National Personal Finance Challenge

What is a credit union?

A nonprofit, member-owned financial cooperative that provides banking services; insured by NCUA, not FDIC

What is a commercial bank?

A for-profit financial institution offering full banking services (checking, savings, loans); owned by stockholders; insured by FDIC

What is a savings and loan association (S&L / thrift)?

A financial institution specializing in mortgage loans and savings accounts; now offers services similar to commercial banks

What is a mutual savings bank?

A depositor-owned bank (no stockholders) that returns profits to depositors; common in the Northeast U.S.

What is the FDIC?

Federal Deposit Insurance Corporation; insures bank deposits up to $250,000 per depositor per institution

What is the NCUA?

National Credit Union Administration; insures credit union deposits up to $250,000, equivalent to FDIC for banks

What is a nondeposit financial institution?

Institutions like mutual fund companies, brokerage firms, and insurance companies that offer financial services but do not hold traditional deposits

What is a cyber bank (online bank)?

A bank with no physical branches or tellers that operates entirely online; typically offers higher interest rates due to lower overhead

What is the Federal Reserve (the Fed)?

The central bank of the United States; controls monetary policy, regulates banks, and manages money supply and interest rates

What is the discount rate?

The interest rate the Federal Reserve charges commercial banks for short-term loans; a tool of monetary policy

What is the federal funds rate?

The interest rate at which banks lend reserve balances to other banks overnight; key monetary policy benchmark

What is an ATM?

Automated Teller Machine; allows cash withdrawal, deposits, and account inquiries without a bank teller

What is a point-of-sale (POS) transaction?

A debit card purchase made at a retail location, restaurant, or other merchant

What is a checking account?

A demand deposit account allowing unlimited withdrawals via check, debit card, or electronic transfer; may be interest-bearing (NOW account) or non-interest-bearing

What is a savings account?

A deposit account that earns interest; federally limited to 6 withdrawals per month (now relaxed but still a common exam point)

What is a money market account?

A savings account that typically offers higher interest rates with higher minimum balance requirements; may allow limited check writing

What is a certificate of deposit (CD)?

A time deposit with a fixed interest rate and fixed maturity date; early withdrawal incurs a penalty; insured by FDIC

What is a NOW account?

Negotiable Order of Withdrawal account; an interest-bearing checking account

What is direct deposit?

Automatic electronic deposit of a paycheck or other payment directly into a bank account

What is electronic funds transfer (EFT)?

Electronic movement of money between accounts, including direct deposit, ATM use, and online bill pay

What is a cashier's check?

A check guaranteed by the bank, drawn on the bank's own funds; used for large or guaranteed payments

What is a certified check?

A personal check for which the bank verifies and guarantees sufficient funds exist

What is a money order?

A prepaid payment instrument used as a substitute for cash or check; available at banks, post offices, and retailers

What is overdraft protection?

A bank service that covers a transaction when an account lacks sufficient funds, often for a fee or via linked account transfer

What is a bounced check?

A check that is returned unpaid because the account has insufficient funds (NSF — non-sufficient funds)

What is net pay?

Take-home pay after all deductions (taxes, insurance, retirement contributions) are subtracted from gross pay

What is gross pay?

Total earnings before any deductions

What is FICA?

Federal Insurance Contributions Act; payroll tax split equally between employer and employee funding Social Security (6.2%) and Medicare (1.45%)

What is Social Security tax rate (employee)?

6.2% of wages up to the annual wage base limit

What is Medicare tax rate (employee)?

1.45% of all wages (no cap); high earners pay an additional 0.9%

What is a W-2 form?

Form provided by employer showing annual wages earned and taxes withheld; used to file income tax return

What is a W-4 form?

Employee's Withholding Certificate; tells employer how much federal income tax to withhold based on filing status and allowances

What is a 1040 form?

The standard IRS individual income tax return form

What is the 1040-EZ?

Simplified income tax return for individuals with basic tax situations (now replaced by redesigned 1040)

What is a tax deduction?

An expense that reduces taxable income; examples include mortgage interest, charitable donations, and student loan interest

What is a tax credit?

A dollar-for-dollar reduction in actual taxes owed; more valuable than a deduction of the same amount

What is the standard deduction?

A fixed dollar amount that reduces taxable income for taxpayers who don't itemize; amount varies by filing status

What is itemizing deductions?

Listing individual deductible expenses on Schedule A instead of taking the standard deduction; beneficial when itemized total exceeds standard deduction

What is adjusted gross income (AGI)?

Gross income minus above-the-line deductions (student loan interest, IRA contributions, etc.); used to determine eligibility for many tax benefits

What is taxable income?

AGI minus deductions and exemptions; the income amount on which tax is actually calculated

What is a marginal tax rate?

The tax rate applied to the last dollar of income earned; the U.S. uses a progressive marginal tax system

What is a progressive tax?

A tax system where the rate increases as income increases (e.g., federal income tax)

What is a regressive tax?

A tax that takes a larger percentage of income from lower-income earners (e.g., sales tax, FICA up to the wage base)

What is a proportional (flat) tax?

A tax where everyone pays the same percentage of income regardless of earnings

What is a tax refund?

Money returned to a taxpayer who overpaid taxes through withholding during the year

What is tax liability?

The total amount of taxes legally owed to the government

What is a dependent?

A qualifying person (usually a child or relative) whose expenses you support; reduces your tax liability

What is an exemption?

