leaving the job is eligible to continue coverage through COBRA rights
true
Always notify the police and file a report when involved in an auto accident
true
An individual's success in giving up smoking is an example of loss control
true
Auto insurance agents need to be informed when a student keeps a car at college
true
Blue Cross and Blue Shield are insurance companies that provide health insurance
true
Both collision and comprehensive coverage are usually written with deductibles
true
Buying insurance is the preferable way to handle risk for nearly all potential losses faced
true
Deductibles are requirements that the insured pay an initial portion of any loss
true
Employers are more likely to offer short-term rather than long-term disability income insurance as a free employee benefit
true
HMOs generally require that your primary care physician must order all procedures and approve referrals to medical specialists
true
Homeowner's insurance can pay for additional expenses such as temporary lodging and food as well as for repairing or replacing property
true
Installing a smoke detector in your home is an example of loss control
true
Insurance covering the costs of major illness and injury would typically be considered necessary insurance
true
It is becoming increasingly common for health care plans to offer lower rates to persons with a healthy lifestyle
true
Long-term care insurance policies can be written to cover in-home care
true
Many people do not examine their insurance policies until they suffer a loss
true
Medicaid is a health care program for low income individual
true
Open-enrollment periods are common in group health care plans
true
Personal injury protection pays the driver and passengers in the covered automobile without regard to fault
true
Policy limits are the maximum dollar amounts that will be paid under the policy
true
Property insurance protects you from financial losses resulting from the damage to or destruction of your property or possessions
true
The best way to document a homeowner's insurance loss is with pictures
true
The health benefits provided under Medicaid differ from state to state
true
When trying to save money on automobile insurance it is better to select a higher deductible than to lower your liability coverage limits
true
You can add coverage under your auto insurance policy to protect the driver and passengers in your car that is hit by an uninsured driver
true
Your auto liability coverage will usually protect you for liability claims when you drive a rental car
true
a taxpayer with a taxable income greater than $100,000 must use the tax-rate schedules rather than the tax tables to find their tax liability (t or f)
true
flexible spending accounts reduce taxes because contributions to these accounts are made with pretax dollars (t or f)
true
section 529 college savings plans are state-sponsored (t or f)
true
standard deduction amount depends on one's filing status (t or f)
true
tax-deferred compounding refers to the tax-free growth of investments in a tax-deferred account (t or f)
true
the marginal tax rate may be the single most important concept in personal finance (t or f)
true
the objective in effective tax planning is to legally reduce gross income to the lowest possible taxable income (t or f)
true
the tax break for losses from passive investments begins to phase out for taxpayer's higher incomes (t or f)
true
to qualify for the earned income credit, taxpayer must have earned income (t or f)
true
Cafeteria Plan
type of employee benefit plan that allows individuals to choose between different types of benefits (cash which is taxable vs non-tax)
Preferred Stock
type of fixed-income ownership security in a corporation that pays fixed dividends
Default Risk (Credit Risk)
uncertainty associated with not receiving the promised periodic interest payments and the principal amount when it becomes due at maturity
Examples of Economic Indicators (3)
unemployment rate, GDP, inflation rate
Portability
upon termination of employment, employees with portable benefits can keep their savings in tax-sheltered accounts, transferring retirement funds from employer's account directly to another account without penalty
Margin Call
using a margin account to buy securities; allows the investor to apply leverage that magnifies returns or losses
Leverage
using borrowed funds to invest with the goal of earning a rate of return in excess of the after-tax costs of borrowing
Digitalization
using digital technologies into everyday life to change a business model
You can help yourself afford a longer benefit period under a disability income insurance plan by selecting a longer
waiting period
4. You can help yourself afford a longer benefit period under a long-term care insurance plan by selecting a longer....
waiting period.
