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Name: Financial Literacy Final Exam Study GuideChapter 1What affect does education have on your earnings? What else can affect income?More education means more moneyAlso, natural talent and hard/soft skills affect incomeWhat are some ways you can pay for college?Student Loans, Grants, ScholarshipsGrants and Scholarships are NOT loans, they do not have to be paid backWhat details are included in job descriptions?Education, skills, work environment, tasks to be performedSalary is NOT usually mentioned in a job descriptionWhat are the college degrees we discussed?Associates, Bachelors, Masters, DoctorateDoctorate is the highest level of educationHow are subsidized and unsubsidized loans different?Subsidized do not accrue interest while you are still in schoolUnsubsidized begin accruing interest as soon as taken outWhat do you call a thank you letter to a potential employer and when should you send it?Called a follow upSend shortly after the interviewDefine job shadowing.Following someone around to see how they do their jobName some good advice for resumes: Have a master and tailor it specifically for each job prospect – proofread!Keep it simple and attractive – easy to read – no fancy fonts, etc.Keep it to one page with most important info on top 1/3 of pageName some good advice for job interviews:Rehearse open-ended questions to be able to talk about yourself when askedSpeak slowly and clearly, do not rushBe on time or a bit early and know something about the company Chapter 2How are salaried and wage workers different?Salaried get no overtime, no time cardHourly wage employees punch a time clock, get paid overtime over 40 hoursWhy is a 401k a good way to save for retirement?No taxes until withdrawnReduces taxable income amount nowWhat the two types of businesses for entrepreneurs and describe them?Venture business– starts small but designed for expansion and unlimited growthLifestyle business- designed to stay small and local, usually is owner’s hobby List some “Perks” an employee may get along with salary and benefits in their job?Perks – car, phone, parking spot, office with a view, coffee stationHow much is overtime pay?1 ? times regular hourly rateHow is net pay calculated?Gross income – deductions (taxes, insurance, retirement fund IRA)What kind of tax is a progressive tax? (i.e. Tax increases as amount gets higher)Federal Income taxWhat is “pay without work” and list some examples:Definition: when an employee who is not working is being paidExamples: Paid vacations, holidays, sick daysDefine benefits: Benefits are forms of pay other than salary or wages – such as health insurance paid by company, paid time off, profit sharingChapter 3Explain purchasing power. What makes it go up?One’s ability to buy. Purchasing power goes up with merit raises (or when utilizing credit)What does COLA stand for? Does it give you more purchasing power?Cost of Living AdjustmentNo, it just keeps you equal with inflation % - no increase in purchasing powerIs inflation always bad? Explain.No, 2 or 3 percent is good for economy to keep it thrivingWhat are reflation, deflation, and hyperinflation?Reflation prices fluxuate -go up and down, example: gas pricesDeflation things get cheaper, Hyperinflation is extreme inflation – over 50%.How is inflation measured?CPI – Consumer Price IndexName and describe the 3 types of buying strategies (good and bad)?Emotional buying – desire rather than logicImpulse buying – spur of the momentRational buying – acting in own best self-interests by economizing and optimizingDefine the time value of money: a. Concept that says a dollar you receive in future will be worth less than a dollar you receive today.(Ex: $100 of groceries today is not as much as it was a year ago)What agency is the clearinghouse for handling complaints on identity theft? Answer: Federal Trade Commission (FTC)What is the federal agency that enforces laws to prevent selling of mislabeled foods, drugs, cosmetics and medical devices? Answer: FDA (Food and Drug Administration)Chapter 4What is a liability and name some examples?Money that is owed, such as rent, car payment and credit card debtNeeds and wants are _unlimited, but resources are limited. So consumers must choose wisely.How is net worth calculated?Assets – Liabilities = Net WorthWhat is a benchmark in long-term goal setting?The standard progress is measured against in order to reach long term goalsGive an example of a fixed expense and a variable expenseFixed – same every month: rent, car payment, student loanVariable – can change each month: Utility bill, gas, entertainmentWhat can be done your budget does not balance?Look to increase income by getting a second jobAdjust amount of savings, Lower some of the variable expenses like entertainment, etc.Define Assets, Liabilities and Financial resourcesAssets: Money or items of value that you OWNLiabilities: Money that you OWEFinancial resources: money or other items that people use to buy thingsKnow the Budget Equation: Income = Savings + Expenses and explain what adjustments you could make if your budget is not balanced. Explain why a budget is important (Essay)Chapter 5List an example of a demand deposit accounts (customer can withdraw money at any time)Checking, savings, and money market checking accountWhat is a disadvantage of a CD?Money is locked in for a certain period of time – penalty to withdraw earlyWhat do you write on a special endorsement?