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Financial Literacy
Financial Literacy Final Exam Review
| Term | Definition |
|---|---|
| Budgeting | A plan for making, saving and spending money. |
| Salary | A set amount of money paid to an employee for a set period of time worked. You are paid the same no matter how many hours you work. |
| Wage | An amount of money paid to an employee at a specified rate per hour worked. If you work more hours, you will be paid more. |
| Gross Pay | The total amount of money you earned for work |
| Net Pay | The amount of money you have left, after deductions. Also known as take home pay. |
| Cost Comparison | The amount of money you have left, after deductions. Also known as take home pay. |
| Cost-Benefit Analysis | Analyzing whether the cost of an item is more than. equal to, or less than the benefit that comes from purchasing that item. |
| Opportunity Cost | Choosing one option that affects whether or not we can make the other choice when making a spending decision. |
| Cash Flow | Money coming in and money going out |
| Fixed Expense | Expenses that are the same each month. (rent, phone, car) |
| Variable Expense | Expenses that change in price and frequency each month (food and gas) |
| Short Term Goal | Less than 6 months to achieve |
| Medium Term Goal | Less than a year to achieve |
| Long Term Goal | Longer than a year to achieve |
| Income Tax | Taxes paid by employees to federal and state government. Collected or withheld from one's paycheck. |
| Payroll Tax | Federal and state taxes that all employers must pay, based on a percentage of the employee's salary. They go to such things as Social Security and Medicare/Medicaid |
| Corporate Income Tax | A percentage of profits paid by a business to the federal and state government. |
| Excise Tax | A tax paid on purchases of a specific good, like gasoline. |
| Estate Tax | A tax on property (cash, real estate, stock, or other assets) transferred from deceased persons to their heirs. |
| Social Security | A program that provides monthly benefits to almost 60 million Americans, including retirees, military families, surviving families of deceased workers, and disabled individuals. |
| Medicare | A government-run insurance program that provides healthcare assistance to elderly Americans. |
| Medicaid | A government-run insurance program that provides healthcare assistance to poor Americans. |
| "Safety Net" Programs | A variety of government programs that benefit individuals and families with low incomes. These include food stamps, education assistance (grants and loans), housing vouchers, tax credits, job training, child care and more. |
| Mandatory Spending | Spending by the federal government required by previously existing laws. This includes funding programs like Social Security and Medicare/Medicaid. |
| Discretionary Spending | Spending by the federal government determined by legislative action. In other words, spending approved through votes by elected officials (i.e. Congress). |
| "Sin" Taxes | A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling |
| Cost of Living | The amount of money needed to sustain a certain level of living, including basic expenses such as housing, food, taxes, and healthcare |
| Real Estate Tax | A tax assessed on real estate by the local government. The tax is usually based on the value of the property (including the land) you own. |
| Vehicle/Property Tax | Taxes usually assessed as a percentage of the value of items you own (cars, boats, etc.). |
| Tax Rate | The percentage at which taxes are paid on a dollar of income. |
| Tax Bracket | A range of income amounts that are taxed at a particular rate. |
| Progressive Tax System | A tax that takes a larger percentage from the income of high-income earners than it does from low-income individuals. |
| Taxable Income | The amount of income that is used to calculate an individual's or a company's income tax due. |
| Marginal Tax Rate | The tax bracket that your last dollar of income falls into, and therefore the highest tax rate you pay. |
| Effective Tax Rate | The actual rate you pay on your taxes, as a percentage of your overall income. |
| Filing Status | A category that defines the type of tax return form an individual will use. Closely tied to marital status, it determines the size of your tax brackets and how much of your income is taxed at each rate. |
| Standard Deduction | A dollar amount that reduces your taxable income. |
| Exemption | An amount of money you can subtract from your taxable income, just for having dependents. |
| W-4 | A form completed by an employee to indicate his or her tax situation (exemptions, status, etc.) to the employer. |
| I-9 | Form used by an employer to verify an employee's identity and to establish that the worker is eligible to accept employment in the United States. |
| W-2 | Form that an employer must send to an employee and the IRS at the end of the year. |
| 1099 | Form that details all "non-employee" compensation. This includes income for completing specific jobs, like freelancers or contractors who are effectively self-employed. |
