Financial Literacy State Test Review

Depository Insitution

A business that offers financial services to people.

Bond

A certificate of debt that is issued by a government or corporation in order to raise money with a promise to pay a specified sum of money at a fixed time in the future and carrying interest at a fixed rate.

Tradeoffs

A choice that involves giving up some of one thing to have more of another. Ex: In the morning my cousin spends a lot of time putting on make-up, she doesn't have enough time to eat breakfast because she has to go to school. The time she could spend on her nutrition is being given up.

Taxes

A contribution made by people to fund the services provided by the government, such as transport, education or health services. The most common tax is income tax, which is a contribution made from income. The amount is usually a percentage of income that is determined by the amount of income earned.

Credit Union

A cooperative financial institution, chartered by a state or federal government, which is member-owned. Credit Unions serve groups that share something in common, such as where they work, live, or go to church.

Fraud

A deliberate deception, designed to secure unfair or unlawful gain.

Life Insurance

A form of insurance on the life of a person. If the person dies then the insurance policy pays out a sum of money to the policyholder (such as a person's family).

Homeowner's Insurance

A form of insurance that protects the insured property against loss from theft, liability and most common disasters.

Collateral

A form of security to help guarantee that a creditor will be repaid.

Claim

A formal request made to an insurance company for payment for a loss.

Charitable Giving

A gift made by an individual or an organization to a nonprofit organization, charity or private foundation. Charitable donations are commonly in the form of cash, but can also take the form of real estate, motor vehicles, clothing and other assets or services.

Bankruptcy

A legal process to get out of debt when you can no longer make all your required payment.

Career

A life-work chosen by a person to use personal talent, provide some service or goods, earn money, and contribute to society.

Installment Loans

A loan in which the amount of payment and the number of payments are predetermined, such as an automobile loan.

Payday Loans

A loan or advance that is put into your bank account or provided as cash in a short time period, usually within a day. At the end of the loan term, the cash borrowed as a payday loan will be withdrawn from the borrower's bank account.

Credit Rating

A measure of a person's ability and willingness to make credit payments on time.

Insurance

A method for spreading individual risk among a large group of people to make losses more affordable for all.

Credit Score

A number, generally between 300 and 800, that reflects the credit history shown in a borrower's credit report. This score is considered predictive of the borrower's future credit performance.

Consumer

A person who purchases and uses goods or services.

Real Estate

A piece of land, including the air above it and the ground below it, and any buildings or structures on it.

Budget

A plan for spending and saving money based on a person's goals during a given time period.

Credit Card

A plastic card that can be used by the holder to make purchases or obtain cash advances using a line of credit made available by the card-issuing financial institution.

PYF (Pay Yourself First)

A popular phrase used to describe what people should do to stay on track with saving money. Basically meaning that the first deposit out of a person's paycheck should be into a savings account or retirement account.

Credit Report

A record that lists all past and present debts and the timeliness of their repayment; it documents an individual's credit history.

Risk

A situation in which some kind of loss is possible.

Financial Goals

A statement of something a person wants or needs to do that pertains to finances and/or money. Common reasons for setting financial goals are: saving for a comfortable retirement, saving for college, and managing finances to enable a home purchase. Financial goals should be Specific, Measurable, Attainable, Realistic, and Time-bound (SMART).

Goals

A statement of something a person wants or needs to do.

Loan

A sum of money given to an individual with the intent that it is to be repaid at some future date along with any agreed upon interest.

Spending Plan

A tool used to record and track projected and actual income and expenses over a period of time.

Checking Account

A transaction deposit account at a financial institution that that allows consumers to make deposit and withdrawals. Money that is in a checking account is very liquid, meaning it can be easily accessed. It can be withdrawn using checks, automated cash machines and electronic debits.

Revolving Credit

A type of credit that does NOT have a fixed number of payments, such as a credit card.

Co-signer

Agreeing to be responsible for loan payments if the borrower fails to make them.

Payroll Deductions

Amounts subtracted from gross income that is withheld by an employer for items like taxes and employee benefits.

Mortage

An agreement that a borrower gives a lender in return for the lender giving a loan for the purpose of buying property.

Credit

An arrangement to receive cash, goods, or services now and pay for them in the future.

Phishing

An e-mail scam that attempts to trick consumers into revealing personal information or use e-mail to "fish" the Internet hoping to hook people into giving their passwords and/or credit card information.

