ap gov

Effect of Variable Spending

Affects how much you have to spend and how much spending you can plan for.

"pay yourself first"

Saving for the future by putting money aside before paying regular monthly bills or using income for discretionary purchases. It helps make sure you end a budget with extra money

When would you want to use a checking account versus a savings account?

When you want/need readily available money

Overdraft fee

a penalty payment for having a negative balance in an account. can happen if someone spends over a credit card limit. can be avoided by checking spending.

emergency fund

A savings account that is set aside to be used only for emergency expenses. Can be useful when insurance doesn't cover something, or you lose your job.

Banks

Financial institutions that accept deposits and make loans. They can help you grow your money by providing interest in a savings account.

gross income

Amount of money earned before payroll taxes.

net income

Money earned after income is taxed; take home pay.

What deductions come out of a paycheck

Federal income tax, fiscal tax(social security and medicaid), and state income tax.

Federal Income tax

mandated by the law, and pays for services and programs

W-2 form

A form that outlines an individual's earnings, and tax deductions incurred. Helps file taxes by telling the government how much of your income was withheld by your employer.

1040 form

The standard IRS form for individual tax returns. Includes income, deductions, payments, and how much you owe.

Social Security

federal program of disability and retirement benefits that covers most working people. part of fiscal policy and taxes.

medicare

A federal program of health insurance for persons 65 years of age and older. part of fiscal policy and taxes

credit score

a number assigned to a person that indicates to lenders their capacity to repay a loan(how likely you are to pay off a loan). a good score can make it easier to get a loan and get lower interest rates.
Can be benefitted by paying off debt in the fall, and be harmed by accumulating overdraft fees.

APR

Annual percentage rate; the annual rate of interest that is charged for using credit. shoes the total cost including interest.

Loan default

Failure to pay a loan according to the agreed upon terms. Harms credit score

Liabilities

Amounts that is owed to creditors. means more expenses overall.

Interest

money paid regularly at a particular rate for the use of money lent, for delaying the repayment of a debt, or in a savings account.
Can increase your money, or increase the overall amount that you have to pay pack.

Compound interest

interest earned on both the principal amount and any interest already earned. creates exponential growth. Benefit of saving early in life.

benefits of diversifying investments

You won't lose everything if a stock tanks.

Credit Card

Type of card issued by a bank that allows users to finance a purchase. Can be dangerous as it is easy to borrow large amounts of money, and debt can accumulate. Has to be paid back.
Can be used on large purchases.

Debit Card

a card issued by a bank allowing the holder to transfer money electronically to another bank account when making a purchase. Uses your own money in contrast to borrowing money.

Warning signs of financial trouble

Difficulty managing debt, and poor financial habits.

How can being financially aware help you avoid debt.

Being aware helps you make better decisions, like making a budget and watching your spending.

Car insurance

a type of insurance that covers any damage you may cause to another person or their vehicle

Home/renters insurance

property insurance that provides coverage for a policyholder's belongings, liabilities and possibly living expenses in case of an event that leads to financial loss.

Identitiy theft

the fraudulent acquisition and use of a person's private identifying information, usually for financial gain. Can be prevented by using strong passwords, and not sharing personal information

Credit report

A detailed report of an individual's credit history. Shows how your credit was used.

Inflation

A general and progressive increase in prices. Leads to higher expenses and general spending.

How can students access education without going into debt?

Scholarships, federal student-aid(FAFSA), community college.

Scholarships

Financial aid that is awarded by merit or excellence in a variety of skill. These funds do not have to be paid back. Help with expense of college.

Bond

Certifies that you loaned money to a government or corporation, which also outlines the terms of repayment. Pays a fixed interest for a fixed amount of time. Can be corporate, municipal(non-federal government), or federal.

Mutual Funds

A pool of money used by a company to purchase a variety of stocks, bonds or money market instruments. Provides diversification and professional management for investors. Profits returned to investors on quarterly basis.

