Chapter 1 - Financial Literacy

Financial Literacy

Financial Literacy

The possession of a body of financial knowledge, a set of basic skills and the ability to apply knowledge and skills to making informed, responsible financial choices.

Personal financial planning

The process of setting financial goals and developing plans to reach them while meeting financial needs.

Financial plan

An overview of an individual’s current financial position and strategies to meet future financial aspirations

Needs

Are necessities a person must have to survive

Wants

Things that a person desires but can live without

Consumer

An individual who purchases goods and services for his or her own use

Goods

Tangible items that can be touched, used, and purchased such as food or clothing

Services

Intangible activities that another person usually performs for a fee

Values

Are principles and beliefs that a person consideres important

Value system

The overall structure of values and goals that guides a person’s behavior and provides a sense of direction in life

Ethics

The moral principles or beliefs that direct a person’s behavior

Priority

Is a value or goal that is given more importance than other values and goals

Standard

An established measure of quality, value, or quantity

Resource

A supply of something that can be used when needed

Goal

Is an objective to be attained in a specific amount of time

Financial competence

Having the ability to understand basic topics related to finance such as wisely making, spending and saving money.

Cost-benefit analysis

A method of weighing the cost against the benefits of an action, a purchase, or a financial decision

Marginal benefit

The change in total benefit of using one additional unit

Marginal cost

The change in total cost of using one more unit

Law of diminishing marginal utility

States that the marginal benefit of using each additional unit of something tends to decrease as the quantity used increases

Trade off

The choice you give up when you make one choice over another

Opportunity cost

Is the value of the option you gave up

Systematic decision-making

Is a process of choosing a course of action after evaluating available information and weighing the costs and benefits of alternative actions and their consequences

Economic conditions

Are the state of economy at a given time

Recession

Is a period of slow or no economic growth

Inflation

Is a period of rising prices

Interest

Is the amount that is paid for using money

Demographics

Are the statistical characteristics of a population

Culture

Is the beliefs, behaviors and other characteristics common among members of a group or society

Technology

Is the application of science and research to human life and environments.

Media

Forms of communication designes to reach a large number of people

Entitlement

Is a government program that provides financial benefits to eligible citizens based on their legal rights

Globalization

The worldwide spread and integration of production, markets, communications, and technology.

Personal information management (PIM)

A system that individuals use to acquire, organize, maintain, retrieve, and use information

Management

The process of organizing and using resources to achieve predetermined objectives.