Personal Finance Study Guide Flashcards
401(k) plan
An employer-based plan whereby employees set aside money for retirement that is sometimes matched by employers
403(b) plan
A retirement account for employees of schools, tax-exempt organizations, and government units
Adjusted balance method
A way to compute finance charges in which creditors add finance charges after subtracting payments made during the billing period
Adjusted gross income
Income minus allowable exclusions (such as IRAs and alimony)
AMEX
The American Stock Exchange, which is one of the organized stock markets in the US
Amount due
When referring to credit, the minimum monthly payment you must make, not the total amount you owe
Annual fee
The annual membership fee, if any, to have a credit card
Annual Percentage Rate (APR)
The cost of credit for one year expressed as a percentage
Annual percentage yield (APY)
The true or effective rate of interest when compounding is taken into effect.
Annual report
Information about a company that allows a potential investor to make an investment decision. Annual reports are distributed by the company and are generally designed to show the company in a favorable light
Annuity
A contract or agreement whereby money is set aside for a specified period of time, at the end of which you begin receiving payments at regular intervals
Assets
Property that can be used to repay debt, such as stocks and bonds or a car
At The Market
An order to buy or sell a stock at the best price currently available
Automated Teller Machine (ATM)
Electronic terminals located on bank premises or elsewhere, through which customers of financial institutions may make deposits, withdrawals, or other transactions as they would through a bank teller
Automatic deductions
Authorized deductions from your checking account, such as for insurance premiums, safe deposit box fees, or other payments
Available credit
The portion of the credit that isn’t used but is still eligible
Average daily balance
A method of computing finance charges in which creditors add your balances for each day in a billing period, and then divide by the number of days in the period
Back-end load
a mutual fund where selling your shares results in a commission payment
Balance
To combine the sums of the debits and credits of an account
Balanced fund
A mutual fund that invests in a mix of stocks and bonds to minimize risks
Bank
A financial institutions that accumulates deposits and channels money into lending activities
Bank statement
The record of checks paid, deposits made, and all other activity on an account
Bankruptcy
Legally insolvent; not capable of paying bills
Bear market
A market characterized by falling prices of 15 percent or more; characterized by pessimism
Bearer bond (coupon bond)
A bond not registered by an issuing company
Benefits
Sick pay, vacation time, and other company-provided supplements to income
Billing cycle
The number of days between your last bill and your current bill
Billing error
Any mistake in your monthly statement as defined by the Fair Credit Billing Act
Blank endorsement
The signature of the payee written on the back of the check exactly as it appears on the front of the check
Blue chip stocks
Stocks in the biggest, most established, and consistently profitable companies in the United States
Bond fund
A mutual fund that invests in government, corporate, or tax-exempt bonds with different maturity dates
Bonds
Debt obligations of corporations or the government
purchasing a bond, you lend money to issuer, who promises to repay you
Borrower
The person who borrows money or uses another form of credit
Broker
A person who buys and sells stock on an exchange, on behalf of a buyer or investor
Budget
An organized plan where you match your expected income to your expected outflow
Bull market
A rising stock market (in both volume and prices), which is characterized by optimism
Business
An organization that produces goods and services. Most businesses try to earn a profit
Call option
The right to buy stock or futures contracts at a fixed price until the expiration date
fixed price: a price that will not change after it is agreed
Callable bond
Bonds that can be recalled, or paid off, before their due date
Canceled check
Checks the bank has processed
Capacity
The ability to repay a loan from present income
Capital
a term for cash or financial assets held by a business or an individual
Capital gains
Profits from sale of assets, such as stocks, bonds or real estate that are not taxed until the asset is sold
Capital goods
Buildings, tools, machinery and other manufactured items used to produce goods and services
Cardholder agreement
A written contract that sets forth the terms that apply to a credit or charge card account, including the interest rate charged, the method of calculating interest and any annual or transaction fees
Cash advance
A loan taken out by charging an amount of cash to a credit card
Cash flow (positive)
The excess of income over and above expenses
Cashier’s check
A check written by a bank on its own funds in exchange for payment by an individual
Instead of your money, bank guarantees the amounts from its own account
Certificate of deposit CD
a type of savings account offered by banks and credit unions. You generally agree to keep your money in the CD without taking a withdrawal for a specified length of time.
Withdrawing money early means paying a penalty fee to the bank
Certified check
A personal check that the bank guarantees to be good
Character
A trait of creditworthiness indicating a responsible attitude toward paying debts
Charge card
A credit card which requires full payment of the bill each month; no interest is charged
Check card
Also called a debit card it works like a check. It is used to access funds from your checking account
Checkbook register
A record of deposits to and withdrawals from a checking account.
