Behavioral Economics and Personal Finance

A collection of vocabulary flashcards based on behavioral economics and personal finance concepts.

Endowment Effect

The psychological phenomenon where people assign more value to things merely because they own them.

Sunk Cost Fallacy

The tendency to continue an endeavor once an investment in money, effort, or time has been made, regardless of its overall cost.

Mental Accounting

The psychological tendency to categorize and treat money differently based on its origin and intended use.

SMART Goals

A framework for setting specific, measurable, achievable, relevant, and time-bound goals.

50/30/20 Rule

A budgeting guideline that suggests allocating 50% of income to needs, 30% to wants, and 20% to savings.

Opportunity Cost

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

Checking Account vs. Savings Account

A checking account is used for everyday transactions, while a savings account is intended for saving and earning interest.

APR

Annual percentage rate, which represents the yearly interest rate charged on borrowed money.

FICO Credit Score

A credit score created by the Fair Isaac Corporation that lenders use to assess an individual's credit risk.

Predatory Lending

Financial practices that impose unfair loan terms on borrowers, often targeting vulnerable populations.

Tax Deduction

An expense that can be deducted from taxable income to reduce the amount of tax owed.

Tax Credit

An amount that taxpayers can subtract directly from the taxes they owe to the government.

Progressive Tax

A tax system where the tax rate increases as the taxable amount increases.

Voluntary Deductions

Deductions from an employee's paycheck that are not required by law and include contributions for retirement plans or health insurance.