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CHFC HS 300 > Module 8 (General Financial Planning Applications) > Flashcards

Module 8 (General Financial Planning Applications) Flashcards

1
Q

College cost have historically risen by a rate higher than the…

A

customer price index.

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2
Q

When determining the amount on money to save for college, what 5 factors should be considered?

A 
– Rate of return on investments
– Education inflation rate (hard to determine)
– Current cost of one year of school
– Duration of college education
– Number of years until matriculation
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3
Q

This type of investment vehicle it’s considered free from default risk.

A

US Savings bond (Series EE and Series I)

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4
Q

Bonds are tax-free if you redeem them for…

A

Education purposes and you have income below certain threshold.

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5
Q

What type of bond has a fixed interest rate which makes them not as useful when considering inflation?

A

Series EE

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6
Q

What is a Section 529 plan?

A

Education savings funding vehicle that is handled by the state where the college. Prepaid tuition plans in savings plans.

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7
Q

Section 529 plans are tax-free if used for…

A

education expenses.

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8
Q

This investment vehicle is the most attractive too conservative investors since the investment guarantees to pay for tuition.

A

Section 529

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9
Q

A Section 529 plan, contributions are allowed regardless of…

A

income.

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10
Q

What are the limits like for Section 529 plans?

A

high limits

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11
Q

Are the contributions to a Section 529 plan deducted for federal income tax purposes?

A

No

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12
Q

The rate of return for a Section 529 plan is based on the investments selected by…

A

the account owner.

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13
Q

This investment vehicle for education allows a limit of $2000 per year and for contributions.

A

Coverdell Education Savings Account

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14
Q

Is there any restrictions as to who can contribute to the Coverdell account?

A

No

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15
Q

Who controls the investments and withdrawls with a Coverdell Education Savings Account?

A

The owner of the account

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16
Q

This educational credit is allowed for expenses that you incur for the first four years of post secondary education.

A

American Opportunity Tax Credit

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17
Q

What educational contributions phase-out after your AGI exceeds a certain level?

A

– Coverdell
– American Opportunity Tax Credit
– Lifetime Learning Credit

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18
Q

The American opportunity tax credit is only a available for students that are in rolled…

A

half-time for at least one academic period.

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19
Q

This text credit is for expenses incurred for education, for an unlimited number of years, available to any student, with a maximum credit of $2,000.

A

Lifetime Learning Credit

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20
Q

Government provides funds for education through the…

A

Department of Education.

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21
Q

Your ability to receive federal aid depends on 3 things what are they?

A

– Expected Family Contribution (how much your family makes)
– Student aid report
– Cost of attendance (tuition)

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22
Q

Do your grades affect the amount of money you’ll get for financial aid?

A

No

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23
Q

What are the four needs-based bonds offered by the government?

A
  1. Federal Pell Grants
  2. Supplemental Educational Opportunity Grants
  3. Federal Perkins Loan
  4. Subsidize Stanford Student Loans
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24
Q

This is the primary grant program for undergraduate full-time and part-time (for lesser money) students.

A

Federal Pell Grants

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25
Q

This grant program is administered by the aid office at each school for undergraduate students only with a extreme financial need.

A

Supplemental Education Opportunity Grants

26
Q

This type of federal loan program is when the school lends money to a student and the interest accrues after the student leaves the school.

A

Federal Perkins Loans

27
Q

This type of government loan program must be paid within 10 years and is the major source of education borrowing.

A

Subsidize Stafford Student Loans

28
Q

What are the 2 types of loans given to students based on a non-needs-basis?

A
  1. Unsubsidized Stafford Student Loans (must be paid within 10 years)
  2. Parent Loans for Undergraduate Students (interest starts the day you get the loan)
29
Q

This loan allows you to borrow the entire cost of your education.

A

Parent Loans for Undergraduate Students

30
Q

This type of loan program allows graduate students to borrow money is well.

A

Parent Loans for Undergraduate Students

31
Q

What are some emergencies that can result in a significant reduction any clients net worth?