Checking account
A banking service wherein money is deposited into an account and checks are written to withdraw money as needed
Closed-end credit
A contract for the loan of a specified amount in which the contract issued tells the amount of purchase, the total finance charge, and the amount of each payment
Co-signer
Someone who signs a loan with the borrower and promises to assume the responsibility of repaying the debt in the event that the borrower does not repay it
Collateral
Savings, bonds, insurance policy, jewelry, property or other item that is pledged to pay off a loan or other debt if payments are not made according to the contract; also called security
Commission
Pay based on a percentage of sales
Common stock
A class of stock whereby the person who owns the stock shares directly in the success or failure of the business
Compound interest
Interest paid on the original principal plus the accumulated interest
Consumer
A customer who buys the products or services a business produces
Consumer Price Index (CPI)
A special average of many prices of goods and services that people often buy; the CPI is calculated by the US Department of commerce
Convertible bond
A bond that can be be exchanged for common stock at maturity
Cooperative
A type of corporation, like a credit union, that is owned by the people who use its services
Corporate bond
An IOU issued by a corporation in owner to borrow money
Corporation
A business that is owned by stockholders and has rights and responsibilities just like a person
Credit
The privilege of borrowing something now, with the agreement to pay for it later
Credit bureau
A for-profit company that is in the business of accumulating, storing, and distributing credit information
Credit card
A card that allows you to buy items on credit and pay off your debt over time
Credit history
A record of your credit performance
Credit limit
The amount of credit you are authorized to use
Credit report
A written report issued by a credit bureau that contains relevant information about a person’s creditworthiness
Credit scoring system
A statistical system used to rate credit applicants according to various characteristics relevant to creditworthiness
Credit union
A democratically owned and controlled not-for-profit financial cooperative that offers a variety of savings and lending services to members
Creditor
Any person to whom one owes money or goods
Creditworthiness
Past and future ability to repay debts
Customer
A person who buys the goods or services produced by a business
Debit card
A plastic card that consumers may use to make purchases, withdrawals, or other types of electronic fund transfers. Use of a debit card results in an immediate transfer of funds
Debt
Money owed
Debt balance
amount still owed on a debt
Debt collector
A person or company hired by a creditor to collect the balance due on overdue accounts
Debt load
The amount of outstanding debt at a particular point in time
Debtor
One who owes money to another
Deductions
Amount subtracted from gross pay
Depreciation
Loss in value of a consumer good during its lifetime often associated with appliances and vehicles
Direct investments
Investments in which the investor holds legal title to a property
Discharged debt
A debt that is no longer owed after declaration of bankruptcy
Discretionary income
Money that is left over when the bills have been paid
Disposable income
The money you have to spend or save as you wish after taxes, social security, and other required and optional deductions have been withheld from your gross pay
Diversification
Holding a variety of securities so an occasional loss in one can be offset by gains in others
Dividends
A distribution of money or stock that a corporation pays to stockholders
Dollar-cost averaging
The process of making regular payments or investing the same amount periodically
Dow Jones Industrial Average
An indicator of 30 industrial stock prices used to measure the general level of stock prices
Down payment
An amount given as security for a loan to ensure that other remaining payments will be made
Drafts
Checks used to withdraw money from an account
Due date
The date payment is due to a creditor
Early withdrawal penalties
Fees charged to depositors who take money from their account before a minimum time period has expired
Earnings per share
A corporation’s after-tax earnings divided by the number of shares of common stock outstanding
Electronic Fund Transfer systems
A variety of systems and technologies for transferring funds electronically rather than by check
Equal Credit Opportunity Act (ECOA)
Forbids discrimination in granting credit because of age, sex, marital status, religion, race, color, national origin, or receiving public assistance
Face value
The amount a bondholder will be repaid when the bond matures or is due
Fair Credit Reporting Act
Consumers’ rights are protected when collecting and reporting information when applying for credit, insurance, and employment
Family of funds
A mutual fund account that allows you to choose more than one type of mutual fund and switch back and forth
Finance charge
The percentage charge applied to the daily or monthly balances as described in the credit agreement
Financial advisers
Trained professional planners who give overall investment advice
Financial markets
Markets that direct savings into money-type assets (such as stocks, bonds, and bank accounts) that pay households for the use of their savings. Commercial banks, savings and loans, credit unions, insurance companies, brokerage houses, pension funds, and investment bankers are some of the businesses that are found in financial markets
Fixed expenses
Expenses that remain constant
Fixed interest rate
An interest rate that does not change
Floating a check
The practice of writing a check on insufficient funds and hoping to make a deposit to cover the check before it is cashed
Futures contract
An agreement made today for commodities bought and sold in the future
Futures market
