Financial Literacy

Financial Planning

The process of setting financial goals and creating a plan for how to earn, spend, save, and invest money to achieve those goals.( budgeting, managing debt, saving for emergencies, and preparing for future expenses like college or retirement)

Need vs. Want

Need: something essential for survival or daily life, such as food, water, housing, and healthcare. Want: something you would like to have but can live without such as video games, designer clothes, or vacations. .

Wealth

The total value of a person's assets (money, investments, property) minus their debts.

Median Income

The income level that falls exactly in the middle of all incomes in a group. Half of the people earn more, and half earn less.

Financial Illiteracy

A lack of understanding about money management, budgeting, saving, investing, credit, and debt.

Opportunity Cost

What you are giving up when you do something else e.g., giving up sleep to go to school .

Capital

Anything that you are using to produce something else.

50/30/20 Rule

A way of budgeting: 50% to bills, 30% to wants, 20% to savings.

Budgeting

Creating a plan for how to spend, save, and manage your money.

Variable Expenses

Expenses that change with usage.

Zero-Based Budget

budgets that account for every dollar you earn,

Simple Interest

interest is earned only on the original amount.

Credit Scores and Interest Rates

The lower your credit score, the higher your interest rate.

Parts of a Credit Score

Payment history (35%), amounts owed/credit utilization (30%), length of credit history (15%), new credit (10%), credit mix (10%).

Payment History

A record of whether you pay bills and debts on time.

Protecting Credit

Pay bills on time, keep credit card balances low, monitor credit reports regularly.

Identity Theft

When someone steals and uses your personal information without permission.

How to Pay Down Debt

Make payments on time, pay more than the minimum when possible, focus on high-interest debt.

Private Loan vs. Federal Loan

Private loans are offered by banks, while federal loans are offered by the government.

Subsidized vs. Unsubsidized Loans

Subsidized loans have the government paying interest while in school; unsubsidized loans accumulate interest immediately.

Insurance

A financial product that protects against losses by spreading risk among many people.

Medicare

A federal health insurance program primarily for the elderly and certain younger people with disabilities.

Family Insurance

An insurance plan that covers multiple family members under one policy.

Money Market Accounts

Savings accounts that usually offer higher interest rates than regular savings accounts.

Bank vs. Credit Union

Banks are for-profit institutions, while credit unions are not-for-profit and member-owned.

FDIC

The Federal Deposit Insurance Corporation, which insures deposits at participating banks.

Money Laundering

The illegal process of disguising money obtained through criminal activity.

Tax Evasion

Evading taxes by not claiming certain amounts of money.

Capitalism

An economic system where individuals and businesses own the means of production.

Progressive Tax System

A tax system where higher incomes pay a higher percentage of their income in taxes.

Truth in Lending Act

A federal law requiring lenders to disclose important loan terms.

Sherman Antitrust Act

A federal law that prohibits monopolies and unfair business practices.

Credit

The ability to borrow money or access goods or services with the understanding that payment will be made later.

Borrower

An individual or entity that takes out a loan.

Lender

An individual or institution that provides funds to a borrower.

Creditworthiness

An assessment of the borrower's ability to repay a loan.

Interest

The cost of borrowing money, typically expressed as a percentage.

Credit score

A numerical representation of a borrower's creditworthiness.

Revolving credit

A type of credit that allows the borrower to use and repay funds repeatedly.

Installment loan

A loan that is repaid over time with a set number of scheduled payments.

Open credit

Credit that does not have a fixed limit and can be used at any time.

Closed credit

Credit that has a fixed limit and is not available for repeated use.

Credit limit

The maximum amount of credit that a lender will extend to a borrower.

Minimum payment

The smallest amount that must be paid on a credit account to avoid penalties.

APR

Annual Percentage Rate; the annual rate charged for borrowing or earned through an investment.

Balance transfer

The process of moving debt from one credit account to another.

Debt consolidation

Combining multiple debts into a single loan with a lower interest rate.

Credit report

A detailed report of an individual's credit history.

Credit bureau

An organization that collects and maintains consumer credit information.

Collateral

An asset that a borrower offers to a lender to secure a loan.

Cosigner

A person who agrees to be responsible for a loan if the primary borrower defaults.

Predatory lending

Unfair, deceptive, or fraudulent practices by lenders.

Avalanche Method

A debt repayment strategy where the debt with the highest interest rate is paid off first.

Snowball Method

A debt repayment strategy where the smallest debt is paid off first to build motivation.

Risk tolerance

An individual's ability to endure losses in investments.

Risk mitigation

Strategies to reduce or manage risk.

Premium

The amount paid for an insurance policy.

Deductible

The amount paid out of pocket by the policyholder before insurance coverage kicks in.

Coverage

The amount of protection provided by an insurance policy.

Claim

A request for payment under the terms of an insurance policy.

Liability

Legal responsibility for one's actions or the actions of others.

Simple interest

Interest calculated only on the principal amount.

Compound interest

Interest calculated on the principal and also on the accumulated interest.

Certificate of Deposit

A savings product that earns interest on a lump sum for a fixed term.

Money market account

A savings account that typically earns a higher interest rate and offers limited check-writing ability.

Supply and demand

The relationship between the availability of a product and the desire for that product.

Gross domestic product

The total value of all goods and services produced in a country.

Inflation

The rate at which the general level of prices for goods and services rises.

Recession

A period of temporary economic decline during which trade and industrial activity are reduced.

Taxes

Mandatory financial charges imposed by a government.

Fiscal Policy

Government policy regarding taxation and spending.

Tax brackets

Categories that determine the rate of tax applied to income.

Consumer protection

Laws and regulations designed to protect consumers from unfair business practices.

Charitable Organizations

Nonprofit groups that provide help and raise money for social causes.

Humanitarian

Concerned with or seeking to promote human welfare.

Estate planning

The process of arranging for the disposal of a person's estate.

Insurance fraud

The act of deceiving an insurance company to receive benefits.

Interest rates

The amount charged by lenders to borrowers for the use of money.

Marginal tax rate

The tax rate applied to the last dollar of income earned.

Financial stability

The ability to manage financial resources effectively.

Traditional budgeting

Budgeting split up based on bills, spending, and saving.

Compound Interest

Interest earned on both the original amount and previously earned interest.