Overview of Consumer Economics and Financial Services Unit 1

Unit 1 of Online Financial Lit Summer course.

What are traditional economic systems primarily centered around?

Family, tribe, or community, focusing on producing enough goods to satisfy community needs.

What characterizes command economic systems?

A centralized government that makes most economic decisions, including what, how, and who produces goods and services.

How do market economic systems operate?

Individuals or consumers make economic decisions without government intervention, determining what goods or services to produce and at what price.

What are mixed economic systems?

Combinations of traditional, command, and market economies, allowing for private ownership but with government regulation.

What does the U.S. free enterprise system entail?

It involves little to no government intervention in the economy.

What is the Law of Demand?

As prices rise, consumer demand decreases, meaning fewer consumers will buy a product at higher prices.

What does the Law of Supply state?

When the price of a good rises, the quantity supplied also rises, and when the price falls, the quantity supplied falls.

What indicates a direct relationship between price and quantity supplied?

An upward sloping supply curve.

What happens in the market when prices are high?

There is excess supply.

What occurs in the market when prices are low?

There is excess demand.

What are the phases of the business cycle in order?

Prosperity (or expansion), recession, depression, and recovery.

What is direct marketing?

A method companies use to inform target audiences about a product or service through direct communication.

What is a target audience?

A group of consumers that a company believes are more likely to buy a product or service.

What are some methods of direct marketing?

Email, letters, telephone calls, and newsletters.

How do companies use public relations (PR)?

To provide information to consumers through third parties like journalists and the business press.

What are some PR methods?

Press releases, news articles, press conferences, and community relations.

What is the purpose of sales promotions?

To convince consumers to buy products and services immediately and to generate interest.

What are some goals of sales promotions?

Attract new customers, reward loyal customers with discounts, and increase brand visibility.

What is personal selling?

A method where businesses use salespeople to sell products or services through face-to-face interactions.

What are the 4Ps of marketing?

Product, Place, Promotion, and Price.

What do depository institutions do?

They accept and manage customer deposits in accounts like checking and savings.

What is the role of investment institutions?

To help governments and businesses raise money from capital markets by issuing securities.

What do contractual institutions deal with?

Insurance policies and pension funds.

What do insurance policies provide to policyholders in emergency situations?

Financial protection.

What are pension funds?

Investment plans for retirement that pool money from individuals to invest in stocks and bonds.

How do contractual institutions generate revenue?

By selling insurance products or collecting fees for managing pension funds.

What services do commercial banks offer?

Checking accounts, savings accounts, check writing, ATM transactions, debit and credit cards, automatic payments, and money transfers.

What type of customers do financial service companies typically offer loans to?

High-risk customers, such as those with poor credit ratings.

How do credit unions differ from traditional banks?

Credit unions are owned by their members and generally charge lower fees.

What is the primary function of savings and loan associations?

To use money from savings accounts to provide home loans to customers.

What are mortgages?

Loans given to individuals or businesses to purchase property.

How do mortgage loan companies make profits?

By charging interest on mortgage loans.

What types of insurance do insurance companies provide?

Auto, home, and life insurance coverage.

What are securities?

Financial assets such as stocks and bonds that are traded on stock markets.

What do asset management firms do?

Invest client funds into a wide range of investments and manage pension or retirement funds.

How do brokerage firms generate income?

By charging commissions or fees for trading securities on behalf of clients.

What is the role of a trust company?

To manage a client's assets in the client's best interests as a fiduciary.

What are some examples of financial regulators?

Federal Reserve Board (FDR), FDIC, FINRA, SEC, CFTC, OCC, Financial Stability Oversight Council, Consumer Financial Protection Bureau.

What protection did the BAPCPA provide for retirement plans?

It included IRAs and other retirement plans as protected assets in bankruptcy filings.

What is the purpose of the Community Reinvestment Act (CRA)?

To encourage depository institutions to meet the credit needs of communities, especially low- to moderate-income areas.

What was the Dodd-Frank Act designed to address?

It strengthened regulations in the financial sector following the 2008 financial crisis.

What new agencies were created by the Dodd-Frank Act?

Financial Stability Oversight Council and Consumer Financial Protection Bureau.

What is the legal responsibility of fiduciaries in financial services?

To act in the best interests of their clients.

What do money managers from asset management firms do?

They manage client investments and may also oversee pension or retirement funds.

What is the significance of the financial crisis of 2008 in terms of regulation?

It led to the creation of new regulations and agencies to oversee financial institutions.

What does the Fair and Accurate Credit Transactions Act aim to combat?

Identity theft and it makes it easier for consumers to dispute inaccurate information on their credit reports.

What is a provision of the Fair and Accurate Credit Transactions Act regarding fraud alerts?

It allows consumers who believe their identity has been stolen to place fraud alerts on their credit.

What does the Equal Credit Opportunity Act (ECOA) prohibit?

Discrimination against borrowers based on race, religion, sex, national origin, marital status, or age.

What factors should lenders use to determine an individual's creditworthiness according to ECOA?

Credit history or current debt, not marital status or public assistance.

What significant change did the Federal Deposit Insurance Act of 1950 introduce?

It gave the FDIC the power to lend money to insured banks in danger of failure.

What criteria must a bank meet to receive loans from the FDIC?

