STEAM Flashcards
What are some common financial goals?
-nice car
-good education
-home
-travel-comfortable retirement
what are the key parts of a financial plan?
set realistic and quantified goals
-take careful inventory of assets (what you own) and liabilities (what you owe)
-Understand your income, expenses, and what you can save
-find ways of increasing income, reducing expenses, and carefully investing savings
what are the benefits of having a good financial plan?
-introduces realism: differentiates wishes and what can actually happen
-forces decisions to be made
-forces action to be taken
compare and contrast: Goals, Net worth, and Budgets for people at different stages of life
current income
How can debt be negative?
-personal lives can be harmed when debt is abused
-businesses can fail and be closed
-economies can be adversely impacted
what are commonly used forms of debt?
-consumer: home mortgages, auto loans, personal loans, credit cards, education loans
-business: construction loans, mortgages, capital equipment financing, working capital
-government: school and building construction, highway construction, budget deficits
what determines interest rates?
-demand and supply of available capital
-the risk of the loan being repaid
-the length of the loan
-the collateral pledge by the borrower
-the interest rate charged by the federal reserve bank to member banks
Why is risk important in determining interest rates?
-the lender wants to be repaid
-if there is a relatively high probability the lender will not be repaid, the lender anticipates a loss and covers that potential loss in the rate charged to the borrower
What is some additional information a lender may request from a loan applicant?
-address history
-employment history
-salary information
What are the major steps a bank takes in evaluating a loan applicant?
bank verifies the information in the loan application
-bank assesses the value of any assets pledges as collateral
-bank checks credit history
-bank notifies applicant of decision
-if accepted: formal meeting where loan agreement is signed and cash is transferred to borrower
What work do credit Bureaus do and why is it important?
-credit bureaus make credit scores (assessments based on your debt repayment history and current credit balances).
-their information and scores are available to banks and lending institutions to assist them in making loan decisions
What could happen if you default on a loan?
-student loan: due date accelerated, wage garnishment, tax refunds confiscated
-home mortgage: home foreclosure
-credit card: collection agencies get involved, lawsuits, wage garnishment
-auto loan: car repossessed
pros and cons of bankrupcy
pros:
-allows debtors to emerge from default
-“wipes clean” certain unsecured debts
-avoids legal judgement
cons:
-severely hurts credit score
-secured debts will have collateral seized
certain debts not eligible for relief (debt to government, child support & alimony, personal injury debts)
what is debt.
Debt is money you owe a person or a business. It’s when you’ve borrowed
money you’ll need to pay back. Usually, people borrow money when they
don’t have enough to pay for something they want or need. If you do borrow
money, it’s best to have a plan for how you’ll pay it back.