Creditor

An entity (bank, finance company credit union, business, or individual) to which money is owed.

Bank

An institution that handles savings and checking accounts, issues loans and credit, and deals in government and corporate issued securities.

Stock

An instrument that signifies an ownership position (called equity) in a corporation, and represents a claim on its proportional share in the corporation's assets and profits.

Investing

An item of value purchased for income or capital appreciation.

Asset

Any items of value that people own, including cash, property, personal possessions, and investments.

Expenses

Any money a person spends or gives away.

Debt Collectors

Businesses that collect debts for creditors.

Credit Bureau

Company that collects information about your credit history and sells it to lenders. (Equifax (www.equifax.com), Trans Union (www.transunion.com), Experian (www.experian.com)

Cost of Living

Cost of food, transportation, housing, and other expenses.

Fixed Expense

Expenses that are the exact amount every time.

FDIC

Federal Deposit Insurance Corporation - A federal agency that insures deposits in member banks up to $250,000

Scam

Fraudulent or deceptive schemes.

Health Insurance

Insurance against loss due to ill health.

Automobile Insurance

Insurance purchased for cars, trucks, and other road vehicles. Its primary use is to provide protection against physical damage and/or bodily injury resulting from traffic collisions and against liability that could also arise therefrom.

Compound Interest

Interest which is calculated not only on the initial principal but also the accumulated interest of prior periods.

Wants

Items, activities, or services that increase the quality of life.

Income

Money that a person receives; such as a paycheck from a job, an allowance from parents (inheritance), or interest earned on a savings account.

Borrowing

Obtaining funds from a lender.

Entrepreneur

One who organizes, manages, and assumes the risks of a business or enterprise.

Amortization

Payment of a portion of the principle of a mortgage loan, reducing or amortizing the mortgage amount.

Liability Insurance

Protects you whether you are driving or someone else is driving your car with your permission.

Impulse Buying

Purchasing items on the spur of the moment.

Deductable

Regarding insurance policies: A set amount an insured person must pay per loss before the insurance company will pay a claim.

Identity Theft

Someone wrongfully acquires and uses a consumer's personal identification, credit, or account information.

Benefit

Something the company offers besides a paycheck.

Student Loans

Student loans are loans offered to students to assist in payment of the costs of professional education. These loans usually charger lower interest than other loans, and are also usually issued by the government. A student loan allows a person to finance their education and defer payments until after graduation.

Liquidity

The ability to easily convert financial resources into cash without a loss of value.

Retirement

The age at which you stop working full time.

Net Income

The amount of a paycheck that a person can actually spend; gross income less any payroll deductions.

Premium

The amount of money you pay for your insurance.

Interest

The amount paid for the use of borrowed money.

Return

The annual return on an investment, expressed as a percentage of the total amount invested.

Interest Rate

The cost of borrowing money, expressed as a percentage, usually over a period of one year.

Debt

The entire amount of money a person owes to lenders.

Needs

The essentials or basics of life.

Inflation

The general rise in the level of prices for goods and services over time.

Income Tax

The government's leading source of revenue (money).

Time Value of Money

The increase in an amount of money as a result of dividends or interest earned. The idea that a dollar now is worth more than dollar in the future, even after adjusting for inflation, because a dollar now can earn interest or other appreciation until the time the dollar in the future would be received.

Simple Interest

The interest calculated on a principal sum, not compounded on earned interest.

Savings

The part of a person's income that is not spent.

Beneficiary

The person designated to receive the benefits of the policy upon the death of another individual.

Decision-Making

The process of considering and analyzing information in order to make a choice.

Diversification

The process of spreading one's assets among several different types of investments in order to reduce risk.

Grace Period

The time between the billing date and the payment due date when no interest is charged.

Annual Percentage Rate

The total annual percentage amount it will cost a person to use credit.

Investment

The use of savings to earn a financial return.

Opportunity Cost

The value of what is given up when a person chooses one option over another.

Credit Worthiness

This is determined before you are given the option to buy or get credit. The guidelines used to determine your credit worthiness are character, capacity, and capital.

Gross Income

Total income amount of income from wages or salary before payroll deductions.

Scarcity

When something is not easy to find or obtain.

Character

is established by your conduct and living habits.

Capital

is what you own. It includes savings, investments, and property.

Capacity

is your ability to earn enough income to repay.