DECA Personal Financial Literacy

Comparison shopping

Comparing the price of products or services from different vendors

Purchasing power

Value of goods and services that can be purchased with one unit of a country's currency

Fixed expenses

Expenses that do not change from month to month, such as auto insurance or rent

Mandatory Paycheck Deductions

Federal Income Tax, State Income Tax, FICA, Wage Garnishments

Wage Garnishment

A process that requires an employer to withhold a portion of an employee's paycheck to pay a court-ordered debt settlement (ex. child support)

Federal Reserve System (Fed)

US central bank that sets monetary policy and regulates banking system (ex setting interest rates, managing the money supply, and regulating financial markets)

Securities and Exchange Commission (SEC)

Monitors the stock market and enforces laws regulating the sale of stocks and bonds

Market

A group of buyers and sellers of a particular good or service

Internal Revenue Service (IRS)

The branch of the U.S. Treasury Department in charge of collecting taxes

Consumer Financial Protection Bureau

A federal agency that is in charge of the fairness and transparency in consumer products and services

Time value of money

The principle that a dollar received today is worth more than a dollar received in the future due to inflation

Long-term debt

A liability that falls due beyond one year from the date of the financial statements

Opportunity cost

The loss of potential gain from other alternatives when one alternative is chosen

Balanced budget

A budget in which revenue and spending are equal

Simple interest

Interest paid on the principal alone

APR

Annual Percentage Rate; the actual annual rate at which interest is earned, including the effects of compounding

Compound interest

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

FAFSA

Free Application for Federal Student Aid; main application students use to apply for federal education grants and loans (financial aid)

Federal Deposit Insurance Corporation (FDIC)

Government agency that insures customer deposits if a bank fails, up to 250K covered by deposit insurance

Paying yourself first

The concept of setting aside a portion of your income for savings before spending any of it

Credit past is your credit future

Credit bureaus maintain credit reports, which record histories of repaying loans and credit. Negative information in credit reports will affect your ability to borrow at a later point

Capital gains

Profits made from selling stocks or other investments for more than what was paid for

Capital

Money a business has available to pay for its operations and to fund its future growth

Certificate of deposit

A savings certificate that gains interest and has a set time before you can withdraw your money (if you do early, you are penalized)

Bank check

A cashier's check, the bank guarantees the money on the check is available, usually for payments over $1000

Personal check

A check drawn from funds in your personal checking account

Promissory note

A contract with a promise to pay a supplier a sum of money at a definite time

ATM cards

Allows person to deposit and withdraw money from their account at an ATM

Overdraft

Automatic loan made to an account if the balance will not cover checks written

Amortization

The reduction of a loan balance through payments made over a period of time

Barter

Exchange goods without involving money

Direct deposit

An automatic deposit of a paycheck without having to take a physical check to the bank

Check cashing store

Business that cashes checks, giving the customer cash in exchange for a fee

Debit card

A card used to withdraw or deduct money from your checking account

Wealth

The total value of everything someone owns, minus the debts

Assets

Items of value owned by a person or company

Pawnshop

A place where personal goods are exchanged for money loans

Savings bank

A bank organized to hold funds of depositors in interest-bearing accounts and to make long-term investments (as in home mortgage loans)

Stop-payment order

A request that a bank or other financial institution not cash a particular check

Secured credit

Credit that requires security (collateral) that secures payment of the loan

Unsecured credit

Credit that does not require any security (collateral) to protect the payment of the debt

Grace period

A period of time during which the balance may be paid in full with compounded interest; doesn't affect credit report

Truth-in-Lending Act

A federal law that requires all finance charges be disclosed on consumer credit arrangements

Phishing

The use of fake emails and web sites to trick users into revealing sensitive data

Comprehensive car insurance

Covers your car for reasons other than a collision, such as theft, fire, vandalism

Universal insurance tax

Complementary insurance everyone eligible regardless of employment status

Actual cash value

The payment you receive is based on the replacement cost of an item minus depreciation

Replacement value

Cost to replace or replicate property at today's prices/no depreciation (always higher than actual cash value)

Insurance premium

Payments made by customers to secure a policy written by an insurance company

Insurance deductible

The amount of expenses that must be paid out of pocket before an insurer will pay any expenses

