Chapter 1

Question 1

Loan

Answer 1

Debt; Sum of money, which is borrowed, that is expected to be paid back with interest.

Question 2

Economy

Answer 2

System in which people make and exchange goods and services

Question 3

Personal finance

Answer 3

The decisions which an individual or family unit is required to make regarding their money

Question 4

credit

Answer 4

an arrangement to receive cash (loan), goods, or services now and pay for them in the future; creation of debt

Question 5

financial literacy

Answer 5

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

Question 6

Consumer

Answer 6

a person who uses goods or services

Question 7

debt

Answer 7

loan in which the borrower promises to repay the borrowed amount (the principal) plus a predetermined rate of interest.

Question 8

Interest

Answer 8

Payment for the cost of using someone else’s money, usually expressed as an annual percentage rate.

Question 9

What are the Key Components of Financial Planning

Answer 9

Assess your financial situation
Set money goals

You must write out a detailed plan for achieving goals

Know your money personality

Regularly monitor and reassess your plan

Replace money myths with money truths

Question 10

The Great Depression introduced the New Deal policy that had what affect on consumer credit and commercial banks?

Answer 10

Home mortgage loans and lending policies that convinced commercial banks that consumer credit could be profitable when dealing with the working class

Question 11

Money management is about 80% ? and 20% ?

Answer 11

behavior - 80%

head knowledge 20%

Question 12

Is debt a financial tool? Explain

Answer 12

No; saving money and paying cash is a financial tool. Debt is simply spending future income.

Question 13

In what year did the credit industry in the US begin to change?

Answer 13

1917

Question 14

What has led to financial insecurity in Americans?

Answer 14

Too much debt caused by spending more than they can afford and people don’t save.

Question 15

What principles lead to being money smart?

Answer 15

Understand basic math
Learn the language of money

Manage your behavior with money

Question 16

Why was the use of credit rare before 1917?

Answer 16

Lending money to working class was not profitable because laws prevented lenders from charging higher interest rates. Borrowing from loan sharks was something only desperate people did.

Question 17

The New Deal lending policies were created during the Great Depression to give home loans and other loans to working class Americans, and what did this change for commercial banks?

Answer 17

Convinced them that consumer loans could be profitable

Question 18

What are some of the mistakes American make when it comes to money?

Answer 18

Using credit instead of saving for purchases
Not having an emergency savings fund

Not keeping a written monthly budge

Failing to plan for retirement

Question 19

What outside influences affect our decisions when it comes to money?

Answer 19

Marketing ads that encourage us to buy things

Credit card commercials that encourage consumer spending - “buy not, pay later”

Question 20

What is a loan shark?

Answer 20

Person/business that offers loans at extremely high interest rates

Question 21

What is Recession

Answer 21

A period of temporary economic decline, trade and industrial activity are reduced