DECA Personal Financial Literacy terms

Comparison shopping

judging the benefits of different products by comparing several factors before purchase

Purchasing power

the real goods and services that money can buy; determines the value of money.

Fixed expenses

Expenses that do not change from month to month, such as auto insurance or rent.

Mandatory Paycheck Deductions

Federal Income Tax, State Income Tax, FICA (Social Security and Medicare), Wage Garnishments.

Federal Reserve System (Fed)

US central bank that sets monetary policy and regulates banking system

Securities and Exchange Commission (SEC)

an independent federal agency that oversees the exchange of securities to protect investors

Internal Revenue Service (IRS)

The branch of the U.S. Treasury Department in charge of collecting taxes

Consumer Financial Protection Bureau

Fairness and transparency in consumer financial products and services

Time value of money

the principle that a dollar received today is worth more than a dollar received in the future due to inflation.

Long-term debt

a liability that falls due beyond one year from the date of the financial statements

Opportunity cost

The loss of potential gain from other alternatives when one alternative is chosen.

Whatever must be given up to obtain some item

Balanced budget

A budget in which revenue and spending are equal.

total expenses + savings = total income

Simple interest

interest paid on the principal alone

I=prt

APY

Annual Percentage Yield -

the actual annual rate at which interest is earned, including the effects of compounding

Compound interest

interest earned on both the principal amount and any interest already earned

FAFSA

Free Application for Federal Student Aid -

main application students use to apply for federal education grants and loans (financial aid)

Federal Deposit Insurance Corporation (FDIC)

the government agency that insures customer deposits if a bank fails up to 250K.

Paying yourself first

The concept of setting aside a portion of your income for savings before spending any of it

Your credit past is your credit future

credit bureaus maintain credit reports, which record borrowers' histories of repaying loans and credit. Negative information in credit reports will adversely affect your ability to borrow at a later point.

Capital gains

Gains (taxed) from selling stocks or other financial investments for more than what was paid for them.

Certificate of deposit

a savings certificate that gains interest and has a set time before you can withdraw your money (if you do early, you are penalized)

bank check

a certified check or a cashier's check, the payment for which a bank is solely or primarily liable. Good as cash.

personal check

a check drawn against funds deposited in your personal checking account

promissory note

a written contract with a promise to pay a supplier a specific sum of money at a definite time

ATM cards

Allows person to deposit and withdraw money from their account at an atm

overdraft protection

an automatic loan made to an account if the balance will not cover checks written

amortization

the reduction of a loan balance through payments made over a period of time

barter

Exchange goods without involving money.

direct deposit

An automatic deposit of a paycheck without having to take a physical check to the bank.

check cashing store

A business that cashes checks, giving the customer cash in exchange for a fee for the service.

debit card

a card used to withdraw or deduct money from your checking account

wealth

the total value of everything someone owns, minus the debts. Assets

pawnshop

a shop where loans are made with personal property as security

savings bank

a depository institution that accepts savings deposits and makes mostly home-purchase loans

stop-payment order

a request that a bank or other financial institution not cash a particular check

secured credit

credit that requires security (collateral) that secures payment of the loan

unsecured credit

credit that does not require any security (collateral) to protect the payment of the debt

grace period

period of time during which the balance may be paid in full to avoid finance charges

Truth-in-Lending Act

A federal law that requires all finance charges be disclosed on consumer credit arrangements.

phishing

Use of fake emails and web sites to trick users into revealing sensitive data.

Comprehensive car insurance

covers your car for reasons other than a collision, such as theft, fire, vandalism

Universal insurance

tax complementary-universal-everyone eligible regardless of employment status insurance

actual cash value

the payment you receive is based on the replacement cost of an item minus depreciation

replacement value

Cost to replace or replicate property at todays prices (almost always higher then acv)

insurance premium

payments made by customers to secure a policy written by an insurance company

insurance deductible

the amount of expenses that must be paid out of pocket before an insurer will pay any expenses.

liability

legal responsibility

life insurance

insurance that pays money to the beneficiary upon the death/injury of the insured person

US treasury bond

Bond issued by the treasure with a 10 year maturity date. Capital gains only taxed federally.

capital gains

are profits made from the sale of capital assets such as stocks and bonds

equity capital

money raised by a business or investor in exchange for a share of ownership of the company

Building wealth

Making money and saving it

When composes a credit report?

35% : Payment history

30%: Credit Utilization

15%: Length of Credit History

10%: Types of Credit in Use

10%: New Credit

Where to get credit score?

-FICO website

• Credit Reporting Bureaus

• Experian

• TransUnion

• Equifax

When do you get a free credit report?

When you are denied a line of credit, you get a free report by one of the major credit bureaus.

Are credit scores required?

No, if you don't borrow, then you won't have a credit score.

FICO score

rating from 300 to 850 that credit granters can use in making a loan approval decision

competent parties

parties who are legally qualified to make a binding contractual agreement

consideration in a contract

When one party in a contract makes another offer to the other that is accepted.

W-2 Form

A form that outlines an individual's earnings, and tax deductions incurred.

Form 1040

The standard tax form used to file an individual federal tax return. Where you list itemized deductions.

When are W-2 Forms due?

Due by end of January, given by employer

When are taxes due?

Mid-April

Roth IRA

Account providing tax-free income growth; contributions are made with after-tax dollars.

IRA

Tax-deferred arrangement for individuals with earned income; individual retirement arrangement.. You are taxed when you withdraw in the end.

Withdrawing from IRA

You can only withdraw from your IRA without 10% penalty after age 59.5.

Escrow Agent

The neutral third party holding funds or something of value in trust for another or others.

Escrow

Money or securities held by a third party until conditions of a contract are met

Buy and hold

• Buy stocks and then hold them for the long run, regardless of what prices do in the short run.

• You get tax deferments as long as you're holding so you can make interest on money that would have been lost on capital gains.

Dollar cost averaging

Investing roughly equal amounts of money at regular intervals. If stock goes up, you automatically are buying less schares, if stock goes down, you are automatically buying more shares.

Growth Stocks

Stocks in corporations that reinvest their profits into the business so that it can grow.

What does an income statement show?

Profit and loss over a period of time for a company.

EDGAR

Free, public database contains required information about companies by the SEC.

ESOP

employee stock option plan: a method for employees to purchase the business for which they work

Net Change

Difference between closing price of previous day and current day.

Real Estate

A tangible asset that you can invest in where your money will grow over time in the for of property such as land, houses and office buildings.

401(k)

Pre-tax Retirement account 401(k) provided to employees by their employer. You can contribute more, but there are limitations on what you can invest in. Employer may do investment matching.

Term Insurance

Life insurance coverage for a specified period of time, less expensive than whole

Liability Insurance

Provides protection from claims arising from injuries or damage to other people or property

Homeowner's Insurance

Protects against most types of losses and liabilities related to home ownership.

Estate Tax

A tax on the estate, or total value of the money and property, of a person who has died. Estates are tax exempt up to $5 million.

Power of Attorney Document

grants power to a representative of your choosing to legally act and make decisions on your behalf.

Short-term Goals

goals set for less than one year (usually less than 3-months)

How to Set Financial Goals

1. Identify your financial goals

2. Calculate your net worth

3. Identify your sources of income