Unit 3 Test Flashcards
Define bank
A for-profit business that invests money deposited by customers, provides loans and exchanges currency
Define credit-union
A non-profit cooperative owned by its members. Like banks, credit unions accept deposits, make loans and provide a wide array of other financial services
What’s a savings account
A savings account is an account where money is kept for future use.
What’s a chequing account
A chequing account is an account that allows checks to be written and deposited by the account holder.
What’s a credit card
A credit card is a card that allows consumers to purchase goods or services on credit (borrow the money now and pay later).
What’s a loan
Lump amounts of money with fixed payments that must be paid each month
Examples include mortgages, student loans, car loans
Things to consider when picking a financial institution
Products and services offered
Fees (some financial institutions offer products without fees)
Interest rates
When you are depositing money, you want to look for the highest possible interest rate.
What you are borrowing money, you want to look for the lowest possible interest rate.
Location and convenience
Define transaction
A record of money that has been deposited or withdrawn from your bank account.
Define deposit
Adding a sum of money to your account to increase your account balance.
Define withdrawal
When you take money out of your account, reducing the amount of money in your account.
Define interest
The amount a financial institution charges a borrower or gives a lender for use of their money.
Define balance
The amount of money in a financial institution, such as a savings or chequing account, at a given moment.
Define minimum balance
A specific amount of money that a bank or credit union requires in order for you to open or maintain a particular account without paying fees.
Define monthly/annual fee
The once-a-month or once-a-year cost of owning a credit card, saving, or chequing account.
Define ATM
An automated teller machine. A computer terminal for user initiated banking transactions.
Define transfer
When you move money from one account to another, say from a chequing account to a savings account.
Define E-transfer
A transfer done entirely online.
What’s good debt
Debt that helps you earn more in the long term with proper planning, such as school loans, business loans, or real estate mortgages
What’s bad debt
Debt that has no potential of making you money is considered bad debt
What’s you debt load
The sum total of all the money you owe
Debt-to-Income Ratio =
monthly debt payments ÷ monthly income
What are some warning signs that your debt is getting out-of-hand
not being able to pay bills
owing late fees
a debt-to-income ratio (DTI) of 43% or more.
How to prevent debt problems
Keep track of what you owe and monitor your credit report for accuracy
Avoid borrowing more money than you can afford to repay
Not everyone receives a steady paycheck. If your income varies, it is of particular importance to minimize your debt burden
Create a plan for repayment when considering loan options
Pay bills on time
What’s a credit score
A credit score is a 3-digit number that represents how likely a credit bureau thinks you are to pay your bills on time.
What are the two main credit bureaus in Canada
Equifax and TransUnion
Factors in your credit score
Payment history
How much you owe
Length of your credit history
Different types of credit you have used
New applications for credit
Credit score range
300-900
What’s considered a good/bad credit score
660-724 is considered good
725-759 is considered very good.
760 and above is considered excellent
What are some ways to build your credit
Pay bills on time
Open and pay off a loan
Maintain a credit card balance that is less than 10% of your credit limit
What should you consider while choosing a credit card
Interest rates and whether they are fixed or variable
Annual, late, and overdraft-limit fees
Credit limit on account
Grace periods before interest of fees begin accruing
Rewards, including airline miles or cash back
What are savings
Savings means safely putting money aside for future use.
Examples of savings
Savings account
GICs
RRSPs
RESPs
TFSA
What’s investing
Investing is using your savings to earn extra income.
Examples of investing
Real estate, collectibles
Stocks
Index Funds
Mutual funds
Bonds
What should you consider while making a savings/investment plan
Risk, liquidity, yield,
Define risk
Your danger of losing money.
Define liquidity
How fast the savings or investment can be converted into cash
Define yield
The money earned through interest or any increase in price.
Define simple interest
Simple Interest is interest that is calculated only on the principal.
Define compound interest
Compound Interest is interest that is calculated on the principal and the interest you have already earned.
Advantage and disadvantage to savings
Advantage: money is protected
Disadvantage: lower yield
Advantage and disadvantage to investing
Advantage: higher yield
Disadvantage: higher risk
What are life events that will make you money
Birthday gifts
Winning contests
Raise/bonus at work
Job
Inheritance
Investments
What are life events that will lose you money
Breaking your phone
Stove breaking down
Losing your wallet
Your rent increasing
Tax
What are ways you can prepare for an unexpected life event
Emergency fund, insurance, budgeting
What’s an emergency fund
An emergency fund is money set aside for emergency expenses.
Your emergency fund should be easily accessible (i.e. savings account, TSFA) and low risk
It is recommended that you have enough in an emergency fund to cover 3-6 months of expenses
What’s insurance
Insurance is an agreement that helps to protect against financial risk in the event something unexpected happens.
What’s budgeting
Your budget can help you plan for unexpected life events by keeping you from uverextending (spending more than you have).
You can also build plans into your budget to prepare for inevitable life events.
