Financial Literacy Midterm Review

These flashcards cover key concepts from the Financial Literacy Midterm Review, focusing on behavioral economics, investing fundamentals, and financial planning for education.

What does behavioral economics combine to understand decision making?

Behavioral economics combines psychology and economics.

What is Confirmation Bias?

The tendency to search for, interpret, and remember information that confirms one’s preexisting beliefs.

What is FOMO?

Fear of Missing Out, a social anxiety leading to impulsive decisions.

What is the Sunk Cost Fallacy?

The inclination to continue an endeavor once an investment has been made, regardless of future outcomes.

What does the Endowment Effect refer to?

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

What is Loss Aversion?

The principle that losses have a greater emotional impact than equivalent gains.

What is Overconfidence Bias in decision making?

The tendency for individuals to overestimate their knowledge or ability.

What is Asset Allocation?

The strategy of dividing investments among different asset categories to optimize risk and return.

What is a Bear Market?

A market condition characterized by declining prices, typically by 20% or more from recent highs.

How does Active Trading differ from Passive Investing?

Active trading involves frequent buying and selling, while passive investing focuses on long-term growth.

What is Dollar Cost Averaging?

An investment strategy where a fixed amount is invested regularly to reduce volatility impact.

What is a 529 Plan?

A tax-advantaged savings plan designed to encourage saving for future education costs.

What are Direct Subsidized Loans?

Federal loans for students with financial need, where the government pays interest while the student is in school.

What is a Master Promissory Note (MPN)?

A legal document where the borrower agrees to the terms of the loan and promises to repay it.

What is the purpose of the Pell Grant?

A federal grant awarded to low-income undergraduate students to promote access to postsecondary education.

What is Tuition?

The fee that colleges charge for instruction, varying widely based on the institution and program.