Embed Size (px)
Citation preview
W!SE Test Topic Checklist
Topics that are often
problematic for students
Money
Sources of Income
O Paycheck
O Hourly Wages
O Salary
O Bonus
O Allowance
O Gifts (birthday, etc.)
O Inheritance
O Interest on Investments
O Child Support
O Life Insurance Proceeds
O Worker’s Compensation
http://www.forbes.com/sites/kellyphillipserb/2012/04/09/33-perfectly-legal-tax-free-
sources-of-income-and-benefits/
Money
O Exemption: How does it work?
http://www.investopedia.com/terms/e/exemption.asp
Money
O Liquidity
http://www.investopedia.com/terms/l/liquidity.asp
Money
O Liquid Financial Products
O Cash
O Checking account
O Savings Account
O Money Market Mutual Funds
O U.S. Treasury Bills
O Actively traded stocks, bonds, and mutual funds
http://financial-dictionary.thefreedictionary.com/liquid+asset
Money O Gift Cards
O Gift cards are purchased, for a fee.
O Activated at the cash register
O ID number matched with the dollar amount on the card and stored in the computer system.
O Inactivity fee MAY begin after 12 months of not being used.
O The ―recipient may have to face expiration dates, administrative fees, restrictions in use, and absence of adequate protection in case of fraud or loss.[2] Over time the value of a gift card may become zero.‖
http://en.wikipedia.org/wiki/Gift_card
Money
O Discretionary Income
http://www.investopedia.com/terms/d/discretionaryincome.asp
Money
O Budget Surplus
O Income is greater than expenses
O Sign of responsible money management
O Money left over can be used to pay off debts, save
for the future
Money O Money Orders (high rate of counterfeits)
http://www.investopedia.com/terms/m/money-order.asp
Money
O Why does U.S. currency have value?
O Because people accept US currency as a medium of
exchange.
O ―Fiat‖ money has no inherent value
Money
O Opportunity
Cost
http://www.investopedia.com/terms/o/opportunitycost.asp
Money
O Who is hurt the most and the least by
inflation?
O Lower income households tended to experience
higher inflation rates than higher income groups
over the last decade.
O The trends seem to have accelerated; the poorest
quintile suffered an inflation rate of 4.3%
between 2008 and 2010, the richest 2.7%.
http://www.economist.com/blogs/buttonwood/2011/06/inflation-equality-and-debt-crisis
Money
O Basic functions of the Department of the Treasury:
O Managing Federal finances;
O Collecting taxes, duties and monies paid to and due to the U.S. and paying all bills of the U.S.;
O Currency and coinage;
O Managing Government accounts and the public debt;
O Supervising national banks and thrift institutions;
O Advising on domestic and international financial, monetary, economic, trade and tax policy;
O Enforcing Federal finance and tax laws;
O Investigating and prosecuting tax evaders, counterfeiters, and forgers.
http://www.treasury.gov/about/role-of-treasury/Pages/default.aspx
Banks
O Pay Yourself First!
O Save first, spend second.
O Saving money will virtually eliminate your need to borrow money.
O Saving also forces you to make conscious decisions about what you really want to purchase and reduces your spending regrets!
Banks
O CD (Certificate of Deposit): What is it?
http://www.investopedia.com/terms/c/certificateofdeposit.asp
Banks O What happens if you cash out a CD
before maturity?
O You must pay penalties if you withdraw your money before the CD has fully matured.
O "The earlier the withdrawal is made in the term, the larger the penalty," he says. "The current market rate at the time of withdrawal would also be considered."
http://guides.wsj.com/personal-finance/banking/what-is-a-certificate-of-deposit-cd/
http://www.bankrate.com/brm/news/sav/20010820a.asp
Banks
O Institutions that give loans:
O Banks
O Credit Unions
O Pawnshops
O Finance companies
O Payday lenders
O Tax preparers
Banks O Which institutions charge the highest interest
rates on loans?
O Pawnshops
O Payday lenders
http://www.investopedia.com/terms/p/payday-loans.asp
Banks O Which institutions charge the highest interest rates on
loans?
O Tax preparers O The lure of quick cash before you get your tax refund will cost you
big money through high fees and hefty interest rates.
O Used mostly by low and moderate income consumers, tax refund anticipation loans are extremely high-cost bank loans secured by the taxpayer's expected refund -- loans that last 7-14 days until the actual IRS refund repays the loan.
