Module 1 Vocab for Financial Literacy

Cognitive Bias

Occurs when decisions are based on personal values rather than rational judgment.

Endowment Effect

Overvaluing something simply because we own it

Loss Aversion

Fear of loss outweighs the potential for gain.

Herd Mentality

Conforming to the behavior of a group.

Anchoring Effect

Relying too heavily on the first piece of information when making decisions.

Confirmation Bias

Seeking information that confirms existing beliefs.

Present Bias

Prioritizing immediate gratification over long-term goals.

Gross Income

Total amount of money earned before any deductions.

Deductions

Amounts subtracted from gross income, such as taxes and insurance.

Net Income

Income after deductions, also known as "take-home pay."

FICA (Federal Insurance Contributions Act)

A U.S. law that requires withholding taxes for Social Security and Medicare.

Entrepreneur

A person who starts a business and assumes financial risk.

Creator (Entrepreneur Role)

Develops new product or service ideas.

Funder (Entrepreneur Role)

Secures financing for the business.

Salesperson (Entrepreneur Role)

Markets and sells the product or service.

Characteristics of Successful Entrepreneurs

Creativity, flexibility, risk tolerance, persistence.

Self-Employment Tax

Social Security and Medicare taxes paid by self-employed individuals.

Gig Employment

Short-term contract work for specific tasks or projects.

Benefits of Gig Employment

Flexibility, independence, variety, additional income potential, pursuing passions.

Costs of Gig Employment

Lack of benefits, inconsistent income, limited legal protections, self-employment taxes.

Financial Investments

Savings accounts, stocks, bonds.

Interest

Money earned on savings accounts.

Dividends

Payments to shareholders based on stock ownership.

Capital Gains

Profits from selling stocks at a higher price.

Social Security

Government program providing income to retirees and disabled individuals.

Funding for Social Security

Financed through payroll taxes.

Full Retirement Age

Age 67 for full Social Security benefits.

Early Retirement

Reduced Social Security benefits at age 62.

Direct Taxes

Paid directly to the government by individuals or businesses.

Income Taxes

Taxes on income earned, imposed by federal and some state governments.

Sales Taxes

Percentage added to the price of goods and services.

Proportional Tax

Same tax rate for everyone, regardless of income.

Regressive Tax

Same tax rate for everyone, but lower-income individuals pay a higher percentage of their income.

Progressive Tax

Tax rate increases as income increases.

Marginal Tax Rate

Different tax rates applied to different income brackets.

Taxable Income

Income after deductions and exemptions.

Capital Gains Tax

Tax on profits from selling assets like stocks or real estate.

Long-Term Capital Gains

Profits from assets held for over one year, taxed at lower rates

State Income Tax

Income taxes imposed by most states on residents.

Property Tax

Tax on real estate, levied by local governments.

Why Budget?

Helps plan expenses, control spending, and improve financial health.

Steps for Creating a Budget

Calculate income, identify expenses, track spending, compare income vs. expenses, and choose budgeting strategies.