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Family Financial Analysis exam 1 > chapter 2 > Flashcards

chapter 2 Flashcards

1
Q

Microeconomics

A

study of smaller units of economy

  • decision making behavior of firms and households
  • how they interact in the marketplace
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2
Q

Presidents and the Economy

1977-1981

A 
Jimmy Carter (democrat)
- high inflation rate --> high interest rate
home mortgage rates were ~18%
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3
Q

Presidents and the economy

1981-1988

A

Ronald Reagan (republican)

  • supply side economics: strategy for govt to give extra money to suppliers to hire more employees to “spread the wealth”
  • tax incentives
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4
Q

presidents and the economy

1989-1993

A 
George Bush (republican)
continued many of Reagan's policies
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5
Q

presidents and the economy

1993-2002

A

Bill Clinton (democrat)
“New Economy”- technology, internet, entrepreneurship
growth and expansion due to technological advances
innovation, prosperity, and expansion
EXTREMELY LOW unemployment

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6
Q

presidents and the economy

2001-2009

A

George Bush (republican)

  • corporate and personal responsibility
  • believed in enhancing individual’s knowledge in personal finances
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7
Q

presidents and the economy

2009-2018

A

Barack Obama (democrat)

  • recession
  • economic stimulus package (bailing out major companies)
  • tax credits direct to employees through employers
  • get rid of penny and nickel (metal is worth more than the currency)
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8
Q

Why keep financial records?

A
  • give you a sense of where you have been and where you are going
  • provide basis on which to develop money management strategies
  • plan for retirement
  • reflect consumption
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9
Q

types of record organization

A

safe deposit box: $15/mo. paper docs, expensive jewelry, photos of personal possessions
biometrics: future use for safe deposit boxes
home storage: fire resistant, strategic placement
- tax records, insurance statements, wills, etc.

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10
Q

how long should tax records be kept?

A

3 years

keep longer if audited

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11
Q

important numbers list

A

list of companies, phone numbers, websites, account number, in case credit card/debit card/ bank accounts are lost or stolen.
keep copy at home, give copy to spouse or parent

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12
Q

what are some important documents to have on hand for financial record keeping?

A

important numbers list: CC, bank account numbers and info.
list of key advisors: lawyers, insurance, stockbrokers, accountants, etc.
monthly budget: record of inflow and outflow of money over a month
tax records for last 3 years
any large sales in the last 3 years

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13
Q

financial statement

  • budgets
  • balance sheet/net worth statement
A

financial statement: assessment of current status of finances.

  • budgets: trace the flow of income and expenses over period of time
  • balance sheet: list the value of assets vs. liabilities
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14
Q

what does it mean to be “in the black?”

what does it mean to be “in the red?”

A

more savings than expenditures
expenditures are greater than income
- aim to reduce expenditures
- focus on eliminating debt

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15
Q

a budget consists of 3 parts:

A
  1. income
  2. expenses
  3. net income (income-expenses: net gain or loss)
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16
Q

list of possible income sources

A 
wages, salaries, commission = main source of income
alimony/child support
return on investments
allowances or gifts
social security benefits
public assistance
gains or losses from sale of assets
others: loans, scholarship, rent income, royalties, tax refund
17
Q

two types of expenditures

A

fixed expenses: same amount each period
- rent, car payment, child care
variable expenses: more flexible and more easily controlled by individual
- entertainment, food, travel

18
Q

what are flexible expenses?

A

those that can be fixed or variable: child care, insurance (fixed but changed based on behavior)

19
Q

budget making steps:

A
  1. setting goals: desired end state
  2. planning: decide alternatives, strategies and actions
  3. implementing: put plan to action
  4. evaluating: examine cost, value, and worth of budget plan
20
Q

what is NET WORTH?

A

assets - liabilities = net worth

21
Q

define
assets
liabilities

A

assets: what you OWN
- monetary: liquid, accounts, CD’s
- tangible: physical items worth money
liabilities: what you OWE
- current: due to be paid within the year (rent, utilities, tickets, insurance)
- long-term: those that go beyond a year (mortgage, student loans)

22
Q

when may having liabilities be useful?

A
  • when you are in a higher tax bracket and want to claim liabilities (losses) to reduce taxes you owe
23
Q

what is considered good net worth?

A

when net worth is 3x income you are considered well off

24
Q

4 general categories of net worth and what you should do?

A

if negative: concentrate on reducing debt
if net worth less than half annual income: keep spending in check, increase savings and investments
if between 1/2 and 2-3x annual income: continue to keep in check
IDEAL: net worth 3x annual income

25
Q

solvency

insolvency

A

solvency: ability to pay debt
insolvency: negative net worth, unable to pay what you owe

26
Q

solvency ratio

A

potential to withstand financial problems

total net worth/ total assets = % decline in the value of assets before become insolvent

27
Q

important details when selecting financial advisors

A
  • charges/fees
    fee only: hourly rate
    commission only: receive commission from your purchase of mutual funds (may want to avoid as they may not suggest the best option)
    fee and commission: upfront fee for advice, and commission on any securities
  • credentials and regulations: still loose
    SEC: securities and exchange commission: regulate advisors with more than $25 mill. in assets
    regulation of smaller firms falls to state
  • recommendations: when seeking advice one should turn to friends and family.
28
Q

_______% of Americans do not balance their checkbooks each month

A

50%

Family Financial Analysis exam 1 (5 decks)

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