O RALs are aggressively marketed by income-tax preparation companies. They advertise "Instant Refunds" or "Quick Cash" for their cash-strapped customers who need money in a hurry, and disguise the fact that they are selling advance loans on anticipated tax refunds
http://www.state.ia.us/government/ag/consumer_advisories/credit_finance/rapid_tax_refund.html
http://www.nclc.org/issues/refund-anticipation-loans.html
Banks O Which institutions charge the highest
interest rates on loans?
O Finance companies
O A finance company is a lender that targets high-risk
consumers. Their loan products are designed to
protect them in case their customers don't pay.
Basically, they charge all of their customers very
high interest rates and have very restrictive credit
terms designed to keep tight control over the money
people have borrowed from them.
http://www.credit.com/answers/questions/121/What-is-a-finance-company-and-how-does-it-affect-my-credit
Banks
O What is a credit union?
O Credit unions are not-for-profit organizations that exist to serve their members rather than to maximize corporate profits.
O Accept deposits and make loans
O Focus on providing a safe place to save and borrow at reasonable rates.
O Unlike banks, credit unions return surplus income to their members in the form of dividends.
http://www.mycreditunion.gov/about-credit-unions/Pages/How-is-a-Credit-Union-Different-than-a-Bank.aspx
Banks
O What is overdraft protection (opt in regulation)?
O A line of credit that banks offer to their customers to cover their overdrafts. Overdraft protection kicks in when a customer writes a check for more than the amount in their account.
O You must agree to be enrolled in an overdraft protection plan (that covers point-of-sale debit card purchases or ATM transactions) if there’s a fee involved.
O This opt-in requirement was supposed to clear up the confusion and prevent unintended overdraft charges.
http://www.nbcnews.com/business/customers-still-confused-about-overdraft-protection-757592
http://www.investopedia.com/terms/o/overdraft-protection.asp
Banks O Compound Interest
O Interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.
O ―interest on interest‖
O Deposit or loan grow at a faster rate than simple interest, which is interest calculated only on the principal amount.
O The rate at which compound interest accrues depends on the frequency of compounding; the higher the number of compounding periods, the greater the compound interest.
http://www.investopedia.com/terms/c/compoundinterest.asp
Banks
O Time Value of Money
http://www.investopedia.com/terms/t/timevalueofmoney.asp
Banks
Liquid Financial Products
Less Liquid Financial
Products O Cash you have
O Funds in your checking account
O Funds in your savings account
O Funds in a money market
account
O Certificates of Deposit
O Mutual Funds
O Stocks
O Bonds
O House
O Car
O Jewelry
O Collectibles
O Fine Art
http://money.howstuffworks.com/personal-finance/financial-planning/liquid-asset1.htm
Banks
O Rule of 72
http://www.investopedia.com/terms/r/ruleof72.asp
Banks
O Reconciling a Checking Account
O Why? – To make sure you or the bank haven’t made
mistakes concerning how much money you have in
your account.
O When? – As soon as you get your bank statement!
O Statue of limitations may apply if you find a mistake
and don’t report it within the stated amount of time.
Banks
O Repayment of Student Loans (check for changes) O Federal student loans are real loans, just like car loans or
mortgages.
O Must repay a student loan even if your financial circumstances become difficult.
O Not dismissed when filing bankruptcy.
O Can’t be canceled because:
O Didn’t get the education or job you expected
O Didn’t complete your education (unless you couldn’t complete your education because your school closed).
http://studentaid.ed.gov/repay-loans
Banks
O Tax Refund Anticipation Loans
O A Refund Anticipation Loan (RAL) is a loan made by a lender that is based on and usually repaid by an anticipated federal income tax refund.
O Offered starting in January through the end of the tax season in April.
O Taxpayers are generally charged fees and interest to obtain a RAL.
O Just like any other loan, the full amount of the RAL must be repaid even if the refund is lower than the amount anticipated.
http://www.revenue.wi.gov/faqs/pcs/ral.html
Credit
O Credit Card Cash Advances O A cash advance is a cash loan from a credit card, using
an ATM, a bank withdrawal or "convenience" checks.
O Credit card cash advances have many disadvantages for consumers.
O Cannot take a cash advance for the full amount of your available credit.
O The interest rate on cash advances is often significantly higher than it is on purchases or balance transfers.
O A transaction fee, which is a percentage of the cash advance, is usually charged.
O No grace period for cash advances.
http://www.creditcards.com/glossary/term-cash-advance.php
Credit O Truth in Lending Act
http://www.investopedia.com/terms/t/tila.asp
Credit
O Consequence of paying the minimum payment due on a credit card bill: O Pay more money, over time, in interest
O May never pay off the balance!