Liability

Legal responsibility

Life insurance

Insurance that pays money to the beneficiary upon the death/injury of the insured person

US treasury bond

Issued by the treasury with a 20-30 year maturity date. They pay semiannual interest until they mature. Capital gains only taxed federally

Equity capital

Money raised by a business or investor in exchange for a share of ownership of the company

Building wealth

Making money and saving it

Credit report composition

35%: Payment history, 30%: Credit utilization, 15%: Length of credit history, 10%: Types of credit in use, 10%: New credit

Where to get credit score

FICO website, Credit Reporting Bureaus (Experian, TransUnion, Equifax)

When do you get a free credit report

When you are denied a line of credit, you get a free report by one of the major credit bureaus

Are credit scores required

No, if you don't borrow, then you won't have a credit score

FICO score

Rating from 300 to 850 that credit granters use in making a loan approval decision

Competent parties

Parties who are legally qualified to make a binding contractual agreement

Consideration

Benefit each party to a contract receives

W-2 Form

A form that outlines an individual's earnings, and tax deductions incurred

Form 1040

The standard tax form used to file an individual federal tax return. Where you list itemized deductions

When are W-2 Forms due

Due by end of January, given by employer

When are taxes due

Mid-April

Roth IRA

Where you contribute after-tax dollars and withdraw without paying tax

IRA

Tax-deferred arrangement for individuals with earned income; individual retirement arrangement. You are taxed when you withdraw in the end

Withdrawing from IRA

You can only withdraw from your IRA without 10% penalty after age 59.5

Escrow Agent

The neutral third party holding funds or something of value in trust for another or others

Escrow

Money or securities held by a third party until conditions of a contract are met

Buy and hold

Buying stocks and then holding them for the long run, regardless of what prices do in the short run

Dollar cost averaging

Investing roughly equal amounts of money at regular intervals

Growth Stocks

Stocks from growing companies, more risk; reinvest their profits into the business so that it can grow

Income statement

Shows profit and loss over a period of time for a company

EDGAR

Free, public database contains required information about companies by the SEC

ESOP

Employee stock option plan: a method for employees to purchase stocks for which they work

Net Change

Difference between closing price of previous day and current day

Real Estate

A tangible asset that you can invest in where your money will grow over time, such as land, houses, and office buildings

401(k)

Pre-tax retirement account provided to employees by their employer. They grow through investments in markets, employer does investment matching

Term Insurance

Life insurance coverage for a specified period of time, less expensive than whole (10-30 years)

Liability Insurance

Provides protection from claims arising from injuries or damage to other people or property

Homeowner's Insurance

Protects against most types of losses and liabilities related to home ownership. Ex. damage from storms or theft. Age and neglect not covered

Estate Tax

A tax on the estate, or total value of the money and property, of a person who has died. Estates are tax exempt up to $ million

Power of Attorney

Document grants power to a representative of your choosing to legally act and make decisions on your behalf

Short-term Goals

Goals set for less than one year (usually less than 3 months)

How to Set Financial Goals

1) Identify your financial goals 2) Calculate your net worth 3) Identify your sources of income 4) Assess your resources 5) Save for goals

Commercial Banks

Deal primarily with deposits and loans from corporations or large businesses

Thrifts

Specialize in savings accounts and real estate financing. Borrow from the Federal Home Loan Bank System, so they can charge higher interest

Routine Decision

Decisions that are made often and automatically. Don't require much thinking

Merchandising

A set of promotional activities designed to obtain sales in the retail setting

Market Research

The activity of gathering information about consumers' needs and preferences

General Management

Executive who has overall profit and loss responsibility and oversight over activities of an organization

Resume

A brief account of one's work experience and qualifications

Transcript

An official document showing the educational work of a student in a school or college

Work Permit

A written statement that makes it legal for an underage student (U18) or foreigner to work for an employer

Over-the-counter market

A network of dealers who buy and sell stocks that are not listed on an exchange

Secondary market

The market in which previously issued securities are traded among investors

Co-pay

The flat fee (usually $25 - 50) that you pay every time you see a certain doctor

Health Maintenance Organization

An organization that provides comprehensive medical care to subscribers for a fixed fee