Personal Finance Dillon Test 2
Savings and loans associations
"thrift institutions" - Emphasis on home mortgages - S&L scandals between 1986-1995
a $370 savings account that earns $35/year interest has a yield of what percent?
9.46%
Know how to calculate the debt-to-equity ratio.
= total liabilities/ net worth <1
Know how to calculate the debt payments -to-income ratio.
=total debt payments / net monthly income < 20%
Know the 6 considerations when selecting a savings plan
?
Know how to do a bank reconciliation.
Book/checkbook, Balance + interest earned - service charges - insufficient funds = book balance; Bank Balance + Deposits in transit - outstanding checks = bank balance
Know the five tax filing categories.
Single, Married filing jointly (MFJ), Married filing separately (MFS), Qualified widow/widower, Head of household
Closed-end credit
a single amount due at a specific date
Inheritance tax
a state tax collected on the property left by a person to his or her heir(s) in a will
Excise tax
a tax on the production, sale, or consumption of goods produced within a country
gross income minus certain deductions
adjusted gross income
Know the advantages and disadvantages of using credit.
advantages are Buy now, pay later, Large purchases when you do not have all the money yet, Safer than carrying large amounts of cash, Benefits (discounts, cash back, rebates, etc.), Extended warranties, 50 day "float"and disadvantages are Temptation to overspend, Interest (costs money), Doesn't increase purchasing power, Ties up future income, Interest (Savings) doesn't increase. Inflation rises & purchasing power goes down
Tax credit
an amount subtracted directly from taxes owed
borrowers financial ability to meet credit obligations
capacity
Demand deposits
cash availability of payment
a person's attitude toward his/her credit obligations
character
The 5 Cs of credit
character, collateral, capacity, capital, conditions
car loans, mortgages, etc. type of credit
closed-end credit
valuable asset pledged to obtain a loan; subject to repossession upon not paying a loan
collateral
Money market fund
combine investments and savings; not federally insured; ex savings bonds
corporation owned by stockholders
commercial banks
agency that maintains credit data and paying habits
credit bureau
Line of credit
credit limit available to you
Credit bureaus
credit reporting agencies
synonym for checking accounts
demand deposits
wages, salaries, fees, tips, bonuses are examples of
earned income
race, age, sex, marital status, etc. may not be used to discriminate in any part of credit dealing
equal credit opportunity act
Louisiana's 20 cent charge per gallon of gas is what type of tax?
excise tax
Tax deductions
expenses subtracted from adjusted gross income before figuring a person's taxable income; standard or itemized
act that regulates use of credit reports
fair credit reporting act
Insurance company
financial resources to beneficiaries
Mortgage company
help people get mortgages
Debt payments-to-income ratio
if your total dept payments divided by your net monthly income are greater than or equal to 20%
Passive income
income resulting from business activities in which you do not actively participate; earnings from limited partnership is an example
Annual percentage yield (APY)
interest divided by principal times one hundred
provides financial security for dependents and beneficiaries
life insurance company
maximum amount of credit avaliable to you
line of credit
defined as savings accounts whose earnings are baed on market interest rates
money market accounts
combination savings and investment plan not covered by federal fund insurance
money market fund
produces loans to purchase homes
mortgage company
Investment companies
nondepository institutions that sell shares to individuals and use the proceeds to invest in securities to create mutual funds; money market funds
revolving check credit (credit cards)
open-end credit
Revolving check credit
open-end credit; debit cards, prepaid cards, credit cards, travel and entertainment, home equity loan
earnings from limited partnership is an example of what type of income?
passive income
Equal (credit) opportunity act
race, age, sex, marital status, etc. may not be used to discriminate in any part of credit dealing
tax based on value of land and buildings
real estate property tax
Time deposits
savings accounts or CDs
use of legitimate methods to reduce one's taxes
tax avoidance
subtracted directly from amount of taxes owed
tax credit
Property tax
tax on tangible and intangible possessions such as real estate, buildings, furniture, stocks, bonds, and bank accounts
Taxable income
the earnings on which tax must be paid; total income minus exemptions and deductions (taxes due minus tax credit)
Adjusted gross income (AGI)
total income before subtracting any deductions or expenses
Average tax rate
total taxes due divided by taxable income (tt/tj)
Commercial banks
wide range of services; for profit for stakeholders
Open-end credit
(revolving account) a line of credit that may be used over and over again up to a certain borrowing limit
experts suggest that you spend no more than what percent of net income on consumer credit?
20%
Sales tax
A tax on a sale of merchandise or services
Income tax
A tax on people's earnings; up to states to decide (9 states without it)
Estate tax
A tax on the estate, or total value of the money and property, of a person who has died
Money market account
A type of savings account that pays a higher interest rate because the financial institution invests the money you deposit; federally insured
Earned income
Money earned from working for pay; wages, salaries, tips, bonuses
Know how to determine the after-tax rate of return
Rate of return -> yield -> APY; Taxes -> after tax rate of return
Fair credit reporting act
Regulates the use of credit reports, requires the deletion of obsolete information, and gives consumers access to their files and the right to have erroneous data corrected.
Know how to determine if a taxpayer will receive a refund or if the taxpayer will owe taxes.
Tax expenses - withholdings = tax refund/expense
Know how to calculate the average tax rate.
Total taxes due divided by taxable income (tt/tj); Ex: taxable income = 40,000; 22% = 4,601. 4601/40,000=paying 11.5%
Know the 3 credit bureaus discussed in class.
Transunion; Equifax; Experian