Lifestyle Trade-Offs
weighing the demands of particular jobs with your social and cultural preferences
Interstate
when a person dies without a legal will
Insolvent
when a person owes more than he or she owns and the person has a negative worth
Herd Behavior
when emotion, not logic, rules investing decisions and investors decide to copy the observed decisions of other investors or movements in the markets rather than follow their own beliefs and information
Deficit
when expenses exceed income on a cash-flow statement
tax sheltered
when income, dividends, or capital gains are tax sheltered, the investor does not pay the curren-year tax liability on the income and instead shifts the income and any tax liability to a later year
Tax-Deferred Income
when the payment of a tax on the earnings from the investment. can be postponed for a period of time
When does inflation occur?
when the quantity of money grows more rapidly than the supply of goods and services available for purchase
Capital Loss
when the sale of an asset brings less income than the costs of purchasing and selling the asset
surplus
when total income exceeds total expenses as reported on a cash-flow statement
No-Limits Jobs
where people, especially younger workers, are employed in entry-level positions where they are expected to be on-call via a mobile device at all hours of the day and night
A. Expansion Phase of Economic Cycle
where production is at high capacity, unemployment is low, retail sales are high, and prices and interest rates are low or falling - under these conditions, consumers find it easier to buy homes, cars, and expensive goods on credit, and businesses are encouraged to borrow to expand production to meet the increased consumer demand - the stock market also rises because investors expect higher profits in the future
Modified Life Insurance
whole life policy where premiums are lower for first three-five years but then higher thereafter: designed for people whose life insurance needs are high but who cannot yet afford the high cost of cash-value life insurance
1. Your ____ determine(s) the unique approach you take to working with and responding to your job requirements, surroundings, and associates.
work-style personality
Will
written document in which a person tells how his or her remaining assets should be given away after death; without a will, the property will be distributed according to state probate law
Indenture
written, legal agreement between bondholders and debtor that describes terms of the debt by setting forth the maturity date, interest rate, and other details
Indexing
yearly adjustments to tax brackets that reduce inflation's effects on tax brackets; so taxpayers don't pay more taxes for earning higher income
3. Most credit cards have a grace period only if...
you paid the balance in full the previous month
Your collision coverage generally protects you when you drive
your friends car, rental car, your own car
A. How long is a mid-term SMART goal?
~ 5 Years
A. How long is a short term SMART goal?
~ Under 1 Year
Real estate property taxes generally range from __-__% of the value of the home.
1-4%
Annual and transaction fees are included in the ______ calculation for a credit card.
APR
By law, interest points must be included when calculating the ____ for the loan.
APR
Between Conventional Mortgage and Adjustable-Rate Mortgage (ARM), which has a lower rate typically?
ARM rates are usually lower by 1%
T or F: All states require automobile owners to purchase insurance and to take financial responsibility for an accident.
False
Seller Financing
a financing arrangement where a seller takes a note and mortgage from the buyer for all or part of the purchase price of the property
Cash Loan
a small, short-term loan that is intended to cover a borrower's expenses until his or her next payday
A. How long is a long-term SMART goal?
~ 10 years
Magnuson-Moss Warranty Act applies to products costing more than $_______.
$15
A. What is the difference between a credit card minimum payment and paying the total balance? Which of these two types of payments do you end up paying more and why?
- Paying a minimum payment is the lowest amount of money a person is required to pay on their credit card balance. If someone does this, they are not paying off their whole balance, but they are instead paying off some of their statement. - You end up paying more if you only make minimum payments because interest adds up every month.
A. What is shown on a credit report? (5)
- various credit lines you have - payment history - loans you have applied for and taken out - where you work/live - whether you've filed for bankruptcy
A price-to-rent ratio above ___ can mean that the prices for homes in a community are inflated.
15
Secured Credit Card
A credit card backed by the pledge of some collateralized asset.
Installment Purchase Plan
Buying goods on credit and paying it off month after month.
A. What to do if you see something innacurate on your credit report?
Contact the Credit Bureau & Ask Bureau to Delete the Error - if they decline you can dispute
A. What are the 3 credit bureaus?
Experian, TransUnion, Equifax
T or F: Credit Life Insurance is generally a good investment for the borrower.