“Pay to the order of” What do you write on a restrictive endorsement? “For deposit only”Describe liquidity. Which is the most liquid, a savings account or an IRA (individual retirement account)?Liquidity is how fast/easy it is to get your money out. Savings is much more liquid than IRAWhat does it mean if the bank posted an NSF (non sufficient funds) notice?You bounced a check!You will incur feesWhat kind of interest calculates on the principal as well as previously earned interest?Compound InterestWhat is an outstanding check?Has been written and sent but not yet received and cashed by your bankChapter 6Who is a beneficiary?Person that gets the payout of a life insurance policy, NOT the person insuredWhat does renter’s insurance protect?Your contents in the apartment, Your property in your car or at office. Liability if someone is injured inside your apartment.List the risk strategies discussed.Avoiding risk – not doing itAssuming risk – self insuring Transferring risk – buying insuranceReducing risk – using safety measures (Ex: wearing a helmet)Explain the stop loss provision in a health insurance policy.You pay deductible and copays up to a certain amount, and then insurance pays 100% of the rest. (Stops your loss at a certain amount for the year)Describe these car insurances: Collision, Comprehensive, LiabilityCollision – for YOUR car if its YOUR faultComprehensive – if something happens like tree branch fallsLiability – for their car if it’s your fault (required by law to carry this)In health insurance, what is major medical insurance? What is basic? Major medical: Helps pay for long term stay in hospital – major surgeryBasic: covers routine Dr. visits and outpatient servicesDefine insurance premium and deductiblePremium: the price you pay for insurance coverage (what it costs)Deductible: amount you must pay toward medical bills FIRST before insurance paysBe able to explain at least three different types of insurance – Auto, homeowners, renters, health, life, and disability. Why is insurance important? (Essay)Chapter 7What is credit?Ability to borrow and pay back with interest.What are you doing when you look at pros and cons or buying something and lining it up with your goals?Using Systematic decision makingList some rewards of being financially responsibleAbility to enjoy free time and vacationsSavings for emergencies and retirementFinancial freedomWhat are characteristics of financial irresponsibility?Poor family relationships due to stress and frustrationUnbalanced lifestyle/poor healthLack of recreation/funHow does making late credit card payments affect you?Penalties and fees, higher interest rate, bad credit scoreWhat are benefits of using credit card?Convenience, Fraud protection, rewards, increased purchasing powerBe able to describe and explain characteristics of a financially responsible and financially irresponsible lifestyle. (Essay)Be able to name at least three types of credit and be able to explain them: (Essay)Installment: equal payments over time when buying a high-priced item Ex: Washer/dryer, computerEasy access credit: easy to get but often has high or hidden feesRevolving credit: open account you can add to monthly and pay off over time. Ex: credit cardsService credit: receive services now and pay later. Ex: Utilities, doctorsChapter 8When should you get a preapproved loan?To find out how much you can afford before shopping for car/home loan.What is an unsecured loan?No collateral is used to secure the loanWhat does it mean to be upside down on a loan? You still owe more than it’s worth. Ex: Still owe $5000 on a car that is only worth $4000. This is why a large down payment is a good idea – cars depreciate.Who may offer high interest unsecured loans to people that can’t get credit?Loan sharksWhat is the security deposit in a rental agreement used for?Paying for damages beyond normal wear and tearExamples: holes in wall, stained carpet, broken fixturesChapter 9Can any possessions be kept by a person when declaring bankruptcy? Anything?Do not lose everything. Can keep some limited exemptions – tools of trade, some home equity, some jewelry, small amount for car…How long does bankruptcy stay on your credit?Up to 10 yearsWhat are the 3 forms of bankruptcy and briefly describe them?Chapter 7 – (individual) complete wipe out of debtChapter 13 - (individual) reduces debt and has a 3-5 year debt repayment planChapter 11 – (business) reorganizes debt and has a debt repayment plan so business can stay openWhat can happen to your car if you don’t pay your car loan and you ignore collection attempts?RepossessionYou can get it back only if you pay it off in full plus repo feesThe process of helping consumers resolve problems with creditors and others is called what? A. Consumer advocacyWhat is the Fair Credit Reporting Act? Answer: Allows you to see what’s in your credit reportWhat is included in Truth in Lending Act? – Loan companies must disclose what up front to borrowers? Answer: All fees, finance percent (APR), and how finance charges are computed, total amount you will pay over the course of the loanIMPORTANT KEY TAKEAWAYS FROM FINANCIAL LITERACY:Formal and/or informal _education_ increases your _earning_ potential and your job_ opportunities, so plan it out and research the 10 year outlook for your chosen major!Don’t _spend__ more than you _earn_. Think of the peace of having a financially responsible lifestyle!RE: Savings: Start _early_ and don’t raid the _piggy bank_. Pay yourself first!Budget equation: Income = Savings + Expenses_. Make a budget and stick to it.Using credit is spending money you have not _earned yet, so use it wisely.Never pay only the minimum payment required on a credit card. Bankruptcy is the very last resort.Please come back and see me when you are out on your own and tell me how it is going! SINCERE BEST WISHES for a solid financial future – I believe you can do it well! ................
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