Personal Finance 7/16 DBA

Anchoring effect

a cognitive bias in which an individual uses the first piece of information they receive about something as a reference point when comparing subsequent information

Cognitive bias

an error in thinking in which an individual uses personal values and experiences to make a decision rather than logic

Confirmation bias

a cognitive bias in which an individual looks for evidence that confirms what they already know or believe to be true

Endowment effect

a cognitive bias in which a person values an item more because they own it

Herd mentality

a cognitive bias in which an individual believes something is of value because the group believes it has value

Loss aversion

a cognitive bias in which an individual feels the weight of a loss more than that of a gain

Present bias

a cognitive bias in which an individual prioritizes their needs and wants based on their present situation rather than a future outcome

Deduction

taxes or expenses subtracted from gross income

Gross pay

the amount of income received before any taxes or deductions

Taxable income

the amount of income subject to income tax under the law after deductions and credits

Indirect taxes

paid through an intermediary for rights, privileges, or activities

Direct taxes

paid straight to the government

Progressivity

as income rises, refers to whether the proportion of income to taxes increases, decreases, or stays the same

Marginal tax rates

the tax percentage that applies to the last dollar of income earned

Credit-worthiness

how risky it may seem for creditors to lend you money

Net pay

the amount of income received after any taxes or deductions

Why do we pay taxes?

to fund public services