Personal Finance Exam 2
What two parts does the money counselor's activities include?
1. Aiding families with serious debt problems by helping them manage their money better and setting up a realistic budget and plan for expenditures 2. Helping people prevent debt problems by teaching them the necessity of family budget planning, providing education to people of all ages regarding the pitfalls of unwise credit buying; suggesting techniques for family budgeting, and encouraging credit institutions to provide full information about the costs and terms of credit and to withhold credit from those who cannot afford to repay it
What organizations provide information and assist people with debt problems by phone and online?
1. American Consumer Credit Counseling 2. Financial Counseling Association of America 3. InCharge Institute of America 4. Money Management International
A method of computing interest in which interest on the full amount of the original principal
Add-on interest method
The assessment of finance charges after payments made during the billing period have been subtracted
Adjusted balance method
The percentage cost (or relative cost) of credit on a yearly basis. This yields a true rate of interest for comparison with other sources of credit
Annual percentage rate (APR)
The percentage rate expressing the total amount of interest that would be received on a $100 deposit based on the annual rate and frequency of compounding for a 365-day period
Annual percentage yield (APY)
The settlement of a difference by a third party whose decision is legally binding
Arbitration
An all-in-one account that includes savings, checking, borrowing, investing, and other financial services for a single fee, also called a cash management account
Asset management account
A complete terminal used to conduct banking transactions; also called a cash machine
Automatic teller machine (ATM)
A method of computing finance charges that uses a weighted average of the account balance throughout the current billing period
Average daily balance method
A legal procedure for dealing with debt problems of individuals
Bankruptcy
The borrower's financial ability to meet credit obligations
Capacity
The borrower's assets or net worth
Capital
A savings plan requiring that a certain amount be left on deposit for a stated time period to earn a specified interest rate
Certificate of deposit (CD)
A voluntary plan that a debtor with regular income develops a process to a bankruptcy court
Chapter 13 bankruptcy
One type of personal (or straight) bankruptcy in which many debts are forgiven
Chapter 7 bankruptcy
The borrower's attitude towards his or her credit obligations
Character
A legal action taken by a few individuals on behalf of all the people who have suffered the same alleged injustice
Class-action suit
One-time loans that the borrower pays back in a specified period of time and on payments of equal amounts
Closed-end credit
A valuable asset that is pledged to ensure loan payments
Collateral
A financial institution that offers a full range of financial services to individuals, businesses, and government agencies
Commercial bank
A process that calculates interest based on previously earned interest
Compounding
The general economic these that can affect a borrower's ability to repay a loan
Conditions
A local, nonprofit organization that provides debt counseling services for families and individuals with serious financial problems
Consumer Credit Counseling Service (CCCS)
Places the burden of proof for accurate credit information on the credit reporting agency
Consumer Credit Reporting Reform Act
The use of credit for personal needs (except a home mortgage)
Consumer credit
An arrangement to receive cash, goods, or services now and pay for them in the future
Credit
Places new restrictions on credit card lending and eliminates certain fees
Credit Card Accountability Responsibility and Disclosure Act
A reporting agency that assembles credit and other information about consumers
Credit bureau
Any type of insurance that ensures repayment of a loan in the event the borrower is unable to repay it
Credit insurance
A user-owned, nonprofit, cooperative financial institution that is organized for the benefit of its members
Credit union
A plastic access card used in computerized banking transactions; also called a cash card
Debit card
Electronically subtracts the amount of a purchase from the buyer's account at the moment the purchase is made
Debit card
A method of computing interest when more than one payment is made on a simple interest loan
Declining balance method
Bans discrimination in the extension of credit on the basis of race, color, age, sex, marital status, and other factors
Equal Credit Opportunity Act (ECOA)
Sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments
Fair Credit Billing Act (FCBA)
Regulates the use of credit reports, requires the deletion of obsolete information, and gives consumers access to their files and the right to have errors corrected
Fair Credit Reporting Act
A federal law, enacted in 1978, that regulates debt collection activities
Fair Debt Collection Practices Act (FDCPA)
The total dollar amount paid to use credit
Finance charge
A loan based on the current market value of a home less the amount still owed on the mortgage
Home equity loan
Unplanned buying
Impulse buying
A periodic charge for the use of credit
Interest
One of a network of publicly supported community law offices that provides legal assistance to consumers who cannot afford their own attorney
Legal aid society
The dollar amount, which may or may not be borrowed, that a lender makes available to a borrower
Line of credit
The attempt by an impartial third party to resolve a difference between two parties through discussions and negotiations
Mediation
A savings account offered by banks, savings and loan associations, and credit unions that require a minimum balance and has earnings based on market interest rates