| 1040 | The standard Internal Revenue Service (IRS) form that individuals use to file their annual income tax returns. |
| 1040-EZ | Offers a faster and easier way to file taxes, meant for taxpayers with rudimentary tax situations. |
| Withholding | The portion of an employee's wages that is not included in his or her paycheck because it goes directly to federal, state and local tax authorities. |
| Allowances | Employee-claimed exemptions on the W-4 to determine how much of an employee's pay to subtract from his or her paycheck. |
| Paycheck Stub | A document attached to every paycheck that details your earnings and the amount withheld for taxes, health insurance, retirement funds, etc. |
| Interest Income | Income earned through interest in savings accounts, bonds, CDs, etc. |
| Capital Gains | Profits that an investor gains when he or she sells the capital asset (like a stock, or piece of property) for a price that is higher than the purchase price. |
| Dividends | A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. |
| Personal Exemption | You are generally allowed one exemption for yourself. If you are married, you may be allowed one exemption for your spouse. |
| Dependent Exemption | You are allowed one exemption for each person you can claim as a dependent. You can claim an exemption for a dependent even if your dependent files a return. |
| Dependent | Someone you financially support who can be "claimed" on a tax return to reduce your taxable income and lower your taxes. |
| Audit | An inspection of a filer's tax return by the IRS |
| Balance | The amount of money you have in your bank account. |
| Cancelled Check | Checks the bank has paid. They will appear on your bank statement. |
| Check | A written order to the bank that tells it to take a stated amount of money from your account and pay it to another. |
| Checkbook | A handy portfolio that holds your check register, checks, deposit slips, receipts, and other ATM/debit card transactions. |
| Check register | A record that allows you to keep track of checks you have written, ATM/debit card transactions, as well as deposits and withdrawals. |
| Credit | A sum of money deposited INTO an account. You can use a credit to charge merchandise or borrow money. |
| Debit | A sum of money deducted from your account. |
| Debit card | A plastic card that enables you to do ATM transactions and to make purchases instead of using cash or writing a check. |
| Deposit | Money you put into your account. |
| Deposit slip | A form you fill out to credit money to your account when you make a deposit. |
| Direct Deposit | Your employer automatically deposits your paycheck into your account. |
| Endorse | To sign the back of a check made out to you so it can be cashed or deposited. |
| Interest | A fee paid to you for keeping your money in the account or a fee charged to you for a loan or credit card. |
| Overdraw | To write a check or make a withdrawal when there isn't enough money in the account to pay for it. |
| Post-date | To write a future date on a check. |
| Reconcile | To "balance" your checking account with your monthly statement from the bank. |
| ATM | Automatic Teller Machine. Allows a customer to get out physical currency from their account |
| Voided check | A check with "VOID" written across it that make it non-negotiable. |
| Bank Statement | The monthly record of your account transactions sent to you by your bank. |
| PIN | Personal Identification Number needed to use an ATM card. |
| Signature card | A card used when opening a new account that includes name, address, birth date, etc. |
| Payee | The person to whom the check is made payable. |
| Outstanding check | A check that has been written but not yet deducted from the person's bank account. |
| Outstanding deposit | A deposit that has been made but not yet added to the person's bank account. |
| Credit card | A card that allows the holder to make purchases without cash by borrowing money |
| Prepaid card | A card that is loaded with a specific cash amount before you use it but then looks and works like a credit card until the full value is spent. |
| Person to person payment | An online process that allows you to send money directly from your checking account to a friend via email or cell phone. |
| Check cashing store | A business that cashes checks, giving the customer cash in exchange for a fee for the service. |
| Bank Statement | the bank's accounting of your transactions |
| certificates of deposit (CDs) | a certificate from a bank stating that the named party has a specified sum on deposit, usually for a given period of time at a fixed rate of interest |
| compound interest | interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan |
| emergency fund | money set aside for emergency expenses |
| Federal Deposit Insurance Corporation (FDIC) | the U.S. corporation insuring deposits in the U.S. against bank failure |
| National Credit Union Administration (NCUA) | The U.S. administration insuring deposits in the U.S. against Credit Union failure |
