Financial Literacy Study Guide

Principal

The original amount of money borrowed or invested.

Interest rate

The percentage charged on a loan or earned on an investment.

Term

The length of time you have to repay a loan.

Secured loan

A loan backed by collateral (like a car or home).

Unsecured loan

A loan not backed by collateral; based on creditworthiness.

Impact of credit score

A higher score gets you better loan rates and terms.

Variable rate

Interest rate that changes over time.

Fixed rate

Interest rate that stays the same for the entire loan term.

Installment loan

A loan paid back in set payments over time (like a car loan).

APR (Annual Percentage Rate)

The yearly cost of borrowing, including fees and interest.

Payday loan

Short-term, high-interest loan due on your next paycheck.

Risks of payday loans

Extremely high fees and interest; can lead to debt cycles.

Liquid

How easily an asset can be turned into cash.

Certificate of Deposit (CD)

Bank account with fixed interest and withdrawal date.

Mutual fund

Investment that pools money to buy a mix of stocks and bonds.

Retirement accounts

Long-term savings plans (like 401(k) or IRA) with tax benefits.

Dividends

Company profits paid to shareholders.

Bull market

Market where prices are rising.

Bear market

Market where prices are falling.

Investment portfolio

Collection of all your investments.

Deduction

Amount you can subtract from taxable income.

Tax credit

Direct reduction in the amount of tax you owe.

Examples (tax credits)

Child Tax Credit, Education Credit, Earned Income Credit.

Marginal tax rate

Tax rate applied to your last dollar of income.

Tax bracket misconception

Higher income doesn’t mean all income is taxed at that rate.

Progressive tax

Higher incomes are taxed at higher rates.

Regressive tax

Takes a larger percentage from low incomes (e.g., sales tax).

Flat tax

Everyone pays the same rate.

What taxes pay for

Government services and infrastructure.

State taxes

Fund education, transportation, and local programs.

Local taxes

Fund schools, fire, and police departments.

Federal taxes

Fund national defense, Social Security, and federal programs.

Tax write-offs

Expenses that reduce taxable income.

Three ways to file taxes

Paper mail, online software (e-file), or through a tax preparer.

Auto insurance

Covers damage or injury from car accidents.

Liability insurance

Covers costs if you’re responsible for injury or damage to others.

Renters insurance

Protects your belongings if you rent a home or apartment.

Homeowners insurance

Covers damage to your home and property.

Life insurance

Pays beneficiaries after the policyholder’s death.

Health insurance

Helps pay for medical expenses.

Deductible

The amount you pay before insurance starts covering costs.

Co-insurance

Percentage you pay after the deductible is met.