Money market account
A savings-investment plan offered by investment companies, with earnings based on investments in various short-term financial instruments
Money market fund
A financial institution that owned by depositors and specializes in saving accounts and mortgage loans
Mutual savings bank
Information about freshness or shelf life found on the package of a perishable product
Open dating
A line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment
Open-end credit
An automatic loan made to checking account customers to cover the amount of checks written and payments in excess of the available balance in the checking account
Overdraft protection
A method computing finance charges that gives no credit for payments made during the billing period
Previous balance method
The percentage of increase in the value of savings as a result of interest earned; also called a yield
Rate of return
A prearranged loan from a bank for a specified amount; also called a bank line of credit
Revolving check credit
A mathematical formula to determine how much interest has been paid at any point in a loan term
Rule of 78s
A financial institution that traditionally specialized in savings accounts and mortgage loans
Savings and loan association (S&L)
An agreement between a business and a consumer to cover the repair costs of a product
Service contract
A regular savings account at a credit union
Share accounts
An interest-bearing checking account at a credit union
Share draft account
Interest computed on principal only and without compounding
Simple interest
A court that settles legal differences involving amounts below a set limit and employs a process in which the litigants usually do not use a lawyer
Small claims court
A legal agreement that provides for the management and control of assets by one party for the benefit of another
Trust
A federal law that requires creditors to disclose the annual percentage rate (APR) and the finance charge as a dollar amount
Truth in Lending Law
The use of a standard unit of measurement to compare the prices of packages of different sizes
Unit pricing
A written guarantee from the manufacturer or distributor of a product that specifies the conditions under which the product can be returned, replaced, or repaired
Warranty
What are the two components that the I bond has an interest rate?
1. A fixed rate for the life of the bond 2. An inflation rate that changes twice a year
What information should a debtor must provide in order to file a petition?
1. A list of all creditors and the amount and nature of their claims 2. The source, amount, and frequency of the debtor's income 3. A list of all the debtor's property 4. A detailed list of the debtor's monthly expenses
What costs can affect your choice of savings programs that some banks may charge?
1. A monthly maintenance fee for low-balance accounts 2. An inactivity fee if no deposits or withdrawals occur for 6 to 24 months, depending on the bank 3. A transaction fee for more than six withdrawals during a month 4. A transfer fee by online banks for outgoing payments 5. A wire-transfer fee
What are the benefits that many major credit cards provide to their customers at no extra cost?
1. Accidental death and dismemberment insurance when you travel on a common carrier (train, plane, bus, or ship), up to $250,000 2. Worldwide auto rental collision damage waiver (COW) for damage due to collision or theft for $50,000 or more 3. Roadside dispatch referral service for emergency roadside assistance, such as towing, locksmith services, and more 4. Redeem your points or miles for gift cards, cash, or to book travel - from airfare, hotels, and rental cars to vacation packages 5. Damage and theft purchase protection if your purchases are damaged or stolen within 120 days of purchase 6. Some cards, such as Capital One, don't charge foreign transaction fees
What are the few things to consider before you cosign?
1. Be sure you can afford to pay the loan. If you are asked to pay and cannot, you could be sued or your credit rating could be damaged 2. Consider that even if you are not asked to repay the debt, your liability for this loan may keep you from getting other credit you want 3. Before you pledge property, such as your automobile or furniture, to secure the loan, make sure you understand the consequences. If the borrower defaults, you could lose the property you pledge 4. Check your state law. Some states have laws giving you additional rights as a cosigner 5. Request that a copy of overdue-payment notices be sent to you so that you can take action to protect your credit history
What are the four common endorsement forms?
1. Blank endorsement 2. Restrictive endorsement 3. Special endorsement 4. Remote deposit capture
When can comparison-shopping be beneficial?
1. Buying expensive or complex items 2. Buying items that you purchase often 3. Comparison shopping can be done easily, such as with advertisements, catalogs, or online 4. Different sellers offer different prices and services 5. Product quality or prices vary greatly
What can you do to minimize ATM fees?
1. Compare several financial institutions 2. Use your bank's ATMs to avoid surcharges 3. Find an online bank for no-cost ATMs 4. Withdraw larger amounts to avoid fees on several small transactions 5. Obtain cash back when checking out at supermarkets
What can you do if you believe you have been refused credit due to discrimination?
1. Complain to the creditor 2. File a complaint with the government 3. If all else fails, sue the creditor
What three actions that the Federal Trade Commission recommends that you should take immediately if someone has stolen your identity?
1. Contact the fraud departments of each of the three major credit bureaus 2. Contact the creditors for any accounts that have been tampered with or opened fraudulently 3. File a police report
What monetary costs that a debtor include under Chapter 13 bankruptcy?