A

– Loss of a job

– Expensive repairs to your car or house

32
Q

What is the best approach for handling emergencies posing a serious loss?

A

Insurance.

33
Q

What should an emergency fund be used for if you have an emergency that puts you in a serious financial bind?

A

The deductible

34
Q

An emergency fund should generally be how much of your take-home pay or total expenses?

A

3 to 6 months of your salary

35
Q

What are some things that can influence the size of your emergency fund?

A

age, health, and financial situation

36
Q

Might be more appropriate to have a smaller emergency fund if…

A
  1. Home equity line of credit or other source of low-cost following is available
  2. You have multiple sources of income
  3. Stable employment or a skill best constantly in demand
37
Q

What are some factors that might make a client increase their emergency fund?

A 
– Issues with the job security
– Downsizing at work
– Self-employment
– Switch to commission-based job
– There's a period of economic uncertainty
38
Q

An emergency fund should consist of investments that are…

A

liquid (cash, cash equivalents, treasury bills, short-term CDs, money market mutual funds) assets.

39
Q

If you’re considering using an investment as an emergency fund, what are some inappropriate investment ideas?

A

Real estate
Equity mutual funds
Collectibles

40
Q

What are the sources a fund for an emergency fund?

A

Saves accounts
Home equity line of credit
Laddered CDs that are set to mature more periodically

41
Q

Creation of an emergency fund should take precedence over investing for…

A

Retirement

42
Q

Including home equity loans, this is the largest component of your debt.

A

Mortgage debt

43
Q

Two types of consumer debt.

A
  1. non-revolving credit (car, & education loans, vacation cost)
  2. revolving credit (credit cards and store credit line)
44
Q

The most common credit score used in over 75% of credit decisions.

A

FICO score

45
Q

What are the five factors that are included in your credit score?

A
  1. Payment history
  2. The amount owed
  3. Leave of credit history
  4. New credit inquiries
  5. Type of credit
46
Q

Auto leases are appropriate for people who…

A

– Don’t like negotiating purchase price
– Want to reduce monthly payment and down payments
– Plan to retain the car for three years or less

47
Q

What is the money factor formula used to determine the lessor’s required monthly return?

A

Interest Rate / 24

48
Q

Leases can either be _____________ or ______________.

A

closed-end (the dealer absorbs the loss in value)

open-end (consumer absorb the loss in value)

49
Q

Home equity loan is considered

A

Second mortgage.

50
Q

The interest rate on a home equity loan is typically _____________ than the rate charged on other types of loans.

A

Lower

51
Q

Can the interest on a home equity loan and a home equity line of credit be deducted when you do your taxes?

A

Yes

52
Q

This type of loan offers more flexibility than a home equity loan.

A

Home Equity Line of Credit

53
Q

Does a home equity line of credit have a fixed interest rate or a variable interest rate?

A

Variable

54
Q

The downside of having a home equity line of credit?

A

Borrower may owe more on their house then its value.

55
Q

Chapter 7 bankruptcy and Chapter 13 bankruptcy, what’s the difference between the two?

A

Chapter 7 – liquidation (straight bankruptcy)

Chapter 13 – repayment plan (3 to 5 years)

56
Q

If someone files for bankruptcy what is one of the requirements?

A

Take a credit management course

57
Q

How long does a Chapter 7 remain on your credit report?

A

10 years

58
Q

How can a Chapter 7 bankruptcy be initiated?

A

The person that owes the money or the creditor.

59
Q

Is a bankruptcy estate formed with a Chapter 7 or Chapter 13?

A

Chapter 7

60
Q

If you file Chapter 7 which one of your assets are liquidated?

A

Non-exempt assets

61
Q

When you file a Chapter 7 bankruptcy, what are some debts that you cannot eliminate?

A

Taxes
Student loans
Alimony
Debts from fraud/illegal activity

62
Q

Does someone have to have income in order to qualify for Chapter 13 bankruptcy?

A

Yes

CHFC HS 300 (15 decks)

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