| pay yourself first | strategy for saving for the future by putting money aside before paying regular monthly bills |
| principal | original amount of money saved or invested, separate from interest or earnings |
| simple interest | interest paid on the principal alone |
| money market savings account | An account similar to a traditional savings account but that typically pays higher interest. It requires a higher minimum balance, and may allow check writing from the account. |
| direct deposit | An automatic deposit of net pay to an employee's designated bank account. |
| wealth | The worth of someone's overall assets (Assets - Debt) or (How much a person own's - How much a person owes) |
| Health Savings Account (HSA) | A type of account in which you can use pre-tax dollars to pay for out-of-pocket health care expenses. |
| inflation | A type of account in which you can use pre-tax dollars to pay for out-of-pocket health care expenses. |
| Credit | Any arrangement where you get "stuff" (money, goods, services), and agree to pay for it in the future |
| Loan | An agreement where you are credited with a fixed amount (usually of money) for a fixed period of time, usually with interest |
| Interest Rate | The percentage charged for the privilege of borrowing money |
| Principal | The amount you borrow |
| Term | The amount of time you have to repay your principal |
| Collateral | Something valuable that the lender can take as payment if you can't pay back your loan (like a house or car) |
| Co-signer | Someone who legally agrees to take responsibility for a person's debt if they cannot repay it |
| Installment loan | Loan used to finance a specific purchase for a specific amount of time; regular payments pay the interest and portion of the principal |
| Revolving credit | Open line of credit that can be used for any purchases as long as you're under the limit; payments vary monthly based on size of the debt |
| Secured debt | Debt tied to a specific tangible asset that can be used as collateral and repossessed if payments are not made |
| Unsecured debt | Debt NOT tied to a specific asset or that cannot be repossessed if payments are not made |
| Variable-rate loan | Interest rate can change, based on prime rate or index rate, over the course of the loan |
| Fixed-rate loan | Interest rate is determined before loan is granted and remains constant as long as on time payments are being made |
| Amortization | The paying off debt with a fixed repayment schedule in regular installments over a period of time |
| Credit Card | A card issued by a financial company giving the holder an option to borrow funds while they charge interest |
| Schumer Box | A table that appears in credit card agreements showing basic information about the card's rates and fees. |
| Annual Percentage Rate (APR) | The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. |
| Grace Period | The number of days between a consumer's credit card statement date and payment due date when interest does not accrue. |
| Minimum Payment | he smallest amount of a credit card bill that a credit card holder must pay each billing cycle. |
| Penalty Annual Purchase Rate (APR) | Higher interest rates that can be triggered by the slightest infraction such as just one payment that is received a day late. |
| Balance Transfer | The transfer of all outstanding balances from one credit card to a new credit card. |
| Cash Advance | When the bank takes money off of your current credit card, it typically carry a high interest rate - even higher than credit card itself - and the interest begins to accrue immediately. |
| Authorized User | A person who has permission to use and/or carry another person's credit card, but isn't legally responsible for paying the bill. |
| Secured Credit Card | A type of credit card that is backed by a savings account used as collateral on the credit available with the card. Money is deposited and held in the account backing the card. |
| Dealership Financing | The buyer and dealer enter into a contract where the buyer purchases a vehicle and agrees to pay, over a period of time, the amount financed plus a finance charge. |
| Down Payment | A type of payment made in cash during the onset of the purchase of an expensive good/service. |
| Lease | A contract by which one party (like a car dealer) conveys property (like a car), to another (like a customer) for a specified time, usually in return for a periodic payment. |
| Subsidized Direct Loans | A student loan that the federal government pays interest on as long as the student is in school half-time. |
| Unsubsidized Direct Loans | A student loan where the student is responsible for the interest during the time they are in school. They can pay that interest while studying or have it rolled into the loan |
| Direct PLUS Loans | A student loan offered to parents of students currently enrolled in post-secondary undergraduate education (or to graduate students). |
| Consolidation Loan | A loan that combines two or more education loans into a single loan, allowing the borrower to make a single monthly payment. |