O Consequence of paying a credit card bill late: O Charged a late fee
O Interest rate will increase for more than 60 days
O Credit bureaus are notified
O Credit score will drop
O Paying bills on time makes up 35% of your score
http://credit.about.com/od/usingcreditcards/a/latecardpayment.htm
Credit
O How does the degree of risk influence the
interest rate charged for credit?
O Higher risk = Higher interest rate
O Credit score
O Good scores get lower interest rates.
Credit
O Debt to Credit Ratio O The debt-to-income ratio (DTI) compares your monthly debt
expenses to your monthly gross income.
𝐷𝑒𝑏𝑡 𝑈𝑠𝑒𝑑 (𝑖𝑛𝑐𝑙𝑢𝑑𝑖𝑛𝑔 𝑎𝑙𝑙 𝑏𝑖𝑙𝑙𝑠)
𝑀𝑜𝑛𝑡𝑙𝑦 𝐼𝑛𝑐𝑜𝑚𝑒 (𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥𝑒𝑠) 𝑥 100 = 𝐷𝑒𝑏𝑡 𝑡𝑜 𝐶𝑟𝑒𝑑𝑖𝑡 𝑅𝑎𝑡𝑖𝑜
O Banks and other lenders study how much debt their customers can take on before they may start having financial difficulties and use this knowledge to set lending amounts.
O Preferred max. DTI varies, but it's often around 36%.
http://learn.bankofamerica.com/articles/managing-credit/keeping-your-debt-load-manageable.html
Credit
O Credit Reports
http://consumercreditwatch.wordpress.com/tag/fair-credit-reporting-act/
Credit
O Three Leading Credit Reporting Agencies:
O Equifax
O Experion
O TransUnion
Credit
O Consequence of a lost or stolen credit card
O Identity theft
O Unauthorized charges
O Maximum amount you’re responsible for after you’ve
reported the card lost or stolen is $50.
http://credit.about.com/od/privacyconcerns/a/lostcard.htm
Credit O The length of debt repayment and impact on
the cost of using credit.
http://www.myfico.com/crediteducation/whatsinyourscore.aspx
Credit
O What to do if a person think they are a victim
of identity theft?
O Place an initial fraud alert
O Order your credit reports
O Create an Identity Theft Report
O Extended fraud alert
O Credit freeze
O Alert your bank
http://www.consumer.ftc.gov/features/feature-0014-identity-theft
Credit
O Characteristics of predatory loans (mortgages):
O Targets people with poor credit or no credit
O High fees
O High interest rates
O Strips the borrower of equity
O Places the borrower in a lower credit rated loan to
benefit the lender
O Dishonest loan
http://www.investopedia.com/terms/p/predatory_lending.asp
Credit
O Secured collateral
O The borrower pledges an asset in exchange for a loan.
O If the loan is NOT repaid, the lender keeps the asset.
O Unsecured collateral
O Loan issued based on the borrower’s creditworthiness.
O Borrowers usually have high credit ratings to obtain unsecured loans.
O Higher risk of default because borrowers have no assets attached to the loans encouraging them to repay the loan
Credit O Pawnshops
O Here's how a pawnshop transaction works:
O Pawnshops offer collateral-based loans -- meaning the loan is secured by something of value.
O The pawnbroker then keeps your item until you repay the loan.
O The loan amount will likely be a small fraction of the item's actual value.
O You can sell your item to the pawnshop outright, but pawnbrokers are less enthusiastic about these transactions because loans offer much more profit potential for the pawnbroker.
O You must receive a pawn ticket. Don't lose this! Not only is it the receipt for your item, but it also summarizes the terms of your loan: fees, expiration date, description of your item, etc.
http://www.bankrate.com/finance/personal-finance/pawnshop-101-what-you-need-to-know-1.aspx
Insurance
O How insurance works:
O Insurance is a form of risk management in which the insured transfers the cost of potential loss to another entity in exchange for monetary compensation
O Protects against significant potential losses and financial hardship at a reasonably affordable rate
O Shared risk – many people pay premiums, funding the available amount of insurance, but not everyone files a claim.
http://www.investopedia.com/university/insurance/insurance1.asp
Insurance
O Insurance Deductible
O The amount of money a person filing a claim must
pay to receive compensation.
O What happens to the premium when the
deductible is:
O Raised – Premium lowered
O Lowered – Premium increased
Insurance
O Collision Coverage
http://www.investopedia.com/terms/c/collision-insurance.asp
Insurance
O When do consumers normally terminate
collision coverage?
O When the value of your vehicle is less than the
amount you would receive from a claim.