Stocks

Represent ownership of a corporation. Stockholders own a share of the company and are entitled to a share of the profits as well as a vote in how the company is run.

Certificate of Deposit(CD)

A savings alternative in which money is left on deposit for a stated period of time to earn a specific rate of return paid for by the bank. No risk, fees, and is simple and offers higher interest rate than savings account. Restricted access to money.

Risk

The possibility that an investment's actual returns may differ from the expected returns, potentially resulting in financial loss.

Rate of Return

The total return on an investment expressed as a percentage of the original investment.

Liquidity

how easily/quickly an asset can be converted into the economy's medium of exchange(into cash).

Annual Percentage Rate(APR)

Cost of borrowing money on an annual basis; takes into account the interest rate and other related fees on a loan. Tells true annual cost of borrowing money.

Checking account register

also called a ledger; a lined and divided journal to record checking account activity.

Comprehensive auto insurance

Protects the insured vehicle against almost all damage except the collision or the car turning over. Perils include fire, theft, vandalism, hail, windstorm, windshields, and collision with wild animals

Collision Policy

wreck protection and covers car regardless of who is at fault of if your car rolls over, you hit a tree, car, or other stationary object.

Deductible

Amount you must pay before insurance begins to cover the rest of the cost.
Higher deductible = lower premium(cost of insurance).

premium

Amount you pay monthly, quarterly, semiannually or annually to for different types of insurance

Bouncing a check

when someone cashes in a check but the account of the check's distributor has insufficient money for it.

W-4 Tax Form

Tells the employer the correct amount of tax to withhold from an employee's paycheck based on factors like marital status and exemption amount. Filled out when starting a job.
more withholding = less tax, bigger refund
less withholding = bigger paycheck, more tax.

Credit Reporting bureaus

companies that keep track of your credit history (can impact your ability to buy a house and/or car and get a loan)
Equifax, Experian, TransUnion.

FICO Score

Credit score from 300-850 that rates how likely a person is to fall 90 days behind in a payment. Helps credit lenders decide loan approval, interest rates, and credit limit.

Mutual fund

fund that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets.

401k

A defined contribution plan that automatically takes out money from an employee's paycheck before income taxes and invests it in mutual funds for purposes of retirement savings

403b

A non-profit retirement fund to which both the employee and employer contribute, is not taxed until the money is withdrawn.

FDIC

Federal Deposit Insurance Corporation
Insures against loss of money caused by bank failure or bankruptcy, insures deposits up to $250,000.

Life Insurance

insurance that pays out a sum of money to a beneficiary either on the death of the insured person or after a set period. provides financial support after death.

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants. ex. you have no money and have to finance a bag of chips

Opportunity cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another. ex. TV given up for homework.

Trade-off

Giving up one thing for another.
ex. give up raise so no one gets laid off.

command economy

System in which the government controls a country's economy and makes decisions about production and distribution of goods.

Market Economy

Major economic decisions are determined by market. Freedom of choice, little government intervention, but resources are not distributed equally and there are periods of inflation, recessions, and unemployment.

Traditional Economy

An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next. Is very stable, but no incentive to try new ideas or invent new products.

Deficit spending

Government spending that is greater than what it receives in taxes.

Fiscal Policy

Government policy that attempts to manage the economy by controlling taxing and spending.

GDP

The value of goods and services produced within a country per year.

Keynesian economics

economic theory that states that government spending should increase during business slumps and be curbed during booms. Assumes that economic health is determined by what fraction of people's income is saved or spent.

Supply-side tax cuts

the belief that lower taxes and fewer regulations will stimulate the economy

Sole Proprietorship

A business owned and managed by a single individual. owner is responsible for all debts and obligation.

Partnership

a business organization owned by two or more persons who agree on a specific division of responsibilities and profits

Corporation

A business owned by stockholders who share in its profits but are not personally responsible for its debts. Is considered to be separate from owners.

Individual retirement account(IRA)

a tax-sheltered retirement plan in which people can annually invest earnings up to $5000