Economics and Personal Finance Vocabulary

Flashcards for Economics and Personal Finance exam review.

Money order

A printed order for payment of a specified sum, issued by a bank or post office.

Pay card

A prepaid card that an employer can use to pay their employees as an alternative to direct deposit or paper checks.

Liquidity

The degree to which an asset easily converts to cash to purchase things.

Windfall Income

Any type of additional income over expenses that is completely unexpected

Benefits

Additional benefits from employment that include health insurance, life insurance, educational assistance, childcare reimbursement, employee stock options, use of a company-owned vehicle and others.

Barter

Exchange goods without involving money

Gross Pay

Total amount you earn before any deductions are subtracted

Cash

Money in the form of paper and coins.

Check

A written promise to pay money from your bank account.

Debit/ATM card

Requires a pin number to withdraw money from your bank account

Credit card

Borrowing money from a company and charged interest on unpaid balance

Gift card

Bought to spend at a certain store and may charge a fee after 12 months.

Fiat money

Money that is not backed by gold; value based on the belief in the strength of our government and economy.

Earned income

Income from employment wages and salaries.

Unearned income

Income from all other sources, like investments, interest on savings, gifts, lottery, inheritance, etc.

Net Pay

Amount of a paycheck after the deductions (taxes and FICA) are taken out.

Social Security

A federal insurance program for retired people and those who are unemployed or disabled.

Medicare

The federal health insurance program for people who are 65 or older and people with disabilities.

Exemptions

Reduce your taxable income.

Sales Tax

Levied on goods and services you purchase; goes to the state government.

Property Tax

Levied on homes and cars; goes to local government.

Income Tax

Assessed on your earnings (wages and interest); goes to federal and state governments.

IRS - Internal Revenue Service

Collects taxes for the federal government.

Capital Gains Tax

Paid on the sale of assets (like a home or stocks).

W4

You complete this on the first day of a job to select how much tax will be taken out of your paychecks

W2

This form comes to you from your employer in January and shows total money you earned and total taxes you paid for the previous year.

1099

This comes to you from your bank in January and shows how much interest you earned from your savings account for the year.

1040

Federal tax form you complete and is due every year by April 15.

Budget

A plan for making and spending money, usually a month or a year.

Discretionary Income

Income remaining after you pay taxes & necessary items, like rent, food, and insurance.

Expense

Money going out

Fixed Expense

Expense which stay basically the same from month to month, such as housing and insurance.

Variable Expense

An expense that changes from month to month, like food and automobile costs.

Need

Something required or essential.

Want

An item that we desire but that is not essential to survival.

Budget Deficit

The amount of money spent is more than the amount of money collected

Emergency Fund

A savings account you can access quickly to pay for unexpected expenses or emergencies.

Comparison shopping

Comparing products and prices in different stores before making a purchase.

Budgeting Income

Money coming in

Cost of living

Expenses that include housing, transportation, food, and clothing.

Budget Surplus

The amount collected is more than the amount spent.

Pay Yourself First

A GOLDEN RULE of personal finance: Save or invest before doing any other spending

Renting

You pay someone else to live in a home or apartment.

Buying

You own the home or condominium yourself and it can be a source of income/asset.

401k plans

A retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out.

Lease

An agreement to pay for the use of an asset, usually for a term of one year.

Mortgage

A loan to finance the purchase of real estate.

Principal

The amount borrowed.

Private Mortgage Insurance (PMI)

Insurance that protects lenders against loss if a borrower defaults.

Financial planning

Like budgeting, but for long term goals, like saving for college, a car, vacations, having a certain lifestyle, home, and retirement.

Net Worth

Assets - debts/liabilities

Asset

An item of economic value, which you own, and which is cash or could be sold for cash.

Liability

Money or debt that you owe someone else, such as a loan or bill.

Cash Flow

Income − Expenses

Appreciation

An increase in value of an item.

Depreciation

A decrease in value of an item.

Retirement

The time in life where you no longer work to generate income.