1. Court costs 2. Attorney's fees 3. Trustees' fees and costs
What are the main conditions of a new-car warranty?
1. Coverage of basic parts against defects 2. Power train coverage for the engine, transmission, and drive train 3. The corrosion warranty, which usually applies only to holes due to rust, not to surface rust
What are the frequent reasons of indebtedness?
1. Emotional problems 2. The use of money to punish 3. The expectation of instant comfort 4. Keeping up with the Jonses 5. Overindulgence of children 6. Misunderstanding or lack of communication among family members 7. The amount of the finance charges
What should you make sure you do before you sign a loan contract?
1. Explore other financing options 2. Do your homework: Contact several lenders, compare interest rates, payments, terms of the loan, other fees, and costs of the loan 3. Know your rights under the law
What does the new Vintage Score 3.0 do since its introduction in 2013?
1. Features a common score range of 300-850 (higher scores represent lower likelihood of risks) 2. Does not count debt collections that have been paid off 3. Makes up to 30 million additional consumers with short credit histories eligible for credit reports 4. Ignores negative credit history if you are affected by natural disasters, such as Hurricane Sandy
What information does the Truth in Savings Law (Federal Reserve Regulation DD) require financial institutions to disclose on savings account plans?
1. Fees on deposit accounts 2. The interest rate 3. The annual percentage yield (APY) 4. Other terms and conditions of the savings plan
Where have banking activities moved in recent years?
1. From standing in line for a teller to using a smartphone app 2. From writing a check to transmitting money with a mobile payment system 3. From sending in a deposit by mail to clicking a picture for a remote check deposit 4. From obtaining a loan from a bank to borrowing from a peer-to-peer lender
What are the two factors for effective negotiations?
1. Having all the necessary information about the product and buying situation 2. Dealing with a person who has the authority to give you a lower price or additional features, such as the business owner or store manager
What are the common trade-offs that are related to financial services?
1. Higher returns for long-term savings will usually be achieved at the cost of low liquidity, the inability to obtain your money quickly 2. The convenience of nearby ATMs or a local bank branch should be considered in relation to service fees 3. The "no-fee" checking account that requires a noninterest-earning $500 minimum balance means lost interest earnings
What are the benefits of a consolidated financial services account?
1. Keeping track of finances in a single location 2. Fewer monthly and quarterly statements 3. Lower fees when working with one financial institution 4. Simplified tax reporting with dividends and interest on one form 5. Ease of communicating financial information to family members
What are the different types of CDs that are available?
1. Rising rate or bumper-up CDs 2. Liquid CDs 3. A zero-coupon CD 4. Indexed CDs 5. Callable CDs
What are the four main categories that banks and other financial institutions offer services in?
1. Savings 2. Cash availability and payment services 3. Borrowing 4. Investments and other financial services
What does the Credit CARD Act state to cause a sweeping effect on annual percentage rates, fees, and disclosures?
1. Limits card issuers' ability to increase the APR on transferred balances during the first year that the account is opened 2. Restricts card issuers from applying new (higher) interest rates to the existing card balances 3. Requires companies to inform consumers of rate increases or other significant changes at least 45 days in advance 4. States that teaser rates must stay in effect for at least 6 months 5. Requires issuers to mail monthly statements at least 21 days before payment is due 6. Makes new disclosure statements clear and more timely 7. Mandates that monthly credit card statements must prominently display the due date and potential late fees, as well as the interest you have paid during the current year and the monthly payment required to pay off the existing balance. Statements must also warn consumers about the costs of making only the minimum payments 8. Requires credit card issuers to post their standard card agreements on the internet 9. Sets a consistent due date for card payments each month. If the due date falls on a holiday or weekend, the deadline is considered the next business day 10. Restricts the penalties that card issuers can charge for going over the credit limit 11. Prohibits card issuers from issuing cards to consumers under 21 unless they have a cosigner or can demonstrate that they have independent means to repay the card debt.
What are the three categories of optional equipment that cars may be viewed?
1. Mechanical devices to improve performance, such as a larger engine 2. Convenience options, including power seats, air conditioning, sound systems, power locks, and tinted glass 3. Aesthetic features that add to the vehicle's visual appeal; such as metallic paint, special trim, and upholstery
What should you remember when you are comparing prices?
1. More store convenience (location, hours, sales staff) usually means higher prices 2. Ready-to-use products have higher prices 3. Large packages are usually the best buy; however, compare using unit pricing 4. "Sale" may not always mean saving money
What should you do before making a purchase to minimize consumer problems?
1. Obtain recommendations from friends, family members, and online reviews 2. Verify company affiliations, certifications, and licenses 3. Understand the sale terms, return policies, and warranty provisions
What are the main advantages of leasing?
