Study Guide: Borrowing, Debt and Well-Being

A comprehensive review of key concepts related to borrowing, debt, credit, and financial well-being.

Net Worth

The difference between total assets and total liabilities.

Liability

A financial obligation or debt.

Assets

Resources owned by an individual with economic value.

Equity

The value of an asset after subtracting liabilities.

Creditworthiness

An assessment of the ability to repay borrowed money.

Debt

An amount of money borrowed by one party from another.

Interest Rate

The percentage of a loan charged as interest to the borrower.

APR

Annual Percentage Rate, the annual rate charged for borrowing.

Buy Now Pay Later (BNPL)

A financing option that allows consumers to make purchases and pay for them over time.

Profit Model of BNPL

BNPL companies typically make money through interest and merchant fees.

Attractiveness of BNPL

Ease of use and deferred payments make BNPL appealing to consumers.

Dangers of BNPL loans

Potential for accumulating debt and high interest rates.

Payday Loans

Short-term, high-interest loans typically due on the borrower’s next payday.

Predatory Loans

Loans that impose unfair or abusive loan terms on borrowers.

Typical Term of a Payday Loan

Usually ranges from one to two weeks.

Payday Loans APR Range

Typically ranges from 200% to 500%.

Credit

The ability to borrow money with the promise to pay it back.

3 C's of Credit

Character, Capacity, Capital.

Revolving Credit

A credit type allowing borrowing up to a limit and repayments.

Installment Credit

A loan repaid over time with a set number of scheduled payments.

Secured Credit

Debt backed by collateral to reduce the risk for lenders.

Unsecured Credit

Debt not backed by an underlying asset.

Benefits of Credit

Access to funds, flexibility, and building a credit history.

Risks of Credit

Overborrowing and potential negative impacts on credit score.

Importance of Credit Cards

Help in building credit history and managing expenses.

Choosing a Good Credit Card

Evaluate fees, rewards, and interest rates.

Credit Score

A numerical expression of a consumer's creditworthiness.

Credit Report

A detailed report stating a person's credit history.

Importance of Credit Scores

Crucial for acquiring loans and favorable interest rates.

Building a Credit Score

Regularly pay bills on time and maintain low credit utilization.

Good Credit Score

Generally 700 or above.

Bad Credit Score

Typically below 580.

Benefits of High Credit Score

Lower interest rates and better loan terms.

Personal Information

Data that identifies an individual, such as name and address.

Financial Information

Details regarding financial situations, such as bank statements.

Importance of Safeguarding Information

Prevent identity theft and financial fraud.

Potential Risks of Information Exposure

Identity theft and financial loss.

Phishing Scams

Fraudulent attempts to obtain sensitive information.

Signs of Phishing Scams

Unsolicited messages claiming urgency to provide information.

Identity Theft

Fraud occurring when someone uses another's personal information without permission.

Types of Identity Theft

Credit card fraud, medical fraud, and tax fraud.

FOMO

Fear of Missing Out, a psychological phenomenon related to anxiety.

Influence of Finances on Stress

Financial issues can lead to significant stress and anxiety.

Gambling

Risking money or valuables on an outcome of a game or event.

Risk Factors of Sports Gambling

Impulsiveness, previous gambling history, and financial strain.

Gambling and Mental Illness

Gambling can exacerbate conditions like addiction and anxiety.

Governments and Gambling Revenue

Governments tax gambling activities to generate public funds.