Final Study Guide

Question 1

Credit

Answer 1

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

Question 2

Debt

Answer 2

An obligation of repayment owed by one party(the debtor/borrower) to a second party(the creditor/ lender); in most cases this includes repayment of the original loan amount plus interest

Question 3

Financial Literacy

Answer 3

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

Question 4

Loan

Answer 4

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

Question 5

Personal Finance

Answer 5

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

Question 6

Compound Interest

Answer 6

Interest paid on interest previously earned; credited daily, monthly, quarterly or semiannually

Question 7

Emergency Fund

Answer 7

$500 in readily available cash to be used only in the event of an emergency; the goal of the First Foundation

Question 8

Interest Rate

Answer 8

Percentage paid to a lender for the use of borrowed money(in debt); percentage earned on invested principal(in investing)

Question 9

Five Foundations

Answer 9

The five steps to financial success

Question 10

Sinking Fund

Answer 10

Saving money over time for a large purchase

Question 11

Cash Flow Statement

Answer 11

A summary that shows total income and spending for a given time period

Question 12

Envelope System

Answer 12

Series of envelopes that are divided into categories (food, entertainment, gas, etc.) and are used to store cash for planned monthly expenses

Question 13

Overdraft

Answer 13

Occurs when money is withdrawn from a bank account and the available balance goes below zero

Question 14

Reconcile

Answer 14

To match your bank statement with your checkbook

Question 15

Zero-Based Budget

Answer 15

A cash flow plan that assigns an expense to every dollar of your income, wherein the total income minus the total expenses equals zero

Question 16

Annual Fee

Answer 16

A yearly fee that’s charged by the credit card company for the convenience of the credit card

Question 17

Annual Percentage Rate (APR)

Answer 17

Cost of borrowing money on an annual basis; takes into account the interest rate and other related fees on a loan

Question 18

Credit Report

Answer 18

A detailed report of an individual’s credit history

Question 19

Credit Score

Answer 19

A measure of an individual’s credit risk; calculated from a credit report using a standardized formula

Question 20

Debt Snowball

Answer 20

Preferred method of debt repayment; includes a list of all debts organized from smallest to largest balance

Question 21

Depreciation

Answer 21

A decrease or loss in value

Question 22

FAFSA

Free Application for Federal Student Aid

Answer 22

A form that is completed annually by current and prospective college students to determine their eligibility for financial aid

Question 23

Grant

Answer 23

A form of federal or state financial aid that does not need to be repaid; usually to the students who demonstrate financial need

Question 24

Scholarship

Answer 24

A form of financial aid that does not need to be repaid; usually awarded on the basis of academic, athletic or other achievements

Question 25

Work Study

Answer 25

A program that allows students to work part time while continuing their studies

Question 26

Caveat Emptor

Answer 26

Latin term for “buyer beware”

Question 27

Financing

Answer 27

To buy an item with credit; paying over time

Question 28

Marketing

Answer 28

The process of communicating the value of a product or service to customers

Question 29

Diversification

Answer 29

The practice of dividing the money a person invests between several different types of investments in order to lower risk

Question 30

Investing

Answer 30

The process of setting money aside to increase wealth over time for long-term financial goals such as retirement

Question 31

Liquidity

Answer 31

Quality of an asset that permits it to be converted quickly into cask without a loss of value; availability of money

Question 32

Portfolio

Answer 32

A list of your investments

Question 33

Risk-Return Ratio

Answer 33

Relationship of substantial reward compared to the amounts of risks taken

Question 34

Stocks

Answer 34

Securities that represent part ownership or equity in a corporation

Question 35

Beneficiary

Answer 35

The recipient of assets passed on from the death of a friend or relative

Question 36

Claim

Answer 36

Paperwork filed with an insurance company in order to get them to cover a loss for someone they insure

Question 37

Premium

Answer 37

Amount you must pay monthly, quarterly, semi-annually, or annually to purchase different types of insurance

Question 38

Policy

Answer 38

Describes the type of coverage in an insurance agreement

Question 39

Deductible

Answer 39

Amount you must pay before you begin receiving any benefits from your insurance company

Question 40

Resume

Answer 40

A brief account of one’s professional or work experience and qualifications, often submitted with an employment application

Question 41

Income tax

Answer 41

Tax paid out by anyone who earns an income

Question 42

Sales tax

Answer 42

Tax on goods and services that goes to your state or local government

Question 43

Social security

Answer 43

A federal insurance program funded by taxpayer dollars that provide benefits to people who are retired, unemployed, or disabled

Question 44

5 Foundations of Personal Finance

Answer 44

1. Save a $500 emergency fund
2. Get out of debt
3. Pay cash for your car
4. Pay cash for college
5. Build wealth and give

Question 45

What are 3 basic reasons to save?

Answer 45

1. Emergency Fund
2. Purchases
3. Wealth Building

Question 46

Describe the negative consequences of taking on debt. What effects can debt have on your future?

Answer 46

Having debt can affect your whole life. You could be stuck with college debt or even car debt for years. Debt can cause challenges in relationships and it can cause problems for your kids. Debt grows fast and it’s not unusual to owe 4-10 times the amount you borrowed. So you end up getting more in debt so it keeps getting harder and harder to get out of it

Question 47

What lesson is learned from the “Ben and Arthur” story? Why should every high school student understand this illustration of compound interest?

Answer 47

Ben and Arthur both save $2,000 per year at 12%. Ben started at age 19 and stops at age 29, while Arthur starts at age 27 and stops at age 65. Ben invested only $16,000 while Arthur invested $78,000 and could never catch up. Ben came out ahead by over $700,000. This shows that starting earlier with even a little money will continue to build and build so every high school student should know the earlier you start, the more time your money has to compound

Question 48

What are the most important things you learned from this class (what will you use or remember)?

Answer 48

It is important to invest in your future and to not let debts hold you back. Budgeting and serving