Comprehensive Personal Finance and Investment Review for Students

What is a budget?

A budget is an estimation of revenue and expenses for a specified future period.

Why is a budget important for businesses?

It helps manage money by determining how much is earned, spent, and saved.

What is debt management?

A way to control debt through financial planning and budgeting.

What can people do to control their existing debt?

Use a budget, personal balance sheet, and personal cash flow statement.

What is credit?

An agreement where a borrower receives money, goods, or services with the promise to pay it back.

What are the different types of credit?

Credit cards and lines of credit.

What factors do creditors look for when applying for credit?

Character, capacity, and collateral.

What is the difference between stock and share?

Stock represents ownership in a corporation; a share is a single unit of stock.

What is preferred stock?

A type of fixed income investment that offers regular income through fixed dividends.

What is common stock?

A type of equity investment that offers potential for growth through rising share prices and dividends.

What factors affect the price of a stock?

Company news, industry performance, investor sentiment, and economic factors.

What happens when a stock splits?

The company increases the number of outstanding shares, decreasing the price of each share.

What is an ETF?

An Exchange-Traded Fund that holds a basket of securities like stocks or bonds.

What does diversification mean in personal finance?

Spreading assets among different types of investments to reduce risk.

What is an investment portfolio?

A set of financial assets owned by an investor.

What are the three different types of investment portfolios?

Conservative, aggressive, and moderate.

What are asset classes?

Groupings of investments that exhibit similar characteristics.

What are the three different asset classes?

Cash equivalents, fixed income investments, and equities.

What is the difference between a cashable GIC and a non-cashable one?

Cashable GICs allow for early withdrawal but offer lower interest rates.

What is the formula to find the interest earned on a GIC?

Principal x rate x time.

What is a corporate bond?

A corporation's pledge to repay a specific amount of money with interest.

What are the three components of a bond?

Maturity date, coupon or interest rate, and principal.

What is the difference between a premium bond and a discount bond?

A premium bond has a market value above par; a discount bond has a market value below par.

Why do corporations sell bonds?

To raise money, finance activities, and reduce corporate tax.

Why do investors buy bonds?

For safety, income, and return of principal.

What are the five types of bonds?

Debentures, mortgage bonds, strip bonds, government bonds, and convertible bonds.

What is the relationship between interest rates and bond prices?

They have an inverse relationship: when interest rates rise, bond prices fall.

What is the yield of a bond?

The rate of return earned by an investor holding a bond.

What is a mutual fund?

An investment where investors pool money to buy stocks, bonds, and other securities.

What are the advantages of a mutual fund?

Pooling money, decisions made for you, easy to buy and sell, and diversification.

What are the disadvantages of a mutual fund?

Fees, lack of control, potential underperformance, and low liquidity.

What are the three groups of mutual funds?

Stock market funds, bond mutual funds, and mixed mutual funds.

What are the three classifications of mutual funds?

ETF, closed-ended mutual fund, and open-ended mutual fund.

What is Return on Investment?

A measure of the profitability of an investment.

How is return on investment (ROI) calculated?

ROI is calculated by dividing the profit earned on an investment by the cost of that investment.

What are taxes?

Taxes are mandatory payments made to a government.

What is income tax?

Income tax is a type of tax levied on taxable income by the federal and provincial or territorial governments.

What is a tax bracket?

Your tax bracket is based on your taxable income, which is your gross income minus any tax deductions.

What is a progressive tax structure?

A progressive tax structure is one where the larger the amount of taxable income, the higher the tax rate.

What is the difference between average tax rate and marginal tax rate?

The average tax rate is overall taxes payable divided by total income; the marginal tax rate is the highest tax rate paid on taxable income.

How is marginal tax rate calculated?

It is based on taxable income and the rates applied by federal and provincial governments.

What could happen if someone does not pay their income taxes?

Penalties may include interest charges, fines, and possibly jail time.

What is a tax-free savings account (TFSA)?

A TFSA is a registered savings account that provides tax benefits, where investment income is not taxed even when withdrawn.

List ways a TFSA can be useful.

1. Can be used for investments. 2. Reduces taxes on investments. 3. Withdrawals are not taxed. 4. Contribution room is not lost if unused. 5. Contribution room is not tied to income. 6. Useful for retirement savings. 7. Can be used alongside RRSP or FHSA. 8. Allows full RRSP contributions.

What is an RRSP?

A Registered Retirement Savings Plan meant to help save for retirement.

What are the three types of RRSPs?

1. Individual (bank connected). 2. Self-Directed (full control). 3. Group.

How do RRSPs and TFSAs differ?

1. RRSP requires earned income; TFSA does not. 2. RRSP is for retirement; TFSA can be for any savings goal. 3. RRSP contributions are tax deductible; TFSA contributions are not. 4. Different tax implications for withdrawals. 5. Different age limits for contributions. 6. Beneficiaries can be spouse or children for both.

What is a First Home Savings Account (FHSA)?

A registered savings plan for Canadians saving to buy their first home, where money withdrawn does not need to be paid back.

What is the Gross Debt Service (GDS) Ratio?

The GDS ratio is your monthly mortgage-related debt payments divided by your total monthly gross household income, and should not exceed 32% of gross income.

What is an RESP?

A Registered Education Savings Plan designed to help save for post-secondary educational programs.

What are the three types of RESPs?

1. Individual Plan. 2. Family Plan. 3. Group Plan.

Where can you store your cash?

1. Guaranteed Investment Certificates (GIC). 2. Commercial Papers (CPs). 3. Certificates of Deposit (CD). 4. Treasury Bills. 5. Money Market Funds. 6. Savings Accounts.

What are the five types of financial institutions?

1. Depository institutions (banks and credit unions). 2. Investment institutions (brokerage firms and investment banks). 3. Contractual institutions (insurance companies and pension funds). 4. Finance firms (companies offering direct loans and mortgages).

What is deposit insurance?

A safety net that protects eligible savings if your institution fails, with CDIC insuring eligible deposits up to $100,000 in Canada.

What is the difference between buying and leasing a car or house?

Buying means purchasing outright or financing to own, while leasing is a long-term rental with monthly payments.

Why would someone invest in metals, gems, or collectibles?

To preserve wealth, protect against inflation, and potentially earn a profit while enjoying personal value.

What are some business scams?

1. Dumpster diving. 2. Skimming. 3. Pretexting. 4. Phishing. 5. Violating your mailbox.