Savings

Depositing money in a bank savings account is lending your money to the bank. Similarly, purchasing a Bond is lending money to the Bond issuer.

Type of return

Interest or Discount on Face Value.

Equity Investments

Stocks, Mutual Funds, Commodities, Precious Metals, and Capital Assets such as Real Estate, Art and Collectibles, Gems, and other Property.

Type of return

Dividend or Capital Gain

Traditional Individual Retirement Accounts (Traditional IRA)

An Individual Retirement Account to which you contribute pre-tax or after-tax dollars, and which allows your money to grow tax-deferred.

Roth Individual Retirement Account (Roth IRA)

An individual retirement account allowing a person to set aside after-tax income up to a specified amount each year.

Simple interest

Interest paid on the principal alone.

Compound interest

Interest earned on both the principal amount and any interest already earned.

Personal check

A promise to pay from funds deposited in your personal checking account.

Endorsement

You endorse, or approve, a check that someone has written to you by signing it on the back.

Reconcile

Make your bank records (your checkbook) match your bank statements each month

Bounced check

A check written for an amount more than in your account

Bank

Operated to make a profit. These usually charge higher fees and APR.

Credit Union

Operated as a benefit to its members. These usually have lower interest on loans and fewer fees, offer higher interest rates on savings accounts and tend to have superior customer service satisfaction ratings.

Interest

The cost of borrowing money or taking a loan OR the expected earnings on a savings account.

Checking Account

A transactional deposit account held at a financial institution that allows for withdrawals and deposits.

Non-Sufficient Funds (NSF)

Occurs when you write a check but do not have sufficient funds in your account to cover the amount.

Overdraft Protection

A feature offered with checking accounts where the bank will honor checks you write even if your account has insufficient funds.

Debit Card

Provides access to your bank accounts and can be used to make purchases.

PIN

Personal Identification Number (password) used to access a Debit Card.

Stop Payment

When you decide that you don’t want a check to go through, you can have the bank stop the money from clearing.

Savings account

A deposit account held at a bank or other financial institution that provides security and a modest interest rate.

Certificate of Deposit (CD)

A certificate issued by a bank to a person depositing money for a specified length of time.

Cashier's Check

A check issued by a bank and sold to you for personal payments to people who won't accept a personal check.

Money Order

A form of check payment on which the financial institution prints the exact amount covered.

Safe deposit box

A small, secure storage compartment that you can rent in a bank for a small fee.

Principal

The money originally invested or loaned, on which basis interest and returns are calculated

APR

Annual percentage rate; the annual rate of interest that is charged for using credit

Finance charge

Is the total dollar amount you pay to use credit.

3 C's of Credit

Character (credit history), Capacity (ability to repay), Capital (assets)

Secured loan or Collateralized Loan

A loan that is secured by collateral, properties or assets that are subject to seizure on default.

Unsecured loan

A loan that does not have something that can be seized if you don’t pay.

Payday Loan

A loan where borrowers gets a cash advances based on their paycheck.

Installment credit

A type of closed credit where the loan is repaid with interest in equal periodic payments.

Revolving credit

A type of open credit agreement that allows consumers to pay all or part of the outstanding balance on a loan or credit card. You to borrow and repay and then borrow again.

Borrow, Debt, or Loan

To receive something of value (like a car), with a promise of giving something of equal or greater value back in the future (like interest payments or finance charges).

Creditor or Lender

An individual or organization that is owed money or other item of value.

Interest

The fee charged to a borrower by a lender. Sometimes referred to as Prime Rate for a bank loan.

Line of Credit

A pre-authorized loan with your bank or financial institution that you can access as needed.

Demand Loan

Must be repaid in full upon request by the lender.

Title Loan

A loan where borrowers gets a cash advance based on their car title.

FICO score

A credit rating developed by Fair Isaac & Company in the late 1950s, now widely used by lenders and employers.

Credit reporting agencies

Repossession - taking away property due to failure to repay the debt Garnishment - a legal process that allows part of your paycheck to be withheld for payment of a debt