O When your collision coverage deductible is close to
or higher than the value of your vehicle.
Insurance
O Term Life Insurance
http://www.investopedia.com/terms/t/termlife.asp
Insurance O Whole Life Insurance
http://www.investopedia.com/terms/w/wholelife.asp
Insurance O Health Insurance
O Co-pay – insured pays a specified amount of out-of-pocket expenses for health-care services at the time the service is rendered, with the insurer paying the remaining costs.
http://www.investopedia.com/terms/h/hmo.asp
http://www.investopedia.com/terms/c/copay.asp
Insurance
O Renters Insurance
O The tenant's personal property is covered against named
perils such as fire, theft and vandalism. The owner of the
building is responsible for insuring it, but bears no
responsibility for the tenant's belongings.
O Does NOT include coverage for the
O Dwelling, or structure
O Exception of small alterations that a tenant makes to the
structure.
O Provides liability coverage
Insurance
O Disability Insurance
O Disability-income insurance is insurance that
provides financial benefits to a policyholder in the
event of sickness or injury that inhibits the ability to
work.
O Disability-income insurance is meant as a substitute
of no more than 80% of income on a tax-free basis
should illness keep you from earning an income in
your occupation.
http://www.investopedia.com/ask/answers/09/disability-income-insurance.asp
Insurance
O How to reduce the cost of auto insurance:
O Increase your deductible (lowers premiums)
O Avoid duplicate medical coverage
O Drive a less ―flashy‖ vehicle (Camery vs. sports car)
O Bundle coverage
O Good driving record
O Vehicle safety options (anti-lock brakes, security
system, etc.)
http://www.investopedia.com/financial-edge/0811/how-to-reduce-auto-insurance-costs.aspx
Investing
O Securities/Equities
O A financial instrument that represents: an ownership
position in a publicly-traded corporation (stock), a
creditor relationship with governmental body or a
corporation (bond), or rights to ownership as
represented by an option.
O Capital gains (loss) – The profit/loss you make (or
lose) on an investment
http://www.investopedia.com/terms/s/security.asp
Investing
O Securities/Equities
O Dividends
http://www.investopedia.com/terms/d/dividend.asp
Investing
O Securities/Equities
O Historical performance of stocks
O Advantages of owning securities (stocks or bonds)
O Earn interest
O Primary vs. secondary markets
O Primary market – firms sell (float) new stocks and bonds to the public for the first time.
O Secondary market - investors trade among themselves; trade previously issued securities without the issuing companies' involvement.
http://www.investopedia.com/articles/02/101102.asp
Investing
O What is a bull market?
O A market in which share prices are rising,
encouraging buying.
O What is a bear market?
O A market in which prices are falling, encouraging
selling.
Investing
O Bonds
O Purpose
O A bond is debt instrument that a government or a
company issues to raise money.
O How they work
O When you buy a bond, you are lending money to the
government or company that issued the bond
O Paid back with interest in the future
http://www.learningmarkets.com/what-are-bonds-and-how-do-they-work/
Investing O Bonds
O Interest feature O Face value is the amount the bond will be worth at maturity
O Coupon rate is the interest rate the bond issuer will pay on the face value of the bond.
O Coupon dates are the dates on which the bond issuer will make interest payments.
O Maturity date is the date on which the bond will mature and the bond issuer will pay the bond holder the face value of the bond.
O Issue price is the price at which the bond issuer originally sells the bonds.
O Tax free feature of municipal bonds O Interest paid on a municipal bond is tax-exempt
O Can recognize gain or loss that is subject to federal income tax on the sale of such a bond, just as in the case of a taxable bond.
http://www.learningmarkets.com/what-are-bonds-and-how-do-they-work/
http://www.investinginbonds.com/learnmore.asp?catid=8&subcatid=60
Investing
O Mutual Funds
O What are they?
O Collection of stocks and/or bonds
O How they work?
O Each investor owns shares, which represent a portion
of the holdings of the fund.
O Who manages mutual funds?
O The primary advantage of funds is the professional
management of your money.
http://www.investopedia.com/university/mutualfunds/mutualfunds.asp
Investing
O Investment Portfolio O A portfolio is a combination of
different investment assets mixed and matched for the purpose of achieving an investor's goal(s).
O Items considered a part of your portfolio:
O Art and real estate
O Equities
O Fixed-income securities
O Cash and equivalents.
http://www.investopedia.com/university/beginner/beginner6.asp
Investing O Diversification
O A risk management technique
that mixes a wide variety of
investments within a portfolio.
