Economics and Personal Finance Exam Review

consumer fraud

when a product or service is illegally used to deceive you into sending money or signing up for a phony service; scams frequently start with a fake email, letter, or phone call

identity theft

a form of fraud; thieves use another persona's personal information in order to steal that person's money or gain access to other benefits (i.e., credit card fraud, phone and utility theft, and banking fraud)

Social Security Number

Also known as your SSN; nine digit number given to U.S. citizens, permanent U.S. residents, and temporary working residents to track income and wages; used as the primary identification number for individuals in the United States

phishing scam

a scam where someone tries to deceive you into providing personal information by impersonating someone, like a bank representative

cash card

refers to any card that can be used by a cash card reader and used to pay for products or services at that retailer, such as an ATM card, pre-paid credit card, or store gift card

cashless society

a society in which consumers pay using credit or debit cards, electronic funds transfer, or shop online instead of paying by cash or personal check

gift card

also known as a gift certificate; refers to a prepaid, store-valued money card issued by the retailer or by a bank that is used as an alternative to cash for purchases at a particular business

inflation

a general increase in prices and decline in purchasing power (value of money) over a period of time

purchasing power

the value of a currency in terms of the amount of goods or services that one unit of money (or $1.00 in the U.S.) can buy

store card

a charge card or credit card used to purchase goods in a particular store and paid with interest at a later date; usually carries an incentives or rewards program

supply & demand

the theory explaining the interaction between the supply of a resource and the demand for that resource, or the effect that the availability of a particular product and the desire for the product have on price

U.S. Treasury Department

the government department responsible for issuing all Treasury bonds, notes and bills

upward mobility

the ability to move from a lower to a higher social class or status, such as from the level of poverty to middle class, usually in terms of household income and spending power

windfall income

refers to a large profit that occurs unexpectedly due to fortuitous circumstances, such as an unforeseen inheritance or winning the lottery

balanced budget

refers to a budget in which revenues, or income, are equal to expenditures

budget deficit

an indicator of financial health that occurs when expenditures exceed revenue (income) or, in other words, more money was spent than the income available

discretionary income

refers to the take-home income, or net pay, that remains after mandatory deductions (i.e., taxes) and expenditures on necessary items (i.e., food, shelter) are accounted for in the budget; also known as spending money or fun money

disposable income

refers to the take-home income available for spending or saving after the deduction of taxes and other mandatory charges; also known as net pay

emergency fund

an account used to set aside funds needed in the event of a personal financial dilemma, such as the loss of a job, a debilitating illness, or a major expense; usually recommended to be at least six months expenses

fixed expense

a budget item that will be the same total amount from month-to-month regardless of changes in circumstance, such as rent or installment loan (i.e., student or car) payments

opportunity costs

the benefit, profit, or value of something that must be given up in order to acquire or achieve something else; the alternate that was forfeited when a decision was made

surplus

the amount of something left over when requirements have been met, such as a surplus of income after expenses are paid in a personal budget

trade off

occurs when you give up the value or added-benefit of one choice in order to achieve the desired results of another choice; usually includes an assessment of "pros" and "cons"

variable expense

a budget item that fluctuates from month-to-month based on volume or usage, such as a water bill or electricity bill

impulse buying

the decision to purchase goods without advance planning, as a result of a sudden whim or desire

assigned risk pool

refers to a group of people for whom the state requires an insurance company to provide insurance coverage, such as for unemployment or automotive (car)

auto (car) insurance

a type of insurance that protects a policyholder in the case of a car accident; most states require it by law

beneficiary

the person, people, or entity designated to receive the death benefits from a life insurance policy or annuity contract

cash value

refers to the cash amount offered to the policyholder upon cancellation of the contract; typically associated with life insurance used as an investment (interest)

claim

the formal request that you make to your insurance company for payment of the benefits allowed by your coverage

collision insurance

pays for damage to a car without regard to who caused an accident; the company must pay for the repair or up to the actual cash value of the vehicle, minus the deductible

comprehensive insurance

pays for damage to or loss of your automobile from causes other than accidents, including hail, vandalism, flood, fire, and theft

co-pay

a fixed fee that an individual pays for specific medical services; for example, for each visit to the doctor's office

coverage

refers to the range of protection that you are eligible to receive from an insurance plan; defines the risks covered & amount to be paid for losses

death benefit

the amount paid to a beneficiary upon the death of the life insurance policyholder

deductible

the amount that you are required to pay "out of pocket" toward each claim you make before your insurance coverage begins; cost in addition to your premium

dependents

a person who relies on another, especially a family member, for financial support

disability insurance

a type of insurance that helps cover lost income when an illness or injury prevents you from working

face value

refers to the total amount to be paid by an insurance company, especially to the beneficiary of a life insurance policy; sometimes called the "death benefit"

health insurance

a type of insurance that covers the cost of medical expenses; typically includes preventive care as well as accidental injury or unexpected illness

high risk driver

individuals that an insurance company deems as "risky" to insure due to a poor driving record, lack of experience, or credit history and charge higher premiums

homeowner's insurance

a type of insurance that covers your home as well as your possessions inside it in case of damage or loss

insurance

a contract by which an individual receives financial protection or reimbursement from an insurance company against defined losses

liability coverage

covers losses for which an insured person is legally liable; included in homeowners / auto / renters insurance in order to cover property damage or injury to people other than the policyholder

life insurance

a type of insurance that ensures that another person (beneficiary) will be financially protected if you pass away; typically covers funeral costs & lost income for a defined period of time

long term care insurance

provides nursing-home care, home health care, personal or adult day care for individuals who are 65+ years old with a chronic or disabling condition that requires constant supervision

