Consumer Economics Quiz 2

wealth

net total value of all the items one owns

personal financial planning

a systematic process that considers important elements of an individual's financial affairs in order to fulfill financial goals

financial assets

intangible, paper assets such as savings accounts and stock

tangible assets

physical assets such as cars

intangible assets

paper assets such as savings accounts and securities

utility (from purchasing)

the amount of satisfaction received from purchasing certain types of goods and services

SMART goals

Specific, Measurable, Attainable, Realistic, Timely

standard of living

the necessities, comforts, and luxuries enjoyed or desired by an individual or family

gross domestic product

the total of all goods and services produced in a country; use to monitor economic growth

Inflation

a state of the economy in which the general price level is increasing

consumer price index

a measure of inflation based on changes in the cost of consumer goods and services

budget

a detailed financial report that looks forward, based on expected income and expenses

cash basis

a method of preparing financial statements in which only transactions involving actual cash receipts or actual cash outlays are recorded

budget variance

the difference between the budgeted amount and the actual amount that you spend

cash deficit

an excess amount of expenses over income, resulting in insufficient funds as well as in decreased net worth

cash surplus

an excess amount of income over expenses that results in increased net worth

balance sheet

financial statement that describes a person's financial position at a given point in time.

Assets

liquid assets, investments, real property, personal property, fair market value

liabilities

short term liablities, long term liabilities, principal

liquid assets

assets that are held in the form of cash or can readily be converted to cash with little or no loss in value

equity

the actual ownership interest in a specific asset or group of assets

Real Property

Tangible assets that are immovable: land and anything fixed to it, such as a house.

personal property

tangible assets that are movable and used in everyday life

long term liabilities

any debt due one year or more from the date of the balance sheet

short term liabilities

any debt due within one year of the date of the balance sheet

fair market value

the actual value of an asset, or the price for which it can reasonably be expected to sell

net worth

an individual's or family's actual wealth; determined by subtracting total liabilities from total assets

income

earnings received as wages, salaries, bonuses, commissions, interest and dividends, or proceeds from the sale of assets

expenses

Money spent on living costs and to pay taxes, purchase assets, or repay debt.

income and expense statement

Lists and summarizes income and expense transactions that have taken place over a specific period of time, usually a month or year

fixed expenses

contractual, predetermined expenses involving equal payments each period

variable expenses

expenses involving payment amounts that change from one time period to the next

compounding

when interest earned each year is left in the account and becomes part of the balance (or principal) on which interest is earned in subsequent years

discounting

The process of finding the present value of a cash flow or a series of cash flows; discounting is the reverse of compounding.

future value

the value to which an amount today will grow if it earns a specific rate of interest over a given period

present value

the value today of an amount to be received in the future; it's the amount that would have to be invested today at a given interest rate over a specified period of time to accumulate the future amount.

annuity

a fixed sum of money that occurs annually

rule of 72

to find out how long it takes for your money to double, divide 72 by the annual compound interest rate

real rate of return

the rate of return earned after adjusting for the effect of inflation; also referred to as the real interest rate.

nominal rate of return

the rate of return from an investment before adjusting for inflation

taxes

the dues paid for membership in our society; the cost of living in this country

income taxes

a type of tax levied on taxable income by the federal government and by many state and local governments

federal withholding taxes

Taxes—based on the level of earnings and the number of withholding allowances claimed—that an employer deducts from the employee's gross earnings each pay period.

FICA/Federal Insurance Contributions Act

the law establishing the combined Old-Age, Survivor's, Disability, and Hospital Insurance tax levied on both employer and employee.

gross income

the total of all of taxpayer's income (before any adjustments, deductions, or exemptions) subject to federal taxes; it includes active, portfolio, and passive income.

AGI (adjusted gross income)

the amount of income remaining after subtracting all allowable adjustments to income from gross income

taxable income

the amount of income subject to taxes; it is calculated by subtracting adjustments, the larger of itemized or standard deductions, and exemptions from gross income

standard deduction

A blanket deduction that depends on the taxpayer's filing status, age, and vision and can be taken by a taxpayer whose total itemized deductions are too small.

itemized deduction

personal expenditures that can be deducted from AGI when determining taxable income

exemptions

deductions from AGI based on the number of persons supported by the taxpayer's income

tax rate

the amount of tax people are required to pay per unit of whatever is being taxed

progressive tax structure

a tax structure in which the larger the amount of taxable income, the higher the rate at which it is taxed

marginal tax rate

The tax rate that you pay on the next dollar of taxable income.

estimated tax

tax payments required on income not subject to withholding that are paid in four installments

tax audit

an examination by the IRS to validate the accuracy of a given tax return

internet banks

an online commercial bank

money market deposit account (MMDA)

a federally insured savings account, offered by banks and other depository institutions that competes with money market mutual funds

money market mutual funds (MMMF)

a mutual fund that pools the funds of many small investors and purchasers high0eturn, short-term marketable securities

nominal rate of interest

the promised rate of interest paid on a savings deposit or charged on a loan

effective rate of interest

the annual rate of return that is actually earned during the period the funds are held

certificates of Deposit (CDs)

a type of savings instrument issued by certain financial institutions in exchange for a deposit; typically requires a minimum deposit and has a maturity ranging from 7 days to as long as 7 years.

fixed rate mortgage

the traditional type of mortgage in which both the rate of interest and the monthly mortgage payment are fixed over the full term of the loan

adjustable rate mortgage

a mortgage on which the rate of interest, and therefore the size of the monthly payment, is adjusted based on market interest rate movements