Personal Finance, Decision-Making, and Economic Factors

A set of vocabulary flashcards reviewing key personal finance terms, decision-making strategies, types of risk, and economic factors from the lecture notes.

Opportunity cost

Refers to what a person gives up when a decision is made, also called a trade-off, which may involve resources such as time, money, and effort.

Personal opportunity cost

A trade-off that may involve time, health, or energy, such as spending time studying which results in lost time for leisure or working.

Financial opportunity costs

Opportunity costs involving the monetary value of decisions made, such as purchasing an item with savings and no longer obtaining interest on those funds.

Time value of money

A concept that can be used to measure financial opportunity cost using interest calculations.

Liquidity risk

The risk associated with certain types of savings (such as certificates of deposit) and investments (such as real estate) that may be difficult to convert to cash quickly.

Agonizing

Accumulating so much information that analyzing the options becomes overwhelming.

Synthesis

Choosing an option that has a good chance to succeed and which you like the best.

Intention

Choosing an option that will be both intellectually and emotionally satisfying.

Personal risks

Factors that may create a less than desirable situation, coming in the form of inconvenience, embarrassment, safety, or health concerns.

Inflation risks

The risk that rising prices cause lower buying power, where buying an item later may mean a higher price.

Interest-rate risk

The risk where changing interest rates affect your costs when borrowing and your benefits when saving or investing.

Income risk

The risk where changing jobs or reduced spending by consumers can result in lower income or loss of employment.

Consumer prices

Changes in the buying power of the dollar, representing inflation.

Consumer spending

Demand for goods and services in the economy.

Gross domestic product (GDP)

Total value of goods and services produced within the country.

Housing starts

The number of new homes being built.

Interest rates

The cost of borrowing money.

Money supply

Funds available for spending in the economy.

Stock market index

Indicators (such as the Dow Jones averages or Standard and poor's $500$) that indicate general trends in the value of U.S. stocks.

Unemployment

The number of people without employment who are willing to work.

Spontaneity

Choosing the first option that comes to mind, giving little or no consideration to the consequences of the choice.

Compliance

Going along with family, school, work, or peer expectations.

Procrastination

Postponing thought and action until options are limited.

Desire

Choosing the option that might achieve the best result, regardless of the risk involved.

Avoidance

Choosing the option that is most likely to avoid the worst possible result, such as buying a new car to avoid used car issues.

Security

Choosing the option that will bring some success, offend the fewest people, and pose the least risk.