Unit 5 study guide Budgeting, savings, and credit

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Banks

For-profit financial institutions that offer services like checking, savings, and loans.

Commercial Banks

Large, for-profit banks that provide full financial services to individuals and businesses.

Credit Unions

Non-profit financial institutions owned by members; generally offer lower fees and better interest rates.

Services offered by Banks

include checking accounts, savings accounts, loans, and investment products.

Checking vs, Savings account

Checking accounts are designed for everyday transactions, while savings accounts are intended for accumulating savings with interest.

CDs (certificate of deposit)

A savings product offered by banks and credit unions that typically requires funds to be deposited for a fixed term in exchange for higher interest rates than regular savings accounts.

Money Market account

A type of savings account that typically offers higher interest rates and may include check-writing privileges, usually requiring a higher minimum balance.

FICO Score/ credit report

A number that shows your creditworthiness based on your borrowing history.

Credit History

A record of how you have used credit in the past (payments, loans, balances).

Interest Rate

The cost of borrowing money; expressed as a percentage of the loan amount.

Bankruptcy

A legal process for people who cannot pay their debts; severely damages credit.

Emergency Fund

Savings set aside for unexpected expenses (usually 3–6 months of living costs).

Snowball Debt Method

Paying off debts from smallest to largest to build motivation and momentum.

Premium

The amount paid for insurance coverage (monthly or yearly).

Deductible

The amount you must pay out of pocket before insurance starts paying.

Copay

A fixed amount you pay for a specific service (like a doctor visit)

Max Benefit / Out-of-Pocket Maximum

The most you will pay before insurance covers 100% of costs.

PPO (Preferred Provider Organization)

 Insurance plan with flexibility to see specialists without referrals.

HSA (Health Savings Account)

A tax-free account used for medical expenses (paired with high-deductible plans).

Full Coverage vs. Liability (Auto Insurance)

• Liability: covers damage you cause to others.

• Full coverage: includes liability plus protection for your own vehicle.

Life vs. Term Life Insurance

• Term Life: coverage for a set number of years.
  
  

Whole Life: lifelong coverage with a cash value component.

Identity Theft

When someone uses your personal information without permission for financial gain.

Phishing

Fraudulent attempts to get personal information (usually through fake emails or messages).

Deter

Prevent identity theft by protecting your information (strong passwords, shredding documents).

Detect

Check statements and credit reports regularly to catch suspicious activity.

Defend

Take action immediately if theft occurs (freeze credit, report fraud, change passwords).

Pay yourself first

Put money into savings before spending on anything else

Zero-Based Budget

Every dollar has a purpose until income minus expenses equals zero.

Envelope Budget

Cash is divided into envelopes for each spending category.

Wants vs. Needs

Needs are essentials; wants are non-essentials

Discretionary Spending

Money spent on non-essential items (entertainment, hobbies).

Utilities

Essential monthly bills such as water, electricity, gas, and internet.

Sundries

Small everyday expenses (toiletries, household items).

Financial Goals (Short, medium, and long term)

• Saving targets set for different timelines:
  
  

  • Short-term: under 1 year
    
    

  • Medium-term: 1–5 years
    
    

  • Long-term: 5+ years