Personal Finance Review
Explain why it might be a good idea to borrow money for college if you might not otherwise afford to go.
Being able to go to college can help impact your future better than if you only graduated from high school. You may miss out on opportunities to get a better job that pays more.
How can people make sure their budgets remain balanced?
By knowing when to save and spend, by checking their accounts often, keep track of spending
How is a checking account different than a savings account?
Checking accounts = usually no interest earned, safe place to store money that needs to be used often/each day so you can make withdrawals with a check or debit card. High liquidity. Savings accounts = earn interest (usually compound interest) but not a lot. Used as a place to park money, not money going in and out all the time like a checking account. Used to save long term.
Why is it important for young people to start saving as early as possible given the principles of interest?
The longer the money is in the account the more the interest builds. Helps with 401K plans and retirement funds.
What can you do to help make your credit score strong?
Pay bills on time (and in full if you can), keep credit card balances low, manage your debt, watch your credit report, use a variety of credit types
What types of insurance do people use and what are the benefits to having insurance?
People have auto insurance (protects you from other drivers on the road), renters/homeowners insurance (in case of damages on a house like a fire), health insurance (helps with medical expenses), disability insurance (if you become disabled and can't work will pay you $) or life insurance (pays out to family when you die) Benefits: Way of managing risk, medical problems, car incidents, helps you pay for accidents or things you can control.
Why do people take financial risks?
People take financial risks for potential return. The bigger the financial risk the better the reward can be. (and the bigger the rich, the bigger the loss can be too if it doesn't work out)
What is tax revenue used for?
Tax revenue is used to help with the government, enhance technology, provide goods and services for American citizens, and help with education.
What are the different types of banking institutions?
The different types of banking institutions are retail bank, commercial bank, investment bank, and central bank
What features of a credit card do you need to research when considering a credit card?
The interest rate. Credit limit. Fees and penalties.
Is buying a house always a solid investment?
-Buying a home is a solid investment if you plan on living there for a long period of time. -When buying a house it requires an ongoing investment of cash. You have to make monthly mortgage payments, but you also have to pay real estate taxes, homeowners insurance, etc so you must have a stable financial situation.
What is a stock, and why might stocks be a good investment?
-Buying a portion of a company, can sell for higher value -A stock is an investment that is a part of a company. You can pay money for a fraction of the company. If the company grows in value so does your stock.
What is identity theft, and what can people do to protect themselves from it?
-Identity theft is the stealing of someone's identity to use for financial gain, obtaining credit and other benefits in the stolen identities name -Using someone else's private information such as a Social Security Number for financial gain. *People can limit the amount of credit cards, not use public wifi, change your passwords and check your credit report yearly
What can you do if you have a low credit score, to help increase it?
-Pay back your credit debt faster and in larger amounts. -Don't open multiple credit cards at once, start paying as much as you can up front, pay in full, pay off debts, pay on time and close unused credit cards.
How can people make sure they are using credit cards responsibly?
-People can make sure that they are responsible by limiting credit card usage and paying back their debt on time. -by setting a limit on how much they spend per month
Why should people check their credit report once a year?
-People should check their credit report at least once a year so that they can identify any errors, it can help prevent identity theft -It's an important part of managing your personal finances. It's often the first indicator that you are an identity theft victim.
What causes a mortgage foreclosure?
-When mortgage payments aren't being made on time -The foreclosure process allows a lender to take back ownership of a property from a borrower. Foreclosure occurs when the borrower is no longer making the mortgage loan payments on time and in full
There are THREE life choices an individual can make which reduces their likelihood of living in poverty from 60% to less than 2%. What are they?
-graduate from school -work full time -wait to have children
How are bonds different than stock? How does their risk profile differ?
A bond is a loan to a government or company. They pay you back plus interest. There risk is usually low especially with the government because they guarantee your money back.
What is the difference between a debit card and a credit card?
A debit card uses the money you have in a checking account and a credit card is borrowing money. Credit is borrowing money and debit is the money you have.
What is a mutual fund and how is it different than stock?
A mutual fund is a group of different stocks and bonds lead by a financial advisor - it can be bought as a single unit.
What are the advantages of renting vs. owning a home? What are the advantages of owning vs. renting a home?
Advantages of renting would be lower housing costs, shorter term commitment (esp if you move a lot), no minimal maintenance and repair costs. Advantages is owing a home would be privacy, good investment, more stable housing, equity build up, tax incentives, and pride of saying you own a house
What is credit, and how can it be useful to consumers?
Credit is a bank letting you borrow money to purchase things, and you pay it back later with interest Credit is borrowed money that you can use to purchase goods and services when you need them. It can be useful to consumers when someone doesn't have money at the specific time they need it (emergencies)
What information goes into a credit score, and what information does not?
Goes In= date opened, credit limit or loan amount, account balance, payment history. How fast you pay back your credit card bill. Have you ever went into debt. How big of purchases you have made. How much you use credit card. Does not= race, religion, color, national origin, sex, and marital status
What are some examples of consumer fraud?
Identity Theft, Credit Card Fraud, False Advertising Advertising, marketing, selling or procuring goods and overcharging something for a concealing fee.
What is interest? How is interest different from compound interest?
Interest is the fee someone pays to be able to borrow money. Compound interest is interest that's generated not only from the money you put into an account, but also from the interest you make on that money.
What is a mortgage?
It is a type of loan used to buy a home or property.
Why is it important to repay your student loans on time?
It is important to pay back your student loans on time because it will lower the amount of debt you are in so you can afford to buy a house/car when you need, lower interest, will increase your credit score. Unsubsidized loans - charge interest from day loan is disbursed. Subsidized loans - don't charge interest while attending school.
How does one pay for insurance?
Most people pay for insurance monthly based on a premium. You also have to pay deductibles. Premiums - Monthly costs Deductibles - Costs you pay before insurance covers rest of cost
What is the difference between sales tax and property tax?
Sales tax is charged on items that you purchase - one time tax Property tax is on owned property, depending on your state, and local jurisdiction - annual tax must pay every year you own property
What are the steps in the student loan process?
Step 1: apply for scholarships Step 2: Apply for government loans with FAFSA. Step 3: accept offered financial aid Step 3: Apply for bank loans. Step 4: Pay back all student loans Find "free money", fed loans,be aware of your money,make payments on time, pay more than the minimum grants/scholarships - federal student loans - private loans
What is the purpose of a budget?
To help you plan how you will spend the money you earn or receive. To create a plan to maintain your money and make sure that you save and don't go over your budget to maintain a healthy financial situation.
How is education an investment in yourself?
You can earn more money than you spend on your higher education after you graduate. You can have more opportunities on different jobs.
How can you lower risks when it comes to investing?
You can lower your risk by buying bonds and mutual funds instead of stocks because stocks are more volatile. You can also diversify your investments.
How can you monitor your checking account balance and what are the risks of spending more money than you have?
You can monitor your checking account by looking at it regularly online (or checking your balance at a branch) and recording all of your withdraws and deposits. If you spend more money than you have, you'll be charged hefty fines and have to possibly pay high interest on the amount you still owe.
Why would you want a good credit score? How are credit scores used?
You want a good credit score because it allows you to be able to take larger loans from the bank or even take a loan out at all. Also, if you want to rent, they will look at your credit score. Credit scores show how reliable you are at paying back loans or credit.