False
T or F: Federal law states that credit card bills must be mailed to card holders at least 10 days before payments are due.
False
Between Installment Purchase Agreements and Conditional Sale Contracts, which provides more protection for a buyer?
Installment Purchase Agreement
Name of the Act which provides guidelines for express warranties?
Magnuson-Moss Warranty Act
A. Personal Cash Flow Statement (1 Month)
Monthly Cash Inflows - Monthly Cash Outflows = Monthly Net Cash Flow
T or F: The entire balance on a travel and entertainment card must be repaid within 30 days.
True
T or F: When comparison shopping, your goal is to make a decision to purchase an item.
True
Invoice Price
amount the dealer paid to buy the car from the manufacturer
Couples buying a home should generally put ownership under one or both names?
both names
Large-Loss Principle
the concept of using insurance premiums to pay for large losses rather than for small losses
Home Equity Installment Loan
where a specific amount of money is borrowed for a fixed time period with fixed monthly payments
Foreclosure Auction
where the first attempt by a lender to dispose of a completely foreclosed property occurs
Gross Capitalized Cost includes what 3 things?
1. vehicle price plus 2. cost of any extra features (such as insurance or maintenance agreements) 3. what the dealer paid to finance the purchase
A. According to Garman and Forgue (2016), a free credit report is available for individuals every ____ months by law.
4
When estimating monthly housing costs, add an additional ____%+ to your loan amount payment for things like homeowner's insurance, property taxes, & maintenance.
40%+
If you make the minimum payment on a credit card, it will take ______ or more to pay off the balance - even if the card is never used again.
6 years
A. Credit Report vs Credit Score
A credit score is like your grade and the credit report is a break down of your grade.
declining balance method
An accelerated depreciation method that records more depreciation in earlier years and less depreciation in later years
A. Why might you want to use a credit card to purchase something now and pay for it over several months?
Big Ticket Items and if a credit card has a low APR
T or F: If you cut your credit card, your account is effectively closed.
False
T or F: Insurance applications must be approved by the insurance company before any legally binding insurance contract is formed.
False
T or F: When a person makes a purchase on credit with no cash passing between the borrower and the lender, this is called a cash loan.
False
A. SMART Goals are...
Specific, Measurable, Attainable, Relevant, Time-Framed
T or F: Credit life and credit disability insurance are unfairly priced.
True
T or F: Documentation is important when seeking reimbursement through insurance.
True
T or F: Invoice Price is related to the seller's cost of a product.
True
T or F: Lease agreements may contain a variety of restrictions that are legally binding on tenants.
True
T or F: One can add coverage under one's auto insurance policy to protect drivers and passengers of one's car if one's car is hit by an uninsured driver?
True
T or F: Service Credit is granted to consumers by public utilities, physicians, dentists, and other service providers that do not require full payment when services are rendered.
True
Many installment loan contracts contain an acceleration clause stating that after a specific number of unpaid payments, the loan is in default, and _________.
all remaining installments are due on demand of the creditor
What is another name for a secure credit card?
collateralized credit card
Repossession of property is easier for the lender if they have a ______ contract than with an installment purchase plan.
conditional sales contract
Leases work best for people who plan to buy a new vehicle every ______ years.
couple of
Preapproved credit card offers will grant you credit, but the _____ and _____ will be determined after you apply for an account.
credit limit; APR
Consumer installment loans typically are made with ______ interest.
fixed
Service Credit
involves providing a service for which you will pay later
Loan Amortization Schedule
list that shows all the monthly payments, the portions that will go toward interest and principal, and the debt remaining after each payment is made throughout the life of the loan
Independent agents typically represent one insurance company or more than one?
more than one
Prioritizing wants becomes more difficult when a decision has ________.
multiple facets
Negotiating Process of Buying a House (in simple terms)
offers to purchase and counteroffers
The money factor measures the ______ portion of your lease payment.
rent