A fixed amount subtracted from income for each qualifying person claimed on a tax return

What is a filing status?

Classification used to determine tax rates and standard deduction; options include single, married filing jointly, married filing separately, head of household, and qualifying widow(er)

What is head of household filing status?

Filing status for unmarried taxpayers who paid more than half the cost of maintaining a home for a qualifying person; lower tax rate than single

What is the earned income tax credit (EITC)?

A refundable tax credit for low-to-moderate income workers; can reduce taxes owed to zero and result in a refund

What is a refundable tax credit?

A tax credit that can reduce your tax liability below zero, resulting in a refund

What is a non-refundable tax credit?

A tax credit that can reduce your tax liability to zero but cannot result in a refund

What is an audit?

An IRS examination of a taxpayer's return and financial records to verify accuracy

What is capital gains tax?

Tax on profit from selling an asset (stock, real estate, etc.); long-term gains (held over 1 year) taxed at lower rates than short-term gains

What is an estate tax?

Federal tax on the transfer of property at death; applies to estates above a certain threshold

What is an inheritance tax?

State-level tax paid by heirs who receive property from a deceased person's estate

What is tax-exempt income?

Income not subject to federal income tax (e.g., municipal bond interest, some Social Security benefits)

What is a flexible spending account (FSA)?

A pre-tax account for medical or dependent care expenses; use-it-or-lose-it at year end

What is a health savings account (HSA)?

A pre-tax savings account for medical expenses available to those with a high-deductible health plan (HDHP); funds roll over year to year

What is the Rule of 72?

A formula to estimate how long it takes an investment to double: divide 72 by the annual interest rate (e.g., 72 ÷ 6% = 12 years)

What is compound interest?

Interest calculated on both the principal and previously accumulated interest; accelerates growth significantly over time

What is simple interest?

Interest calculated only on the original principal; formula: Principal × Rate × Time

What is the time value of money?

The principle that money available today is worth more than the same amount in the future due to its earning potential

What is present value (PV)?

The current worth of a future sum of money, discounted at a given interest rate

What is future value (FV)?

The value of a current asset at a future date based on an assumed growth rate

What is an annuity?

A series of equal payments made at regular intervals; can be used in retirement or insurance contexts

What is liquidity?

The ease and speed with which an asset can be converted to cash without significant loss of value

What is inflation?

A sustained increase in the general price level of goods and services, eroding purchasing power

What is the Consumer Price Index (CPI)?

The primary measure of inflation; tracks the price of a basket of consumer goods and services over time

What is purchasing power?

The amount of goods and services a unit of currency can buy; decreases as inflation rises

What is hyperinflation?

An extremely rapid and out-of-control increase in prices, often during economic or political crisis

What is deflation?

A sustained decrease in the general price level; can lead to reduced economic activity

What is a budget?

A plan for managing income and expenses over a period of time; the foundation of personal financial planning

What is a zero-based budget?

A budgeting method where income minus all expenses equals zero; every dollar is assigned a purpose

What is the 50/30/20 budget rule?

A budgeting guideline allocating 50% of income to needs, 30% to wants, and 20% to savings/debt repayment

What is discretionary spending?

Non-essential spending on wants (entertainment, dining out, vacations)

What is non-discretionary spending?

Spending on necessities (housing, food, utilities, transportation)

What is an emergency fund?

3–6 months of living expenses saved in a liquid account to cover unexpected financial shocks

What is net worth?

Total assets minus total liabilities; a measure of overall financial health

What are assets?

Everything you own that has monetary value (cash, investments, property, vehicles)

What are liabilities?

All debts and financial obligations you owe (mortgage, car loan, credit card balance)

What is personal financial planning?

The process of setting financial goals and creating strategies to achieve them across all areas of personal finance

What is opportunity cost?

The value of the next best alternative foregone when making a decision

What is a financial goal?

A specific, measurable monetary target set for a defined time period (short-term, medium-term, or long-term)

What is a short-term financial goal?

A goal achievable within 1 year (e.g., building an emergency fund, saving for a vacation)

What is a long-term financial goal?

A goal requiring more than 5 years to achieve (e.g., retirement, college funding, home purchase)

What is a trade-off?

Giving up one benefit to gain another when resources are limited

What is credit?

The ability to borrow money or access goods/services with the promise to pay later

What is a credit score?

A numerical rating (300–850) representing creditworthiness, calculated by credit bureaus using payment history, amounts owed, length of history, credit mix, and new credit

What is FICO score?

The most widely used credit scoring model, ranging from 300 to 850; developed by Fair Isaac Corporation

What is a credit report?

A detailed history of a person's credit accounts, payment history, and public records; available free annually from each bureau at AnnualCreditReport.com

What are the three major credit bureaus?

Equifax, Experian, and TransUnion

What is the most important factor in a credit score?

Payment history (35% of FICO score)

What are the five factors of a FICO score?

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

What is a credit utilization ratio?

The percentage of available revolving credit being used; keeping it below 30% positively impacts credit score

What is a hard inquiry?

A credit check initiated when applying for credit; can temporarily lower credit score; stays on report 2 years

What is a soft inquiry?

A credit check that does not affect credit score (e.g., pre-approval offers, background checks, personal checks)

What is a secured credit card?

A credit card backed by a cash deposit that serves as collateral; used to build or rebuild credit

What is an unsecured loan?

A loan not backed by collateral; based solely on creditworthiness (e.g., personal loan, credit card debt)