UTHS Personal Financial Literacy — Unit 2: Saving and Investing

Canvas Unit 2 study cards on assets and investment strategies.

What is an asset?

A resource that contributes to a person's wealth, such as a home, a bank account, an investment, or a business.

Why can a home be a wealth-building asset?

Its value may increase over time, and after the mortgage is paid off, housing can be less expensive than renting.

What does liquidity mean?

How easily and immediately an asset can be converted to cash.

What are examples of liquid assets in the lesson?

Money in checking and savings accounts and stocks.

Why is a home less liquid than a bank account?

It cannot usually be sold immediately for cash.

How can real estate contribute to wealth beyond owning a home?

A property such as a condo or storefront can be rented to others to earn money.

How can a business contribute to a family's wealth?

Ownership of a business, such as a franchise, can be a wealth asset.

Why can retirement funds be non-liquid?

Accessing them before retirement can carry a large fee.

Why is a ten-year bond considered non-liquid in the lesson?

The investment ties up money for a long term.

What is the risk-return tradeoff?

Riskier investments may offer higher returns to attract investors, while safer options generally offer lower interest.

What is a certificate of deposit?

A bank investment held for a set term; the lesson describes CDs as FDIC-insured.

What is a bond?

A loan to a government or corporation for a stated term and interest rate, with principal returned at the end.

How does a bond's issuer affect risk?

An issuer's credit rating helps indicate the risk of default.

What does owning a stock represent?

Part ownership in a company.

How can stock investors earn a return?

Through dividends or an increase in share value; neither a rise in value nor a return is guaranteed.

What is a mutual fund?

A fund that pools investors' money to buy a range of stocks, bonds or other holdings.

Why does diversification matter?

Holding a broad range of investments reduces reliance on the fortunes of one company.

What is compound growth?

Interest can earn additional interest over time, increasing the amount on which future interest is calculated.

How does the course illustrate compounding with $1,000 at 7%?

The first year earns $70; in the second year, the larger balance earns $74.90.

Why can starting to save earlier matter?

Money has more time for compound growth, including interest earned on prior interest.

What is a liquid asset?

An asset that can be accessed or converted to cash relatively easily; the lesson gives checking and savings accounts and stocks as examples.

Why might a retirement account be less liquid?

Withdrawing before the permitted time can result in penalties or other restrictions.

What is one way a home can build wealth?

Its value may appreciate over time, though appreciation is not guaranteed.

How can rental property or a business contribute to wealth?

They can generate income in addition to the value of the asset itself.

How does a down payment affect an automobile loan?

A larger down payment reduces the amount financed.

What loan factors affect an automobile payment?

The amount financed, interest rate, loan term, and costs such as an extended warranty can affect payments.

What costs beyond an automobile payment belong in a car budget?

The course identifies insurance and gasoline among additional costs.

What is one possible advantage of leasing a car?

Monthly payments are generally lower than for financing a purchase.

What should a driver consider at the end of a lease?

Keeping the vehicle may involve a balloon payment or refinancing; returning it leaves the driver without the car.

What is the tradeoff between investment risk and potential return?

Higher-risk investments may offer higher potential returns, but can also expose an investor to greater uncertainty.

How does a certificate of deposit work?

It is a bank investment for a specified term; the course describes CDs as FDIC-insured.

What does purchasing a bond mean?

The investor lends money to a government or corporation, rather than acquiring ownership.

How do bond credit ratings relate to risk?

Ratings indicate credit quality; the lesson describes AAA as low risk and D as default.

What does a share of stock represent?

Ownership in a company, with possible dividends and appreciation that are not guaranteed.

How can a mutual fund diversify investments?

It pools investors' money into a collection of assets such as stocks and bonds rather than relying on a single holding.

What is employer matching in a 401(k)?

An employer contributes in addition to the employee's contributions, subject to its matching terms.

What tax feature can retirement accounts offer?

Some allow taxes to be deferred; the account's withdrawal and taxation rules still matter.

Why should an investor consider a retirement account's withdrawal rules?

Early withdrawals may carry penalties, and distributions may be subject to government taxation.