low risk driver

includes individuals who are safe drivers and have clean driving records for extended periods of time; may also include women, rural residents, people with shorter commutes, and /or parents

managed care (health)

typically known as an HMO or health maintenance organization; offers medical services to members from a network of providers under contract; policyholders identify a primary care physician & obtain referrals for specialists

no-fault insurance

the policyholder's auto insurance will pay some or all of your medical bills and lost earnings in an accident, regardless of who was at fault

non-managed care (health)

typically known as a PPO; health care network in which policyholders can choose between many different doctors within the insurance company's network without getting referrals from a primary physician

over insured

refers to having more insurance coverage beyond what is necessary; paying too much for insurance premiums

policy

in terms of insurance, it is the document (contract) that outlines the terms and conditions for your insurance coverage

premium

the amount you pay to have insurance for a specific period of time (i.e., 6 months or one year); typically paid on a monthly, semi-annual, or annual basis

renter's insurance

a type of insurance that can protect you from damage or loss of your items in a rental property

risk

the probability or chance of threat, damage, injury, liability, or loss that may result in significant financial losses

term life insurance

most basic life insurance purchased for a specific length of time (term) between 10 - 30 year but without cash value; death benefit only

under insured

refers to lacking insurance coverage; not enough coverage for risks

unemployment insurance

a source of income for workers who have lost their jobs through no fault of their own; legally required to be provided by employers

universal life

provides a death benefit and a cash value, does not expire, and is more flexible than whole life; policyholder chooses how much of premium goes to death benefit and how much to cash value

variable life

does not expire; policyholder can take part in different investment options; riskier than whole life, but can grow larger cash values

whole life insurance

the premium is locked in for your whole life and does not expire; accumulates a cash value that can be borrowed against (as in an investment)

1040

a tax form filled out by an individual and filed with the IRS that determines the amount of income tax owed in a single year

1040EZ

a tax form, similar to the 1040, filled out by an individual and filed with the IRS that determines the amount of income tax owed to the IRS in a single year; simpler form

1099

a series of documents used to report miscellaneous income, such as interest earned on savings, dividends from the sale of stocks, or government payments

capital gains tax

a tax charged on the profits made on the sale of something that was purchased at a lower price, typically stocks or bonds and property (investments)

deductions

the allocations or expenses removed from a gross pay before the paycheck is delivered to the earner

excise tax

also known as a luxury tax or sin tax; hidden into the price of an item for airline tickets, hotel rooms, gas, cigarettes, and alcohol

exemption / allowance

a deduction allowed by law to reduce the amount of income that would otherwise be taxed

federal tax bracket

income tax groups specified by the IRS that determine at what rate an individual will be subject to federal income tax

federal taxes

refers to income taxes and payroll taxes deducted or withheld from an employee's paycheck throughout the year; reported on a Form W-2

FICA

refers to payroll taxes for Social Security and Medicare

fringe benefits

refers to an extra benefit supplementing an employee's salary; for example, a company car, subsidized meals, health insurance, etc.

gross wages

earned salary or wages before taxes or voluntary deductions

income tax

the tax changed to all federal and (some) state residents based on the money you earn while working

income tax return

a document filed with the IRS or state tax board that reports an individual's income, deductions, tax liability, and withholdings for the current year

inflation

a general increase in prices over time, which represents a fall in the purchasing value of currency

inheritance

all or part of a person's estate or assets that is given to an heir once the person is deceased, such as cash or property ownership

IRS

an abbreviation for the Internal Revenue Service, which is the government agency in charge of collecting taxes from US citizens

local taxes

refers to a sum of money demanded by a county or town, such as excise tax or property tax

Medicare

a tax that pays for health care for people aged 65 and older (retired)

payroll tax

tax withheld by an employer and / or paid on behalf of the employee as established for specific programs, such as Social Security, Medicare, Unemployment Compensation, etc.

progressive tax

a tax structure in which those with higher income or value pay more in taxes, such as the federal income tax system

proportional tax

also known as a flat tax, a tax structure in which everyone pays the same percentage rate in taxes based on income or value

property tax

the taxes an owner pays on the value of an owned property, including land, buildings or houses

regressive tax

a tax structure in which everyone pays the same dollar amount in taxes

sales tax

a state tax added to the total of a purchase before you pay; usually represented as a percentage of the price

Social Security

a tax that pays for the retirement benefits for people who are currently retired and for the future retired population

state taxes

refers to a sum of money demanded by the state government, such as income tax and sales tax

tax credit

similar to a discount, a reduction in the amount of taxes owed to the government at the end of the year

tax forms

official government documents required for tax purposes

tax preparer

a person who prepares income tax returns for individuals or businesses by collecting information and completing federal or state tax forms

tax refund

the difference between taxes paid (withheld) and taxes owed that is returned to an individual after a tax return is filed

taxes

refer to a sum of money demanded by the government

taxes withheld

the amount of money withdrawn from a paycheck during the year and held for payment to the IRS; refunded to the earner at the end of the year

W-2

tax form issued by employers at the end of the year to summarize how much you earned and how much you already paid in taxes

wages

refers to a regular payment, typically on a weekly or bi-monthly basis, made by an employer to an employee for labor

will

a legal document, or contract, in which a person states who should receive his or her possessions after death

withholding

taxes deducted from an employee's wages and paid directly to the government by the employer

YTD

an abbreviation commonly found on a pay stub that stands for "year to date"

higher education

a personal investment with the goal of increasing lifetime earnings through a two-year community college degree, traditional four-year degree at a college or university, certification and training through a technical school or other specialized training