ECON- Personal Finance Test

Cashier’s Check

a check issued and guaranteed by a bank using its own funds (very secure)

Money Order

a prepaid paper payment, safer than cash, often used when you don’t have a bank account

ACH (Automated Clearing House)

Electronic transfer system for moving money between banks (direct deposit, bill pay)

Bank Routing number

9-digit number identifying your bank

Bank Account

Unique number identifying your personal account

Gross pay

total earnings before taxes/deductions

Net Pay (Take-home pay)

what you actually receive after deductions

Paying interest

cost of borrowing money (loans, credit cards)

Earning Interest

Money you gain from savings/ investments

Simple Interest

Interest calculated only on the original amount

Compound Interest

Interest calculated on the original + accumulated interest

Gross Income

All income earned before any deductions

Adjusted Gross Income (AGI)

Income after certain deductions (like student loan interest)

Taxable Income

Income used to calculate taxes after all deductions

Tax Credits

Direct reductions of taxes owed

W-4

Form telling your employer how much tax to withhold

1099

Form reporting income for independent contractors

Above-the-line Deductions

Reduce AGI (before taxes calculated)

Below-the-line Deductions

Itemized deductions after AGI

Fiduciary

Someone legally required to act in your best financial interest

Types of Student Loans

federal (subsidize/unsubsidized) and private loans

Forgiveness

Loan balance canceled after meeting requirements

Forbearance

Pause payments, but interest still builds

Deferment

Pause payments, sometimes without interest (on subsidized loans)

Payday Loans

short-term very high-interest loans due on next paycheck

Car Title Loans

loan using your car as collateral (risk losing car)

Store Credit Cards

High interest cards from stores (e.g. Home Depot, Macy’s)

Credit Card

borrowed money

Debit

your own bank money

Carecredit

credit card for medical expenses

Unsecured Personal Loan

no collateral required (higher interest)

Secured Personal Loan

Backed by collateral (lower risk to lender)

Car Loans (Bank/Credit Union)

Usually lower rates

Dealership Financing

Convenient but often higher rates

Car Lot Financing

High-risk, high-interest loans from used car lots

Jumbo Loan

loan exceeding conventional limits

Conventional Loan

standard mortgage not backed by government

30-year

lower payments more interest

15 year

higher payments less interest

PMI (private mortgage insurance)

extra cost if down payment <20%

Down Payment

Upfront money paid toward a home

HELOC (Home Equity Line of Credit)

borrow against your home’s equity like a credit line

Credit Score

number showing creditworthiness

Raises Score

on-time payments, low balances

Lowers Score

late payments, high debt, too many applications

Social Security

government retirement income program

Defined Benefit Plan

employer guarantees a set retirement payment (pension)

401(k)

employer-sponsored retirement account

Roth 401(k)

taxed now, withdrawals tax-free

Traditional 401(k)

tax-deferred until withdrawal

IRA (Roth/Traditional)

individual retirement accounts outside employer

Certificates of Deposit

fixed-term savings with higher interest

Savings / Money Market Accounts

safe bank accounts with modest interest

Annuity

insurance product providing steady income

Crypto

Digital currency like Bitcoin

Stock Market (Single Stocks)

buying shares of companies like coca-cola or home Depot

Index Funds

invest in a whole market index (low cost)

Mutual Funds

pooled investments (watch fees/expense ratio)

Homeowners/renters insurance

protects property and belongings

Medical Insurance

covers healthcare (e.g. covered California)

Car Insurance

required by state; covers accidents

Deductible

Amount you pay before insurance covers cost

Life Insurance (term)

temporary coverage

Life Insurance (whole)

lifetime + cash value

State Disability

state program for lost income due to disability

Private Disability

extra income protection (e.g. Aflac)

Worker’s Compensation

covers job-related injuries

Budgeting Systems

plans to track income/spending (e.g. 50/30/20 rule)

Bank

for profit

Credit Unions

member-owned, often lower fees

Bankruptcy

Legal process to reduce/eliminate debt or restructure repayment

The Retirement Gamble Video Main Ideas

fees can reduce retirement savings significantly, actively managed funds often underperform index funds, and financial advisors may not always act as fiduciaries

The Credit Card Gamble Video Main Ideas

credit card companies profit from interest and fees, minimum payments keep people in debt longer, rewards programs encourage more spending, high interest can trap users in long-term debt

What is the 1978 Marquette decision?

Wherever the credit decision is made is where the interest is held

What is the average amount an American family has in credit car debt?

$8000 (2004 film) and $11,500 (2026 today)

What are Andrew Khar’s two big ideas?

1. reduce minimum payment to 2% instead of 5% because it creates higher credit lines and high balance accounts are more profitable than low balance accounts (pay less borrow more)

2. straight to 0% as an introductory window of time