Personal Finance and Money Management FLVS: Unit 1 - Attitudes, Education, and Income

cognitive bias

(personal opinions)

an error in thinking in which an individual uses personal values and experiences to make a decision rather than logic

loss aversion

(gambling)

a cognitive bias in which an individual feels the weight of a loss more than that of a gain

herd mentality

(trending stuff)

a cognitive bias in which an individual believes something is of value because the group believes it has value

anchoring effect

(which laptop to buy)

a cognitive bias in which an individual uses the first piece of information they receive about something as a reference point when comparing subsequent information

confirmation bias

a cognitive bias in which an individual looks for evidence that confirms what they already know or believe to be true

present bias

(making poor financial decisions)

a cognitive bias which we prioritize our needs and wants based on our present situation rather than a future outcome

endowment effect

a cognitive bias in which a person values an item more because they own it

deduction

taxes or expenses subtracted from gross income

gross pay

the amount of income received before any taxes or deductions

net pay

the amount of income received after any taxes or deductions

taxable income

the amount of income subject to income tax under the law after deductions and credits

indirect taxes

paid through an intermediary for rights, privileges, or activities

direct taxes

paid straight to the government

progressivity

as income rises, refers to whether the proportion of income to taxes increases, decreases, or stays the same

marginal tax rates

the tax percentage that applies to the last dollar of income earned

credit-worthiness

how risky it may seem for creditors to lend you money

What factors affect an individual's choice of jobs or careers?

- non-income factors (such as location, job security, working hours, personal satisfaction, risk of on-the-job injury, and availability of benefits)

- income

What can people do to make more informed education, job, and career decisions?

weighing the costs and benefits connected with your decisions to make sure you make the right decision based on what is important to you

What factors impact the earnings of workers?

level of education as well as work experience

Why do we pay taxes, and what are they for?

taxes are payments the government requires people to pay to help fund government services, such as:

- Social Security and Medicare

- federal taxes fund government programs, such as the military, diplomatic affairs, law enforcement, and social programs

- state and local taxes go towards maintenance of roads, local law enforcement, and education

What are the different categories of taxes?

taxes can be categorized as direct for being paid directly to the government or indirect for being collected when a person pays for a good or service

- income tax (direct)

- payroll tax (direct)

- corporate tax (direct)

- sales tax (indirect)

- gasoline tax (indirect)

- property tax (direct)

- estate tax (direct)

What is a budget, and how do you construct one?

a budget is a plan of income and expenses that shows how much money is coming in and how much is going out during a set time frame and the steps for planning a budget are:

1. calculate your income

2. calculate your expenses

3. compare expenses and income

4. make adjustments