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Financial literacy > Final Test > Flashcards

Final Test Flashcards

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1
Q

What causes inflation?

A

Government printing money (inflating/increasing the amount of money in the economy).

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2
Q

What does inflation do to home prices?

A

Inflation causes home prices to increase

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3
Q

What do rising interest rates do to home prices?

A

Rising interest rates cause home prices to decline/decrease.

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4
Q

What is home owners’ insurance?

A

Home owner’s insurance protects against damage to the home, and liability for persons injured on your property.

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5
Q

What is a mortgage?

A

A mortgage is a loan for the purchase of real estate, such as your house, commonly financed over 30 years.

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6
Q

What is Personal Mortgage Insurance (PMI)?

A

PMI is insurance required by lenders when the buyer/borrower does not put at least 20% down on the purchase. PMI protects the lender by paying the lender in the event of default by the borrower.

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7
Q

What does it mean to say your property taxes are held in an escrow account?

A

Property taxes are commonly included on the mortgage payment by the lender (to make sure that they get paid each year) and held by the lender for the borrower until they are due, at which time the lender makes the payment for the borrower (usually in November of each year)

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8
Q

What 5 things are usually included in a mortgage payment?

A 
Principal
Interest
Personal Mortgage Insurance (PMI)
Property Taxes for the mortgaged property
Home Owner’s Insurance premium
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9
Q

What are the “5 Lessons a Millionaire Taught Me”

A 
Decide to be Wealthy
Take responsibility for your money
Keep a portion of everything you earn.
Win in the margins
Give back
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10
Q

What are the characteristics of a SMART goal?

A 
Specific
Measurable
Attainable
Realistic
Time-Limited
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11
Q

What are the two “jobs” you have if you are going to become financially independent?

A

Job 1: earn enough money to meet your needs and to set aside 10%-15% for long-term investing
Job 2: learn to invest and manage your long-term savings until it is generating enough income for you to retire from Job 1

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12
Q

What is the difference between a 401(k) and an IRA?

A

401(k): is an employer-sponsored retirement savings account with tax-deferred benefits
IRA: is an Individual Retirement Account, not sponsored by an employer

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13
Q

What is the difference between a regular IRA and a Roth IRA?

A

Regular IRA: money is put into a regular IRA before taxes, and all money is taxed when taken out.
Roth IRA: money is put into a Roth IRA after taxes, and is not taxed when taken out.

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14
Q

What is the difference between a recession and a depression?

A

A recession is a depression that did not go all the way – the government began inflating again before the economy fully corrected. A depression is a correction in the market caused by inflating and then stopping the inflation of the economy, which, when allowed to go all the way, results often in many business failures and unemployment, but also ultimately in setting the economy on a sound footing if allowed to run its course without government interference

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15
Q

What percentage of your gross pay is taken for Social Security?

A

7.65% (6.2% Social Security tax + 1.45% Medicare tax)

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16
Q

What percentage does your employer contribute to your Social Security payment above your own wages?

A

7.65%

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17
Q

How many weeks are there in a year?

A

52

18
Q

How many working hours per year are there in 40-hour/week full time job?

A

2080

19
Q

Explain the following about Automobile Insurance:

Liability coverage (what is it, who does it pay?)

A

Protects you from liability for damages and injury when you cause an accident.
It pays the other party.

20
Q

Collision coverage (what is it, who does it pay?)

A

Protects you from damage to your own car from accidents with other cars when your car is moving, caused by you. It pays you for repairs to your vehicle.

21
Q

Comprehensive Coverage (what is it, who does it pay?)

A

Protects you from damage to your own car from when your car is not moving, caused by acts of God, or collisions with animals. It pays you for repairs to your vehicle.

22
Q

PIP (what is it, who does it pay?)

A

PIP is Personal Injury Protection, required by law, pays for medical care of you, regardless of fault (usually up to $3,000)

23
Q

Uninsured Motorist coverage (what is it, who does it pay?)

A

Pays you for damages and injury when an accident is caused by a person who is uninsured.

24
Q

Underinsured Motorist coverage (what is it, who does it pay?)

A

Pays you for damages and injury when an accident is caused by a person who is under-uninsured, meaning they have insurance, but your damages exceed the limits of their insurance policy, so then your own policy’s Underinsured Motorist coverage should apply to cover your remaining damages up to the lesser of your damages, or the policy limit for underinsured coverage.

25
Q 
Fill in the blanks. From Rich Dad, Poor Dad: (5 points)
The rich don’t work for 1.\_\_\_\_\_\_.
Rich people acquire 2.\_\_\_\_\_\_. The poor and middle class acquire liabilities that they think are 3.\_\_\_\_\_\_.
An asset puts 4.\_\_\_\_\_\_ in my pocket; a liability takes 5.\_\_\_\_\_\_ out of my pocket
A
  1. money
  2. Assets
  3. Assets
  4. Money
  5. Money
26
Q

As defined in Rich Dad, Poor Dad, which of the following are assets (circle all that apply)? (6 points)

A

A. Businesses that do not require my presence. (I own them but they are managed or run by other people.)
B. Stocks
C. Bonds
H. Income-generating real estate
I. Royalties from intellectual property such as music, scripts, books, and patents
J. A patent

27
Q

What is gross income?

A

Total income before taxes or other deductions.

28
Q

What is net income?

A

Total income after taxes. Net income usually includes voluntary deductions, such as for a 401(k), and insurance premiums.

29
Q

What are five types of taxes employers must deduct from your paycheck?

A 
Federal income tax
State income tax
Local, e.g., city or county income tax (in some areas)
Social Security
Medicare
30
Q

What does FICA (not FICO) stand for, and what is it also known as?

A

Stands for: Federal Insurance Contributions Act

Also known as: Social Security

31
Q

What is a W-4 used for?

A

Employee’s Withholding Allowance Certificate form, to establish your withholding allowances for federal income tax.

32
Q

What is an I-9 used for?

A

Employment Eligibility Verification Form required by ICE (Immigration and Customs Enforcement Agency) to verify your identity and eligibility to work

33
Q

What does a W-2 show?

A

Shows all taxable wages earned during the year, and all taxes withheld from those wages (need one from each employer)

34
Q

What is the difference between a credit card and a debit card?

A

Credit card: purchases are made on credit, using money borrowed from the credit card issuer

Debit card: is attached to a checking account, and purchases are made with funds from the account (i.e., the accountholder’s money)

35
Q

What is direct deposit?

A

Earnings or government payments deposited directly into a person’s bank account(s)

36
Q

If a person works 40 hours per week for one year at $15/hr., what would her gross income be for the year?

A

$31,200

37
Q

What 5 things determine your credit score?

A 
Payment History 35%
How much you owe 30%
Length of Credit History 15%
Types of credit used 10%
New History 10%
38
Q

List 3 kinds of accounts that build your credit.

A

Credit Cards
Store (credit) Cards
Auto Loans
Mortgage Loans

39
Q

List 3 kinds of accounts that do not build your credit.

A 
Checking/Savings Account
Cell Phone
Utilities
Insurance
Rental Agreements
Employers
Title Loans
Payday Loans
40
Q

What is a FICO (not FICA) score?

A

(Fair Isaac Corporation) The FICO score is a snapshot of a person’s financial standing at a particular point in time (range of 300-850)

41
Q

How does a high credit score affect you?

A

Low interest rate on loans; Ability to receive loans/credit; Ability to receive conveniences such as cell phone and credit cards

42
Q

How does a low credit score affect you?

A

High interest rate on loans; Inability to receive loans/credit; Inability to acquire conveniences

Financial literacy (9 decks)

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