Personal Finance Ch. 1

The knowledge and skill set necessary to be an informed consumer and manage finances effectively

Financial literacy

A debt evidenced by a "note", which specifies the principal amount, interest rate and date of repayment

Loan

Explain why income alone does not determine wealth.

How much money a person makes does not dictate his or her spending pedaling behavior

A fee paid by a borrower to the lender for the use of borrowed money

Interest

A system by which goods and services are produced and distributed

Economy

Why was the use of credit uncommon prior to 1917?

Laws prevented lenders from charging high interest rates, borrowing money was not socially acceptable, and lending money to others was not profitable.

What are factors in becoming money smart?

Learning the language of money, managing your behavior with money, and having knowledge of basic math.

Why should students learn about personal finance?

Learning to manage money at this stage can eliminate financial mistakes and promote huge financial benefits for the future

An obligation of repayment owned by one party to a second party

Debt

Which of the following is not a true statement? A. Americans learned to borrow amidst post-WWII prosperity. B.the credit industries has not changed much since 1917. C. After 1970, consumer debt skyrocketed. D. As banks made higher profits, they were willing to lend more money to consumers.

B.

When it comes to personal finance the money is easy. What's challenging is managing your _____.

Behavior

A person or organization that uses a product or service

Consumer

During the Great Depression, new deal policy makers came up with mortgage (home loans) and consumer lending policies that convinced commercial banks that:

Consumer credit could be profitable

The granting of a loan and the creation of debt; any form of deferred payment

Credit

How are Americans being outsmarted by banks and other lenders?

Credit is marketed so well that we desire to have it while completely dismissing the fact that interest rates and fees continue to destroy our financial well-being.

T or F. Everyone should have the same financial plan. A budget that works for one person should be sufficient for everyone.

False

T or F. Expensive houses and new cars are a true indication of wealth.

False

T or F. Learning the language of money is not that important because you will be able to depend on financial planners to manage your money.

False

T or F. Most Americans avoid the use of credit when it comes to buying big ticket items like a car or furniture for their home.

False

T or F. Most Americans today are wealthy and will have financial security when they retire.

False

T or F. Since you are a teenager, what you do now with money will have little effect on your financial future.

False

A person or business that offers loans at extremely high interest rates

Loan shark

Personal financial success is primarily the result of:

Managing your money behavior

What is a consequence of spending more than you make?

Missed opportunity to save and invest, stress, and a cycle of debt.

All of the decisions and activities of an individual or family regarding their money, including spending, saving, budgeting, etc.

Personal finance

A period of temporary economic decline during which trade and industrial activity are reduced; generally identified by a fall in gross domestic product (GDP)

Recession

What are benefits of understanding your money personality?

Recognizing who you are allows you the opportunity to grow and learn, and once you know your money personality you can develop a financial plan that works for you.

Why is credit marketed heavily to consumers in the United States?

The credit industry has become extremely profitable, there is strong consumer demand for big ticket items, and since 1920, credit laws in the United States have been relaxed in an attempt to create a mainstream alternative to loan sharks for the working class.

The widespread financial insecurity of Americans is primarily because:

The saving rate of Americans is low and many borrow in order to spend more than they earn.

T or F. Having debt keeps you from building wealth.

True

T or F. The credit system today is structured to accommodate a state of uncertain employment and income instability, utilizing high interest rates and fees to turn huge profits.

True

T or F. True financial security is achieved when your money begins to generate an income -your money starts working for you.

True

T or F. When developing a personal financial plan, one of the first things you should do is assess your current financial situation. This includes your income, assets, and liabilities.

True

When it comes to managing money, success is about 20% knowledge and 80% behavior. True or false?

True

Key components of financial planning include:

Writing a detailed plan to accomplish goals, replacing money myths with money truths, and regularly monitoring and reassessing your financial plan.