The bank must be considered essential to the local community.

What does the Gramm-Leach-Bliley Act require from financial institutions?

It requires them to explain to consumers what information they share with other businesses.

What must banks provide to customers under the Gramm-Leach-Bliley Act?

A privacy notice detailing how they collect information and who they can share it with.

What guidelines does the Right to Financial Privacy Act (RFPA) set for the federal government?

It sets guidelines for how the government can obtain a customer's financial records from their financial institution.

What is generally required for the government to access a customer's financial records under RFPA?

A subpoena or court order.

What was the main purpose of the Sarbanes-Oxley Act?

To restore investors' trust and confidence in the accuracy of financial records.

What does the Sarbanes-Oxley Act require from a company's senior officers?

They must sign off on the company's financial records certifying their accuracy and compliance with SEC requirements.

What additional measures did the Sarbanes-Oxley Act implement?

Stricter accounting rules, more auditing procedures, and increased criminal penalties for violations.

What does Title X of the Dodd-Frank Act establish?

The Bureau of Consumer Financial Protection.

What is the role of the Bureau of Consumer Financial Protection?

To supervise financial firms and enforce laws against deceptive business practices.

How does Title X protect consumers regarding transaction fees?

It limits transaction fees for debit and credit cards.

What issue did the Sarbanes-Oxley Act address?

Fraudulent financial reporting from large corporations.

What was a consequence of the fraudulent financial reporting that led to the Sarbanes-Oxley Act?

Investors were misled about the profitability of businesses, leading to economic instability.

What is a fraud alert?

A notice that makes it difficult for criminals to open credit in a victim's name.

What year was the Fair and Accurate Credit Transactions Act passed?

2003

What year was the Equal Credit Opportunity Act passed?

1974

What year was the Right to Financial Privacy Act passed?

1978

What year was the Sarbanes-Oxley Act passed?

2002

What does Title XIV of the Dodd-Frank Act aim to do?

It amends laws like the Equal Credit Opportunity Act to prevent predatory mortgage lending and make affordable mortgages more available.

What unfair lending practice does Title XIV of the Dodd-Frank Act address?

It addresses practices like steering, where some individuals are charged high fees while others are not.

What is the primary role of personal financial advisors?

They help individuals and families manage and grow their money, advising on investments and managing those investments.

What are some short-term goals clients might hire a personal financial advisor for?

Clients may hire advisors to save for a down payment on a home.

What long-term goal might clients seek help from a personal financial advisor?

Clients may seek help for retirement planning.

What educational background is required to become a personal financial advisor?

A bachelor's degree in finance, economics, accounting, financial planning, or business.

What is the Series 7 exam?

It is a required exam for financial advisors to sell stocks and bonds.

What does a Series 6 certificate allow a financial advisor to sell?

It allows the sale of mutual funds, trusts, and variable annuities.

What is required to sell commodities as a financial advisor?

A Series 3 certificate.

What does a Series 65 certification combine?

It combines other series certifications for financial advisors.

What is the purpose of the Series 63 license?

It is the Uniform Securities Agent State license required for financial advisors.

What additional certifications can enhance a financial advisor's credibility?

Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA) certificates.

What do tax accountants manage for their clients?

They manage taxes for individuals or companies and ensure compliance with regulations.

What ethical standards should tax accountants be familiar with?

Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).

What is the role of tax accountants at the senior level?

They handle tax planning for large businesses and wealthy individuals.

What organization sets the rules and standards for public accountants?

The American Institute of Certified Public Accountants (AICPA).

What is the uniform CPA exam?

It is an exam that public accountants must pass to become certified.

What must insurance sales agents do?

They sell different types of insurance to customers.

What is the primary role of an insurance sales agent?

To meet with customers to determine their risk profile and recommend different types of insurance to mitigate risk of loss.

What does property and casualty insurance cover?

It protects people from financial loss due to automobile accidents, fire, theft, and for businesses, it covers workers' compensation, product liability claims, or medical malpractice claims.

What is the purpose of a life insurance policy?

To pay the beneficiary of the policy when the policyholder dies, providing financial security for families.

What are the general educational requirements to become an insurance sales agent?

At least a high school diploma and a state license, which typically requires completing a prelicensing course.

What do prelicensing courses for insurance agents cover?

They cover various insurance policies, state laws regarding insurance, and ethical practices of insurance agents.

What must insurance agents generally do to obtain licensure?

Pass a test for each of the insurance products they will sell, such as health, life, property, and casualty.

What is the role of real estate brokers?

They act as intermediaries between property buyers and sellers, helping clients buy, sell, and rent properties.

What are some responsibilities of real estate brokers?

Advising clients on home ownership, preparing a list of properties for sale, and presenting purchase offers from buyers to sellers.

What is required to become a licensed real estate broker?

A high school diploma, completion of a prelicensing course, and passing a licensing exam.

How often must real estate brokers renew their licenses?

Every two to four years.

What is a certified realtor?

A member of the National Association of Realtors who agrees to adhere to a strict code of ethics.

What does a stockbroker do?

Buys and sells shares of stock for clients and conducts transactions on stock exchanges.

What educational background is preferred for stockbrokers?

A bachelor's degree, preferably in finance.

What exams must stockbrokers pass to trade stocks?

They must pass a series of exams, including the Series 7 exam.