Personal Finance

Honors Economy

Mortgage

A debt instrument, secured by collateral of specified real estate property. The borrower is obliged to pay back with a predetermined set of payments.

Fixed-rate Mortgage

Mortgage type where the borrower pays the same interest rate for the life of the loan.

The monthly principle and interest payment never changes from the first payment to the last.

Adjustable Rate Mortgage

The interest rate is fixed for an initial term then fluctuates with market interest rates.

Monthly payments are unpredictable after the initial term.

Home Equity Loan

A type of consumer debt that allows homeowners to borrow against the equity in their home. The loan amount is based on the difference between the home's current market value and the mortgage balance due.

Foreclosure

The legal process by which a lender attempts to recover the amount owed on a defaulted loan by taking ownership of and selling the mortgaged property.

Reverse Mortgages

A type of loan for seniors ages 62 and older. It allows homeowners to convert their home equity into cash income with no monthly mortgage payments.

Grants

A type of funding based on financial need and it does not need to be repaid unless you do not complete the requirements.

Scholarships

A type of gift aid that is awarded based on merit, need, or criteria.

Work Study

A type of aid that allows a student to earn money while enrolled in a school that can be used to pay for educational and other expenses.

Savings

Monetary deposits secured for later, undetermined use. A liquid investment.

Banks

Financial institution that takes your money and deposits it, and will loan out a portion of these savings to people who apply for them.

Credit Unions

Financial institutions that ONLY provides services to their members. The members control and own the institution. It typically has higher savings rates and lower loan rates.

Savings & Loans Bank

A "focused bank". Instead of providing a wealth of services, it deposits and concentrates on savings and mortgage loans. Typically have higher interest, but less availability to their money.

Payday Loans

Financial institutions that will give out small loans in return for a portion of an upcoming paycheck.

Title Pawns

Financial loans that require you to pawn the title of your property (typically your vehicle) to get a loan. There is no grace period, so as soon as you do not repay your loan, your pawned property will be taken.

Investment

The commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in form of interest, income, or appreciation of the value of the instrument.

Stock

A type of investment where you have a form of ownership in a corporation. Typically best for making a lot of money in a short period of time.

Mutual Funds

A collection of various investments (stocks, bonds, and other securities).

Exchange Traded Fund (ETF)

A type of security that tracks an index, sector, commodity or other assets, but can be purchased or sold on a stock exchange the same way regular stock can.

Bonds

Type of security that has a promised rate of interest, but can only be retrieved after a specific amount of time.

Individual Retirement Account

A savings account with tax advantages that individuals can save and invest long-term.

Roth IRA

The individual retirement account allowing a person to set aside after-tax income up to a specified amount each year.

401K

Retirement fund where the employer contributes a pre-tax amount, meaning they reduce taxable income, but the withdrawals will be taxed.

Roth 401K

An employer-sponsored retirement savings account that is funded with after-tax dollars. This means that withdrawals are not taxed.

Pension Plan

An employee benefit that commits the employer to make regular contributions to a pool of money that is set aside in order to fund payments made to eligible employees after they retire

Simple Interest Rate

interest is determined annually with the original loan

Compound interest rate

future interest determined with the existing amount owed

FICO Score

The number used to determine one's credit worthiness, and your credit score.

Credit Worthiness

A measure of a variety of factors, but is basically the attempt to determine whether you can pay back a loan properly.

Progressive Taxes

The tax rate increases as the taxable income increases. A common example is income tax.

Regressive Taxes

A tax that is applied at a fixed AMOUNT, which has a bigger burden on lower incomes that middle & high incomes.

Proportional Taxes

A tax applied at a fixed PERCENTAGE. A common example is sales tax.

Premium

A relatively small amount of money a person or businesses pay for insurance.

While delivering the mail, a postman gets struck in the arm by a passing car. An ambulance takes him to the hospital, and after x-rays and other tests are done, the doctor states that no bones were broken and no permanent damage was done.

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Which of the following types of insurance would be MOST beneficial for the postman as a result of the accident?

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Auto, disability, health, or life

health

**On which of the following do people pay a regressive tax?**

**A.** their earned income

**B.** interest earned on their savings  accounts

**C.** stocks purchased for investments

**D.** goods purchased for their personal  use

D. goods purchased for their personal use

**A good example of the effect of  education on income would be that** 

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**A**. employees who learn to perform  high-risk jobs always get paid more 

**B.** workers who learn to make high demand products are well paid  

**C.** only job applicants with high school  diplomas get job interviews  

**D.** people with college degrees usually  earn more than those with less  education  

D. people with college degrees usually  earn more than those with less  education  

**A woman is considering purchasing a  new lawn mower that costs $120.  While employed, the woman does not  currently have enough money in her  account to pay for this item. Which of  the following financial institutions  would be the MOST likely to help her buy the lawn mower?**  

**A.** payday loan company  

**B.** credit union  

**C.** savings and loan  

**D.** commercial bank  

A. payday loan company

**Which factor MOST often has the  greatest role in determining the  amount of money that workers earn  during their careers?**  

**A.** their credit worthiness  

**B.** their education level  

**C.** the location of the business for  which they work  

**D.** the size of the business for which  they work 

B. their education level

Credit report

Document with your personal information, credit history, and inquiries (sources that have requested this document).