personal finance unit 3 test

What are the major categories of financial services?

Savings, payment, borrowing, and other

Services offered by online and mobile banking platforms

Traditional services and enhanced customer experiences

Factors to consider when selecting a financial institution

Where can I get the best return on savings? How can I minimize the cost of checking payment services and other fee fees? Will I be able to borrow money if I need to?

Commercial bank

Traditionally provide provides wide range of financial services

Credit union

Offers lower fees for members

Life insurance company

Commonly used by people without a bank account

Check cashing outlet

Investment services accompany, main business focus

How to changing economic conditions affect the use of financial services?

Through changing interest rates and rising consumer prices. Also inflation, all affect consumer willingness to spend

What are examples of deposit type financial institutions?

Commercial banks, credit unions and thrift financial institutions

What are the main types of saving plans offered by financial institutions?

Regular savings accounts, share accounts, high-yield savings accounts

How does a money market account differ from a money market fund?

Safety- accounts have federal deposit insurance while funds do not

How do inflation and taxes affect earnings on savings?

Inflation and taxes reduce the amount of savings that you actually have because it increases the cost of living

Example: an older couple needs easy access to funds for living expenses

Liquidity

Example: A person is concerned with loss of buying power of funds on deposit

Inflation

example: a saver desires to maximize earnings from the savings plan

Rate of return

Example: a middle-aged person wants assurance that the funds are safe

Safety

What factors are common commonly consider considered when selecting a checking account?

Restrictions, fees and charges, interest and special services

situation for a certified check

Buying a car from a private seller

situation for a cashiers check

Purchasing high value items from a private seller

Situation for a money order

Mailing money because it’s safer than cash

Certified check

A check certified by a bank

Cashiers check

A check written by a bank

Money order

Prepaid with no bank involved

Travelers check

A check use overseas or while traveling

What is consumer credit?

Use of credit for personal needs besides a home mortgage

List two good reasons to borrow and two unnecessary reasons to borrow

Higher education, home mortgage

Bad colon buying a car or discretionary purchases

What are the two types of consumer credit?

Closed end and open end

Closed end credit

One time loans that the borrower pays back in a specified period of time and then payments of equal amounts

Open end credit

A line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment

Line of credit

A short term loan that is approved before you actually need the money

Interest

A periodic charge for the use of credit

Finance charge

The total dollar amount paid to use credit

Major source of inexpensive loans

Parents or family members

Major source of medium priced loans

Commercial banks, savings and loan associations, credit unions

Major source of Expensive loans

Financial companies and retail stores

What is the difference between a credit card and a debit card?

Credit: pay later money may not be in an account yet

Debit: withdraws directly

What are the two general rules of measuring credit capacity? How is credit capacity calculated?

Debt payments to income ratio; debt to equity ratio

Character

The borrowers’s attitude toward his or her credit obligations

Capacity

The borrowers ability to pay additional debts

Capital

The borrowers assets or net worth

Collateral

A valuable asset that is pledged to ensure loan payments

Conditions

The general economic conditions that can affect of our ability to repay a loan

What are the factors of a lender cannot consider according to the law when determining credit worthiness?

Race, ethnicity, sex, marital status, etc.

What is a credit bureau?

An agency that collects information on how promptly people and business businesses pay their bills

Write the steps you should take if you are denied credit

Get information about reasons for denial, then contact the credit bureau for support

What are two key concepts to remember when you borrow money?

The finance charge in the annual percentage rate

What are three major trade-offs you should consider as you take out a loan?

Term versus interest cost lender risk versus interest rate

Annual percentage rate

The cost of credit on a yearly basis expressed as a percentage

Finance charge

The total dollar amount paid to use credit

Minimum monthly payment

The smallest amount of borrower can pay on a credit card bill and remain a borrower in good standing

Add-on interest method

Interest is calculated on the full amount of the original principle no matter how often you make payments

Simple interest

The interest computed only on the principle, or the amount that you borrow

What steps might you take if there is a billing error in your monthly statement?

Notify creditor in writing, then pay portion of bill that is not in question

What steps would you take if someone stole your identity?

Contact credit, bureaus, contact creditors, then file a police report

How might you protect your credit information on the Internet?

Use a secure browser, keep records of your online transactions, review your monthly bank statements, read the privacy and security policies of websites you visit, keep personal information private, never give passwords to anyone online, don’t download files sent by strangers

What are some warning signs of debt problems?

Only making the minimum monthly payment on credit cards, missing loan payments or often paying late, you’ve been denied credit because of a bad credit bureau report

Distinguish between chapter 7, and chapter 13 bankruptcy

Chapter 7 bankruptcy: individual is required to drop a petition listing assets and liabilities, then send it to a US court and pays a

Chapter 13 bankruptcy: debtor provides a plan for using future earnings or assets to eliminate debts overtime, normally keeps all property, and provides the same info as chapter