O A portfolio of different kinds of
investments will, on average, yield
higher returns and pose a lower
risk than any individual
investment found within the
portfolio.
http://www.investopedia.com/terms/d/diversification.asp
Investing
O Treasury Bills
http://www.investopedia.com/terms/t/treasurybill.asp
Financial Planning
O Determine Net Worth
O Definition
O Total assets minus total liabilities
O Assets
O Things you own that have value
O Liabilities
O Debts or bills that you owe to a business or individual
Financial Planning
O Retirement Plans: When taxes are paid?
O Pensions
O A regular payment made during a person's retirement
from an investment fund to which that person or their
employer has contributed during their working life.
https://www.google.com
Financial Planning
O Retirement Plans: When taxes are paid?
O 401k plans
O A 401(k) is a retirement savings plan sponsored by an employer.
O Lets workers save and invest a piece of their paycheck before taxes are taken out.
O Taxes aren’t paid until the money is withdrawn from the account.
O You control how your money is invested.
O Most plans offer a spread of mutual funds composed of stocks, bonds, and money market investments.
http://guides.wsj.com/personal-finance/retirement/what-is-a-401k/
Financial Planning
O Retirement Plans: When taxes are paid?
O Traditional IRA
http://www.investopedia.com/terms/t/traditionalira.asp
Financial Planning
O Retirement Plans: When taxes are paid?
O Roth IRA
O A Roth IRA is an individual retirement account that
offers a valuable future tax break: Tax-free income in
retirement.
O Make the most sense if you expect your tax rate to be
higher during retirement than your current rate.
http://www.rothira.com/what-is-a-Roth-IRA
Financial Planning
O Housing – Signs you’re ready to own a home
1. You have a budget — and you know how to use it
2. You have a sizable down payment
3. You have a reliable source of income
4. You have an emergency savings fund
5. You have your debts under control
6. Your credit report is in good shape
7. You can make a long-term commitment
8. You are prepared to become your own landlord
http://realestate.msn.com/article.aspx?cp-documentid=20740546
Financial Planning
O Inflation O Inflation occurs when the prices of goods and services increase over
time.
O Cannot be measured by an increase in the cost of one product or service, or even several products or services.
O Inflation is a general increase in the overall price level of the goods and services in the economy.
O Deflation O A general decline in prices, often caused by a reduction in the supply of
money or credit.
O Caused also by a decrease in government, personal or investment spending.
O Has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression.
http://www.investopedia.com/terms/d/deflation.asp
Financial Planning
O Depression O A severe and prolonged downturn in economic activity.
O Extreme recession that lasts two or more years.
O Characterized by economic factors such as substantial increases in unemployment, a drop in available credit, diminishing output, bankruptcies and sovereign debt defaults, reduced trade and commerce, and sustained volatility in currency values.
O Consumer confidence and investments decrease, causing the economy to shut down.
O Who suffers the most? Least?
http://www.investopedia.com/terms/d/depression.asp
Financial Planning
O Taxes
O Graduated income taxes (AKA progressive tax )
O Any tax in which the rate increases as the amount
subject to taxation increases
http://www.thefreedictionary.com/graduated+tax
Regulatory Agencies
O SEC (U.S. Securities and Exchange Commission) O Protect investors, maintain fair, orderly, and efficient markets, and
facilitate capital formation.
O http://www.sec.gov/about/whatwedo.shtml
O Federal Reserve (the Fed) O The Federal Reserve System is the central banking system of the
United States.
O Created in 1913, with the enactment of the Federal Reserve Act.
O Duties today are to conduct the nation’s monetary policy, supervise and regulate banking institutions, maintain the stability of the financial system and provide financial services to depository institutions, the U.S. government, and foreign official institutions.
O http://www.frbsf.org/education/teacher-resources/what-is-the-fed
Regulatory Agencies O FDIC (Federal Deposit Insurance Corporation)
O Preserves and promotes public confidence in the U.S. financial system by insuring
deposits in banks and thrift institutions for at least $250,000
O Identifying, monitoring and addressing risks to the deposit insurance funds
O Limiting the effect on the economy and the financial system when a bank or thrift
institution fails.
O http://www.fdic.gov/about/learn/symbol/
O CFPB (Consumer Financial Protection Bureau)
O An informed consumer is the first line of defense against abusive practices.
O We supervise banks, credit unions, and other financial companies, and we enforce
federal consumer financial laws.
O We gather and analyze available information to better understand consumers,
financial services providers, and consumer financial markets.
O http://www.consumerfinance.gov/the-bureau/
