econ personal finance unit

Federal Reserve Target Rate

The rate set by the Federal Reserve that influences interest on loans you pay and savings you earn

Fixed-Rate Mortgage

A mortgage where the interest rate is not affected by rate changes

ARM (Adjustable-Rate Mortgage)

A mortgage where payments rise or fall with interest rates

APR (Annual Percentage Rate)

The interest rate on borrowed money; can be variable or fixed

Stated APR

The advertised APR, calculated as daily rate × 365

Effective APR

The actual cost of borrowing due to daily compounding; calculated as ((1 + daily rate)^365) - 1

Grace Period

A 21–25 day window before interest is charged on a credit card balance

FICO Score

A credit score ranging from 300–850 created by Bill Fair and Earl Isaac (Fair Isaac Corporation)

Credit Bureaus

Companies that collect credit data and apply the FICO algorithm to produce scores; the three major ones are TransUnion, Experian, and Equifax

Payday Loan

A short-term loan paid back on your next payday; comes with very high interest rates

High Rate Method

Debt repayment strategy where you pay minimums on all debts and put extra money toward the highest APR first

Snowball Method

Debt repayment strategy where you pay minimums and pay off the smallest debt first

Chapter 7 Bankruptcy

Court sells your assets to pay creditors, most debts are wiped out, stays on credit report for 10 years

Chapter 13 Bankruptcy

You keep assets but negotiate a 3–5 year repayment plan; stays on credit report for 7 years after plan completion

Traditional IRA

An individual retirement account where contributions are pre-tax, investments grow tax-free, and withdrawals after 59.5 are taxed as income

Roth IRA

A retirement account where contributions are after-tax, investments grow tax-free, and qualified withdrawals are tax-free; named after Senator William Roth

401k

An employer-sponsored retirement account similar to a Traditional IRA with higher contribution limits and optional employer matching

NAV (Net Asset Value)

The total value of a mutual fund; NAV per share = NAV divided by number of shares

Open-End Mutual Fund

A fund where share count grows or shrinks daily based on investor activity; all transactions occur at end-of-day NAV

Closed-End Fund

A fund with a fixed share count after launch; investors buy and sell shares on a secondary market

ETF (Exchange-Traded Fund)

A fund combining features of open-end and closed-end funds; shares trade on the open market during trading hours and are usually passively managed

Term Life Insurance

Life insurance covering a set period; cheaper but pays nothing if you outlive the term

Whole Life Insurance

Life insurance covering your entire life; more expensive but guaranteed to pay out upon death

Gross Earnings

Total pay before any deductions

Net Pay

What you actually receive after all deductions

Statutory Deductions

Deductions required by law, including federal/state income tax, Social Security (6.2%), and Medicare (1.45%)

Voluntary Deductions

Optional deductions such as insurance premiums, 401k contributions, charity, and FSA contributions

FSA (Flexible Spending Account)

A pre-tax account for healthcare or childcare costs

W-4

A form filled out when starting a job that tells your employer how much federal tax to withhold

Allowances

Claims made on the W-4 that reduce the amount of tax withheld from your paycheck

Mortgage

A loan used to buy a home; if unpaid, the bank can take the home through foreclosure

Principal

The original loan amount borrowed

Amortization

The process of paying off a loan over time through regular payments

Escrow

A third-party account holding money or documents during a real estate transaction until all conditions are met

Title

Legal ownership rights to a property

Deed

A legal document that transfers ownership from seller to buyer

Lien

A legal claim on a property due to unpaid debt; must be cleared before the property can be sold

Title Search

A review of public records by a title company to verify clean ownership history and check for liens

30% Rule

A guideline that you should spend no more than 30% of gross income on rent, utilities, and insurance

Balloon Payment Mortgage

Payments are based on a 30-year schedule but the loan term is shorter, requiring a lump-sum payment at the end

Gross Income

Total earnings before any deductions

Taxable Income

Gross income minus deductions and exemptions

Tax Credit

An amount that directly reduces the taxes you owe

Standard Deduction

A flat deduction amount available to all taxpayers

Itemized Deduction

Specific deductions added up individually; you choose whichever is larger between this and the standard deduction

FICA

Federal Insurance Contributions Act; funds Social Security and Medicare, paid on gross income regardless of deductions

AMT (Alternative Minimum Tax)

A parallel tax system to prevent high earners from using deductions to pay little; you pay whichever is higher between regular tax and AMT

W-2

A form sent by your employer showing annual wages and taxes withheld

1099

A form reporting income outside of regular wages

AGI (Adjusted Gross Income)

Gross income minus above-the-line deductions such as student loan interest and retirement contributions

EIC (Earned Income Credit)

A tax credit for lower and middle-income workers based on income and number of children

Marginal Tax Rate

The tax rate applied to your highest dollar of income

Effective Tax Rate

The overall percentage of income you actually pay in taxes

Estate Tax

A tax on assets left behind after death; the first $5 million (individual) or $10 million (couple) is exempt

EFC (Expected Family Contribution)

The amount the government or school estimates your family can pay per year toward college costs

Demonstrated Need

Total cost of attendance minus the EFC

FAFSA

Required form for US colleges to determine federal need-based financial aid

CSS Profile

A more detailed financial form required by about 250 schools to determine institutional aid

Pell Grant

A federal grant for low-income students that cannot be reduced by outside scholarships

Scholarship Displacement

When a college reduces its own aid after you receive outside scholarships

Subsidized Loan

A federal loan where the government pays the interest while you are in school

Unsubsidized Loan

A federal loan where interest accrues during school, so you owe more than you borrowed upon repayment

Deferment

A temporary pause on loan payments; interest may still accrue

Forbearance

A reduction or pause of loan payments for up to 12 months

Default

Failure to repay a federal loan; the government can garnish tax refunds or wages

PSLF (Public Service Loan Forgiveness)

Forgives remaining federal loan debt after 120 qualifying payments while working full-time for a government or nonprofit employer