Module 8 (General Financial Planning Applications) Flashcards
College cost have historically risen by a rate higher than the…
customer price index.
When determining the amount on money to save for college, what 5 factors should be considered?
– 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
This type of investment vehicle it’s considered free from default risk.
US Savings bond (Series EE and Series I)
Bonds are tax-free if you redeem them for…
Education purposes and you have income below certain threshold.
What type of bond has a fixed interest rate which makes them not as useful when considering inflation?
Series EE
What is a Section 529 plan?
Education savings funding vehicle that is handled by the state where the college. Prepaid tuition plans in savings plans.
Section 529 plans are tax-free if used for…
education expenses.
This investment vehicle is the most attractive too conservative investors since the investment guarantees to pay for tuition.
Section 529
A Section 529 plan, contributions are allowed regardless of…
income.
What are the limits like for Section 529 plans?
high limits
Are the contributions to a Section 529 plan deducted for federal income tax purposes?
No
The rate of return for a Section 529 plan is based on the investments selected by…
the account owner.
This investment vehicle for education allows a limit of $2000 per year and for contributions.
Coverdell Education Savings Account
Is there any restrictions as to who can contribute to the Coverdell account?
No
Who controls the investments and withdrawls with a Coverdell Education Savings Account?
The owner of the account
This educational credit is allowed for expenses that you incur for the first four years of post secondary education.
American Opportunity Tax Credit
What educational contributions phase-out after your AGI exceeds a certain level?
– Coverdell
– American Opportunity Tax Credit
– Lifetime Learning Credit
The American opportunity tax credit is only a available for students that are in rolled…
half-time for at least one academic period.
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.
Lifetime Learning Credit
Government provides funds for education through the…
Department of Education.
Your ability to receive federal aid depends on 3 things what are they?
– Expected Family Contribution (how much your family makes)
– Student aid report
– Cost of attendance (tuition)
Do your grades affect the amount of money you’ll get for financial aid?
No
What are the four needs-based bonds offered by the government?
- Federal Pell Grants
- Supplemental Educational Opportunity Grants
- Federal Perkins Loan
- Subsidize Stanford Student Loans
This is the primary grant program for undergraduate full-time and part-time (for lesser money) students.
Federal Pell Grants
This grant program is administered by the aid office at each school for undergraduate students only with a extreme financial need.
Supplemental Education Opportunity Grants
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.
Federal Perkins Loans
This type of government loan program must be paid within 10 years and is the major source of education borrowing.
Subsidize Stafford Student Loans
What are the 2 types of loans given to students based on a non-needs-basis?
- Unsubsidized Stafford Student Loans (must be paid within 10 years)
- Parent Loans for Undergraduate Students (interest starts the day you get the loan)
This loan allows you to borrow the entire cost of your education.
Parent Loans for Undergraduate Students
This type of loan program allows graduate students to borrow money is well.
Parent Loans for Undergraduate Students
What are some emergencies that can result in a significant reduction any clients net worth?
– Loss of a job
– Expensive repairs to your car or house
What is the best approach for handling emergencies posing a serious loss?
Insurance.
What should an emergency fund be used for if you have an emergency that puts you in a serious financial bind?
The deductible
An emergency fund should generally be how much of your take-home pay or total expenses?
3 to 6 months of your salary
What are some things that can influence the size of your emergency fund?
age, health, and financial situation
Might be more appropriate to have a smaller emergency fund if…
- Home equity line of credit or other source of low-cost following is available
- You have multiple sources of income
- Stable employment or a skill best constantly in demand
What are some factors that might make a client increase their emergency fund?
– Issues with the job security – Downsizing at work – Self-employment – Switch to commission-based job – There's a period of economic uncertainty
An emergency fund should consist of investments that are…
liquid (cash, cash equivalents, treasury bills, short-term CDs, money market mutual funds) assets.
If you’re considering using an investment as an emergency fund, what are some inappropriate investment ideas?
Real estate
Equity mutual funds
Collectibles
What are the sources a fund for an emergency fund?
Saves accounts
Home equity line of credit
Laddered CDs that are set to mature more periodically
Creation of an emergency fund should take precedence over investing for…
Retirement
Including home equity loans, this is the largest component of your debt.
Mortgage debt
Two types of consumer debt.
- non-revolving credit (car, & education loans, vacation cost)
- revolving credit (credit cards and store credit line)
The most common credit score used in over 75% of credit decisions.
FICO score
What are the five factors that are included in your credit score?
- Payment history
- The amount owed
- Leave of credit history
- New credit inquiries
- Type of credit
Auto leases are appropriate for people who…
– Don’t like negotiating purchase price
– Want to reduce monthly payment and down payments
– Plan to retain the car for three years or less
What is the money factor formula used to determine the lessor’s required monthly return?
Interest Rate / 24
Leases can either be _____________ or ______________.
closed-end (the dealer absorbs the loss in value)
open-end (consumer absorb the loss in value)
Home equity loan is considered
Second mortgage.
The interest rate on a home equity loan is typically _____________ than the rate charged on other types of loans.
Lower
Can the interest on a home equity loan and a home equity line of credit be deducted when you do your taxes?
Yes
This type of loan offers more flexibility than a home equity loan.
Home Equity Line of Credit
Does a home equity line of credit have a fixed interest rate or a variable interest rate?
Variable
The downside of having a home equity line of credit?
Borrower may owe more on their house then its value.
Chapter 7 bankruptcy and Chapter 13 bankruptcy, what’s the difference between the two?
Chapter 7 – liquidation (straight bankruptcy)
Chapter 13 – repayment plan (3 to 5 years)
If someone files for bankruptcy what is one of the requirements?
Take a credit management course
How long does a Chapter 7 remain on your credit report?
10 years
How can a Chapter 7 bankruptcy be initiated?
The person that owes the money or the creditor.
Is a bankruptcy estate formed with a Chapter 7 or Chapter 13?
Chapter 7
If you file Chapter 7 which one of your assets are liquidated?
Non-exempt assets
When you file a Chapter 7 bankruptcy, what are some debts that you cannot eliminate?
Taxes
Student loans
Alimony
Debts from fraud/illegal activity
Does someone have to have income in order to qualify for Chapter 13 bankruptcy?
Yes
