Finacheal Literacy exam review

Federal Form W-4

a form employees fill out to tell employers how much federal income tax to withhold from their paycheck

Who pays Social Security Tax

both employees and employers pay Social Security tax

Who needs a work permit

minors under a certain age (varies by state- under 18 in Ohio) often need a work permit to legally work

Social Security Act

a law that created Social Security benefits for retired people, disabled individuals, and others in need

Medicare

 a federal health insurance program mainly for people age 65 and older and it also covers those with disabilities

Worker’s Compensation

insurance that provides benefits to employees who are injured on the job

Family Medical Leave Act (FMLA)

a law allowing eligible workers to take unpaid leave for family or medical reasons without losing their job

Gross Pay

Total earnings before taxes and deductions are taken out.

Net Pay

The amount of money left after deductions; also called take-home pay

Overtime Rate

Extra pay earned for working more than the standard number of hours, often 1.5 times normal pay.

Salary vs. Hourly Wage

• Salary: Fixed amount paid each year.

• Hourly wage: Paid based on hours worked.

Required Deductions (List what must be deducted from paycheck)

• Federal income tax

• State income tax (in some states)

• Social Security tax

• Medicare tax

Progressive Tax

a tax system where higher income levels are taxed at higher rates

Exemption

an amount of income that is not taxed or a person claimed on taxes in older systems

Taxable Income

the portion of income that is subject to taxes

Tax Credit

an amount that directly reduces the taxes owed

W-2 Form

a form employers send employees showing yearly earnings and taxes withheld

Form 1040

the main federal income tax form used by individuals to file taxes

Savings account

a bank account used to save money and earn interest

Checking account

a bank account used for everyday spending and paying bills

Check endorsement

signing the back of a check so it can be deposited or cashed

Compound Interest

interest earned on both the original money and previously earned interest

Credit Unions

 nonprofit financial institutions owned by their members

Certificate of Deposit (CD)

a savings account that holds money for a fixed time and usually pays higher interest

Creditor

 a person or company that lends money or gives credit

Capital

money used to invest or start a business

Finance Charge

the cost of borrowing money, including interest and fees

Open-ended credit

credit that can be borrowed repeatedly up to a limit, like a credit card

Closed-end credit

a loan for a specific amount that is repaid over time, like a car loan

Service credit

credit granted for services used before payment, such as utility bills

APR

annual Percentage Rate; the yearly cost of borrowing money including interest and fees

Credit bureau

a company that collects and stores information about people’s credit history

Three C’s of Credit

Character, Capacity, and Capital

FICO Score

a credit score used by lenders to measure credit risk

Biggest factor that affects your credit score

payment history

Credit Report

a record of a person’s borrowing and repayment history

Identity Theft

stealing someone’s personal information to commit fraud

Other costs associated with ownership

gas, maintenance, repairs, registration, insurance, and taxes

VIN

vehicle Identification Number; a unique code used to identify a vehicle

Liability insurance

insurance that pays for damage or injuries you cause to others

Comprehensive insurance

insurance covering non-collision damage like theft, fire, or storms

Collision insurance

insurance covering damage to your own vehicle from an accident

At-fault state

a state where the driver who caused the accident is responsible for damages

Premium

 the amount paid for an insurance policy

Deductible

the amount you pay out of pocket before insurance covers the rest

Landlord

the owner, or owner’s representative of rental property.

Tenant

a person who rents property (renter)

Security deposit

is a refundable amount paid in advance to protect the owner against damage or nonpayment.

Lease

a written agreement that allows a tenant to use property for a set period of time at a set rent payment.

Eviction

 is the legal process of removing a tenant from rental property (must go through legal process)

Mortgage

a loan used to buy real estate, where the property itself serves as collateral

Equity

 the portion of a property that you truly own. It is the home’s value minus what you still owe on the mortgage

Escrow

an account where money is held by a third party to pay expenses like property taxes and homeowners insurance

Until what age can you stay on your parents insurance?

26

Affordable Care Act

a U.S. law designed to make health insurance more affordable and accessible (“Obamacare”)

Term life insurance vs. whole life insurance

• Term life insurance: covers a person for a set number of years and usually costs less

• Whole life insurance: covers a person for their entire life and builds cash value over time

Public corporation

a company whose shares of stock can be bought and sold by the public on the stock market

Dividends

payments made by a company to shareholders from its profits

Volume

the number of shares traded during a certain period of time

FAFSA

the Free Application for Federal Student Aid; a form used to apply for financial aid for college

Scholarships

money awarded to students for college that does not need to be repaid, often based on achievement, talent, or need

Grants

financial aid money that usually does not need to be repaid and is often based on financial need

Subsidized vs. unsubsidized loans

• Subsidized loan: the government pays the interest while the student is in school

• Unsubsidized loan: interest begins building immediately, and the borrower is responsible for paying it