A transaction that allows people to know in advance what they will be paid in the future
General obligation bond
A bond that is backed by the full faith and credit of a governmental unit
Global fund
A mutual fund that purchases international stocks and bonds as well as US securities
Government securities
An IOU issued by the US Treasury in order to borrow money. Owners of these IOUs receive fixed interest payments from the Treasury until the IOU is repaid at a given date in the future. Government securities come in three types. Treasury bills are short-term IOUs that are repaid within a year or less. Treasury notes are medium-term IOUs that are repaid within 1-10 years. Treasury bonds are long-term IOUs that are repaid after 10 years or more
Grace period
The period of time from the billing date of your last credit card bill to the due date of your current bill, when you can pay in full without being charged interest
Gross income
All taxable income received, including wages, tips, salaries, interest, dividends, unemployment compensation, alimony and others
Gross pay
The total salary before any deductions are made
Growth funds
Mutual funds that invest in the common stock of established companies as well as in new companies and industries
Growth stocks
Stocks issued by a corporation that will provide future returns rather than income in the short term
High-yield fund
Mutual fund that invests primarily in lower-rated bonds
Income
Money that comes in from property, business or work
Income fund
A mutual fund that specializes in income-producing securities, which consistently pay good dividends
Income statement
A summary of a company’s revenue and costs for a given year
Income stocks
Stocks that have a consistent history of paying high dividends
Individual Retirement Account (IRA)
A retirement plan that allows workers to set aside money each year in tax-deferred savings
Inflation
An increase in the general level of prices you pay for goods and services. A popular measure of inflation is the consumer price index
Installment loan
A loan to be repaid in fixed payments that include principle and interest
Interest
Money paid for the use of money; earnings on a savings account
Investment
Outlay of money in the hope of realizing a profit
Investment banker
A business that gives corporations advice on how to raise money and also sells new issues of stocks or bonds
Investment company
A firm that, for a management fee, invests pooled funds of small investors in different types of securities
Investment grade
High-quality bonds
Investment portfolio
A group of collection of investments, including cash, CDs, stocks and more
Investment strategy
A plan that examines potential returns and rates investments according to desirability
Investor services
Companies that provide investors with financial information about companies
Joint account
An account held by two people
Joint endorsement
The signatures, on the back of a check, of both persons named as payees on the front of the check
Junk bonds
Corporate bonds with a low or no investment rating
Late payment fee
A charge added to an account if a required payment is not received by a specific date
Liabilities
Amounts of money that are owed to others
Line of credit
A pre-established amount that can be borrowed on demand
Liquidity
The quality of being easily converted to cash
Listed stock
Stocks that have been approved and listed for trading by one of the organized stock exchanges
Loan
Money loaned out at interest
Long-term investing
Buying stock and then keeping it for many years in an effort to have one’s money grow in step with stock prices generally
Market
The process through which buyers and sellers exchange with one another
Market confidence
Understanding value and quality of a product or service in the planning of purchases. Using decision-making skills in purchasing products or services
Market economy
An economic system whereby both producers and consumers play an active role in determining what is produced and sold and at what price
Maturity
The time when a corporation repays borrowed money
Maturity date
The date on which you must renew a certificate, cash it in, or purchase a new certificate; the date on which a bond’s principal amount must be repaid in full
Minimum monthly payment
The smallest payment you can make to maintain a credit account on current status
Money Market Account
A bank deposit that pays interest and that allows a saver to withdraw money at will, often by writing checks
Money market fund
A combination savings-investment plan in which the deposit holder (brokerage firm) invests your money in a variety of financial instruments
Money order
An order purchased at a post office or financial institution directing another office to pay a specified sum of money to a person or fund named on it
Monopoly
A situation where there is only one producer of a product or service
Municipal bonds
Bond issued by state and local government units. Earnings are tax-free
Mutual fund
A company that pools the money of many investors to buy a large selection of securities that meet the fund’s state investment goals
NASDAQ
The National Association of Securities Dealers Automated Quotation system is an important part of the over-the-counter market. NASDAQ is an electronic marketplace listing prices of more than 5,000 stocks
Negotiable instrument
A document that contains promises to pay monies and is legally collectible
NOW account
Negotiable Order of Withdrawal. Another name for the first checking accounts offered by savings and loans
Net income
A company’s revenue minus its expenses. Net income is also called earnings or profits
New issues market
A market in which a corporation sells new stock to raise money for start-up or expansion. This market is often called the primary stock market
NYSE
The New York Stock Exchange, which is one of the organized stock markets in the US
No-load mutual funds
Mutual funds that do not charge commissions. However, there are annual maintenance charges and service fees
Open-ended credit