| Mortgage | Instruments used by individuals and businesses to make large real estate purchases without paying the entire value of the purchase up front. |
| Fixed-Rate Mortgage | The interest rate does not change over the life of the loan. |
| Adjustable-Rate Mortgage (ARM) | The initial interest rate is normally fixed for a period of time after which it is reset periodically, often every month. |
| Home Equity | The value of ownership built up in a home or property that represents the current market value of the house less any remaining mortgage payments. |
| Home-Equity Loan | A consumer loan secured by a second mortgage, allowing home owners to borrow against their equity in the home. |
| Home Equity Line of Credit (HELOC) | A line of credit extended to a homeowner that uses the borrower's home as collateral. |
| Credit Bureau | A company that collects and sells information about how people handle credit. The three major national credit bureaus are Equifax, Experian and TransUnion. |
| Credit History | A record of a person's use of credit over time. |
| Credit Report | A document containing financial information about a person, focusing on his or her history of paying obligations, such as mortgages, car payments, utility bills and credit cards. |
| Credit Score | A three-digit number (from 300-850) that reflects the credit history detailed by a person's credit report. |
| Credit Inquiry | An item on a person's credit report that indicates that someone has asked for a copy of the individual's report. |
| FICO Score | The most commonly used credit score. The name comes from the Fair Isaac Corporation, |
| Default | A failure to make a loan or debt payment when due. |
| Collections | Attempted recovery of a past-due credit obligation (or debt) by a collection department or agency. |
| Net worth | A measurement of the sum of the value of your possessions, account balances, and cash less the debt you owe to others. |
| Credit utilization rate | A measurement of the fraction of your available credit that you are currently using |
| High rate method | A method of debt repayment whereby the borrower prioritizes paying down debts with the highest interest rates first |
| Debt snowball method | A method of debt repayment whereby the borrower prioritizes paying down debts with the smallest balances first |
| Credit counselor | A certified financial adviser, who works for an accredited nonprofit specializing in helping consumers repay debt in a responsible manner through education, budgeting, and other tools |
| Bankruptcy | A legal process that relieves debtors of the responsibility of paying their debts or protects them while they try to repay |
| Claim | A formal request from the customer to an insurance company asking for a payment based on the terms of the insurance policy |
| Collision Coverage | Auto insurance that protects you against costs to repair your own vehicle after a crash |
| Copay | A set dollar amount you agree to pay each time you receive medical treatment, while the insurance company agrees to cover the rest |
| Deductible | The amount of money you agree to pay towards your losses before your insurance coverage will begin paying |
| Insurance | An agreement where you make regular payments to a company and the company promises to pay you money if you suffer an injury, illness, loss, etc |
| Liability Coverage | Auto insurance that protects you against medical costs for the bodily injury of others and damages to the property of others if you are at fault in an accident |
| Quote | An estimate of what premium you would pay for a certain insurance coverage plan |
| Risk (insurance) | A situation involving exposure to danger, harm, or loss |
| Bond | A security in which the investor loans money to a company or government, which then pays regular interest to the bondholder and returns the principal on the bond's maturity date |
| Rate Of Return | The ratio of money gained or lost on an investment relative to the amount of money invested |
| Capital Gain | Profit from the sale of an asset, such as a stock or a bond, calculated by subtracting the price you initially paid from the price you then sold it for |
| Dividend | Money from the profits of a company that is paid out to its shareholders, typically on a quarterly basis |
| Individual Retirement Account (IRA) | An investing tool for individuals to earmark funds specifically for their retirement |
| Mutual Fund | A collection of stocks and/or bonds combined into one fund which will be traded as a unit, typically chosen and actively managed by an "expert" in exchange for a fee from each investor |
| Pension | A retirement account, offered in some job sectors or companies, that an employer maintains to give an employee a fixed payout at retirement |
| Risk (stocks) | Degree of uncertainty on how likely the investor is to make money on an investment |
| Stock | A share of the value of a company, which can be bought, sold, or traded as an investment and which gives the investor small partial ownership of the company |
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