1. Only a small cash outflow may be required for the security deposit, whereas buying can require a large downpayment 2. Monthly lease payments are usually lower than monthly financing payments 3. The lease agreement provides detailed records for business purposes 4. You are usually able to obtain a more expensive vehicle more often
What guidelines should you pay attention to that consumer protection experts suggest to prevent being taken in by deceptive business practices?
1. Only do business with reputable companies with a consistent record of satisfying customers 2. Avoid signing contracts and other documents you do not understand 3. Be cautious about offerings that seem to good to be true - they probably are 4. Compare the cost of buying on credit with the cost of paying cash; also, compare the interest rates the seller offers with those offered by a bank or credit union 5. Avoid rushing to get a good deal, successful con artists depend on impulse buying
What are common mistakes when managing your current cash needs?
1. Overspending as a result of impulse buying and using credit 2. Having insufficient liquid assets to pay current bills 3. Using savings or borrowing to pay for current living expenses 4. Failing to put unneeded fund in an interest-earning savings account or investment program
What are the commonly overlooked trade-offs when buying?
1. Paying a higher amount over time when buying on credit for an item you need now 2. Buying unknown, possibly poor-quality brands that are less expensive 3. Buying online; which saves time and money but may make it difficult to return, replace, or repair purchases 4. Taking time and effort to compromise shop to save money and obtain better after-sale service
What are the common information sources that is necessary for wise purchasing?
1. Personal contacts 2. Business organizations 3. Media sources 4. Independent testing organizations 5. Government agencies
What is the procedure for proper check writing?
1. Record the data 2. Write the name of the person or organization receiving the payment 3. Record the amount of the check in figures 4. Write the amount of the check in words 5. Sign the check 6. Note the reason for payment
What are the three ways that savings bonds are commonly registered as?
1. Single owner 2. Two owners, either as co-signers or with one as the primary owner 3. With a beneficiary, who takes ownership of the bond when the original owner dies
What are the three access methods that financial service activities through a smartphone have?
1. Text banking, providing account information and conducting transactions through text messages 2. Mobil web banking with Internet access of the financial institution's website 3. Banking apps for performing various types of transactions
What costs can you be sure to know when you are trying to sell the vehicle through a financing company?
1. The capitalized cost 2. The money factor 3. The monthly payment and number of payments 4. The residual value
What are the other provisions that the law requires?
1. The director of the Executive Office for U.S. Trustees develops a financial management training curriculum to educate individual debtors on how to better manage their finances; and test, evaluate, and report to Congress on the curriculum's effectiveness 2. Debtors complete an approved instructional course in personal financial management 3. The clerk of each bankruptcy district maintains a list of credit counseling agencies and instructional courses on personal financial management
What are the several measures that you can protect yourself against credit card fraud?
1. Treat your cards like money. Store them in a secure place 2. Shred anything with your account number before throwing it away 3. Don't give your card number over the phone or online unless you initiate the call 4. Don't write your card number on a postcard or the outside of an envelope 5. Remember to get your card and receipt after a transaction, and double check to be sure it's yours 6. If your billing statement is incorrect or your credit cards are lost or stolen, notify your card issuers immediately 7. If you don't receive your billing statement, notify the company immediately
If a creditor may ask about your age, what may a creditor not do?
1. Turn you down or decrease your credit because of your age 2. Ignore your retirement income in rating your application 3. Close your credit account or require you to reapply for it because you have reached a certain age or retired 4. Deny you credit or close your account because of credit life insurance or other credit related insurance is not available to people of your age
What are the steps to recognize it, avoid it, and report it if credit card fraud does occur?
1. Use a secure browser 2. Keep records of your online transactions 3. Review your monthly bank credit card statements 4. Read the policies of websites you visit 5. Keep your personal information only to businesses you know and trust 6. Never give your password to anyone online 7. Do not download files sent to you by strangers or click on hyperlinks from people you don't know
What are a few possibilities that can help you minimize your borrowing costs when you accept the conditions that will reduce your lender's risk?
1. Variable interest rate 2. A secured loan 3. Up-front cash 4. A shorter term
What are the two ways that debit cards can be used?
1. With your signature, like a credit card 2. With your personal identification number (PIN), like an ATM card
What other information besides your name, address, Social Security number, and birth date should a credit bureau contain?
1. Your employer, position, and income 2. Your former address 3. Your former employer 4. Your spouse's name, Social Security number, employer, and income 5. Whether you own your home, rent, or board 6. Checks returned for insufficient funds
What can failing to reconcile your bank account each month can result in?
1. Your exact spending habits for wise money management 2. If the correct deposit amounts have been credited to your account 3. Any unauthorized ATM withdrawals or other transactions 4. If you have been overcharged for fees 5. Errors that your bank may have made in your account