Credit wherein the lender places a limit on how much a qualifying customer can borrow during a given period
Option
The right to buy or sell stock at a predetermined price
Over-the-limit fee
A charge imposed on some credit accounts for spending more than your credit limit
Over-the-counter (OTC) market
A network of stockbrokers who buy and sell securities of corporations that are not listed on a securities exchange
Overdraft (or NSF not-sufficient funds check)
A check written without sufficient money in an account to cover it
Overdraft checking
A line of credit that allows you to write checks or withdraw funds totaling more than your actual balance
Past due
The status of a bill when the minimum payment has not been received by the due date
Penny stock
Stocks that sell for less than $5 per share
Percentage yield
The amount of dividends received per share of stock divided by the stock’s price. The yield is always stated as a percentage
Periodic rate
The interest rate described in relation to a specific amount of time. For example, the Monthly Periodic Rate is the cost of credit per month
Personal Identification Number (PIN)
A four-digit code that allows you to make deposits and withdrawals with your ATM (Automated Teller Machine) card
Positive cash flow
When income exceeds the amount needed to cover expenses
Posting date
The date that a purchase, cash advance, fee, service charge or payment is recorded on your charge or credit account
Preferred stock
The type of corporate stock in which dividends are fixed, regardless of the earnings of a company
Previous balance method
A method of computing finance charges in which creditors give you no credit for payments made during the billing period
Price-fixing
An antitrust situation that occurs when competitors agree on prices rather than operate on a competitive basis
Principal
The total amount that is financed or borrowed an on which interest is compounded
Profit
The amount a business earns when the money received from selling its product or service is greater than its costs
Proprietorship
A business owned and managed by one individual who receives all profits and bears all loss
Prospectus
Detailed financial information about a mutual fund company or a company issuing stock
Public corporation
A corporation whose stock is traded openly in stock markets and may be purchased by an individual
Purchasing power
The ability to buy goods and services
Put option
The right to sell stock or futures contracts at a fixed price until the expiration date
Recession
The economy slows down and manufacturers slow production (there are layoffs); an economic downturn of two or more quarters
Registered bond
A bond that is recorded in eh owner’s name by the insuring corporation
Restrictive endorsement
An endorsement that restricts the use of a check
Retail stores
Stores that purchase goods from wholesalers and sell directly to customers
Revolving credit
A credit agreement that allows consumers to pay all or part of the outstanding balance on a loan or credit card. As credit is paid off, it becomes available to use again
Saving
Setting aside income or money for future spending
Savings bond
An interest-bearing certificate purchased at a bank. The face value includes interest and the full amount is paid upon maturity
Secured credit card
A consumer uses savings or other collateral to guarantee the credit card; the limit of credit is based on the amount of collateral available
Securities
A broad range of investment instruments, including stocks, bonds and mutual funds
Service charge
The amount charged borrowers by merchants or banks for servicing or carrying an account or loan
Share account
A savings account at a credit union; the shares are ownership interest in the credit union
Share draft account
A “checking” account offered to members of a credit union. Instead of checks, “drafts” are written against the member’s account
Short-term investing
The continual buying and selling of stock in an effort to have one’s money grow faster than the general level of stock prices
Simple interest
Interest compounded on the principal only
Standard of living
A measure of an individual’s or a family’s quality of life
Stock
Ownership in a corporation; stock can be common or preferred
Stock exchange
One of the organized stock markets with a centralized trading floor. Auction-type trading allows traders to sell stocks to the highest bidder or buy stocks from the lowest supplier
Stock market
A market in which the people trade stocks they already own
Stock split
The division of a stock into a larger number of lower-priced shares
Stockbroker
A broker who accepts orders to buy and sell stock and then transfers those orders to other people who complete them
Stockholder
An owner of a share of stock
Stop payment order
A request that the bank not cash or process a specific check
Taxable income
Adjusted gross income minus deductions
Transaction fee
An extra charge for various credit activities such as using an ATM or receiving a cash advance
Traveler’s checks
Checks issued by a bank or other institution for a specified amount and signed by the buyer, who may use it as cash by signing it again in the presence of a witness, such as a clerk in a store
Unsecured loan
A loan based on a consumer’s promise to pay without savings or other collateral as a guarantee
Unused credit
The amount of credit above what you owe that you could use; a maximum is usually set
Usury laws
Laws setting maximum interest rates that lenders may charge
Variable interest rate
An interest rate that changes up or down on a set schedule based on an economic index such as the prime rate
Yield
The rate of return earned by an investor who holds a security, such as a bond or stock, for a stated period of time
Zero balance
When the outstanding balance is paid and there are no new charges during a billing cycle
Zero-coupon bond
A bond that is sold at a price far below its face value, makes no annual or semi-annual interest payments, and is redeemed for its face value at maturity
