Final Study Guide Flashcards
Credit
The granting of a loan and the creation of debt; any form of deferred payment
Debt
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
Financial Literacy
The knowledge and skill set necessary to be an informed consumer and manage finances effectively
Loan
A debt evidenced by a “note,” which specifies the principal amount, interest rate and date of repayment
Personal Finance
All of the decisions and activities of an individual or family regarding their money, including spending, saving, budgeting, etc.
Compound Interest
Interest paid on interest previously earned; credited daily, monthly, quarterly or semiannually
Emergency Fund
$500 in readily available cash to be used only in the event of an emergency; the goal of the First Foundation
Interest Rate
Percentage paid to a lender for the use of borrowed money(in debt); percentage earned on invested principal(in investing)
Five Foundations
The five steps to financial success
Sinking Fund
Saving money over time for a large purchase
Cash Flow Statement
A summary that shows total income and spending for a given time period
Envelope System
Series of envelopes that are divided into categories (food, entertainment, gas, etc.) and are used to store cash for planned monthly expenses
Overdraft
Occurs when money is withdrawn from a bank account and the available balance goes below zero
Reconcile
To match your bank statement with your checkbook
Zero-Based Budget
A cash flow plan that assigns an expense to every dollar of your income, wherein the total income minus the total expenses equals zero
Annual Fee
A yearly fee that’s charged by the credit card company for the convenience of the credit card
Annual Percentage Rate (APR)
Cost of borrowing money on an annual basis; takes into account the interest rate and other related fees on a loan
Credit Report
A detailed report of an individual’s credit history
Credit Score
A measure of an individual’s credit risk; calculated from a credit report using a standardized formula
Debt Snowball
Preferred method of debt repayment; includes a list of all debts organized from smallest to largest balance
Depreciation
A decrease or loss in value
FAFSA
Free Application for Federal Student Aid
A form that is completed annually by current and prospective college students to determine their eligibility for financial aid
Grant
A form of federal or state financial aid that does not need to be repaid; usually to the students who demonstrate financial need
Scholarship
A form of financial aid that does not need to be repaid; usually awarded on the basis of academic, athletic or other achievements
Work Study
A program that allows students to work part time while continuing their studies
Caveat Emptor
Latin term for “buyer beware”
Financing
To buy an item with credit; paying over time
Marketing
The process of communicating the value of a product or service to customers
Diversification
The practice of dividing the money a person invests between several different types of investments in order to lower risk
Investing
The process of setting money aside to increase wealth over time for long-term financial goals such as retirement
Liquidity
Quality of an asset that permits it to be converted quickly into cask without a loss of value; availability of money
Portfolio
A list of your investments
Risk-Return Ratio
Relationship of substantial reward compared to the amounts of risks taken
Stocks
Securities that represent part ownership or equity in a corporation
Beneficiary
The recipient of assets passed on from the death of a friend or relative
Claim
Paperwork filed with an insurance company in order to get them to cover a loss for someone they insure
Premium
Amount you must pay monthly, quarterly, semi-annually, or annually to purchase different types of insurance
Policy
Describes the type of coverage in an insurance agreement
Deductible
Amount you must pay before you begin receiving any benefits from your insurance company
Resume
A brief account of one’s professional or work experience and qualifications, often submitted with an employment application
Income tax
Tax paid out by anyone who earns an income
Sales tax
Tax on goods and services that goes to your state or local government
Social security
A federal insurance program funded by taxpayer dollars that provide benefits to people who are retired, unemployed, or disabled
5 Foundations of Personal Finance
- Save a $500 emergency fund
- Get out of debt
- Pay cash for your car
- Pay cash for college
- Build wealth and give
What are 3 basic reasons to save?
- Emergency Fund
- Purchases
- Wealth Building
Describe the negative consequences of taking on debt. What effects can debt have on your future?
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
What lesson is learned from the “Ben and Arthur” story? Why should every high school student understand this illustration of compound interest?
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
What are the most important things you learned from this class (what will you use or remember)?
It is important to invest in your future and to not let debts hold you back. Budgeting and serving
