Financial Literacy Part 1

These flashcards cover key concepts about banking, credit, and financial literacy based on the provided lecture notes.

What are the types of banks mentioned in the notes?

Commercial banks, investment banks, and credit unions.

What is one key difference between a commercial bank and a credit union?

Customers are members at a credit union and credit unions are non-profits and not insured under the FDIC.

How much does the FDIC insure customers in commercial banks?

Up to $250,000.

How do banks primarily make their money?

From the interest they charge people who borrow their money.

Why does the federal government regulate the financial industry?

To protect consumers from excessive capitalistic programs of businesses and banks.

What do you need to open a bank account?

Self-identification, a valid social security number, a bill with your permanent address, and usually a deposit of $25.

What is a debit card used for?

Small and fluid purchases, typically attached to your checking account.

What is a credit card used for?

Big and lasting purchases that allow time to pay the bill off.

What should you do if you have a bank account?

Keep track of your transactions, know your balance, and have a savings account backing your checking account.

What is the benefit of compounded interest?

It adds interest to the interest consumers already have.

What percentage of your credit score is determined by on-time payments?

35%.

What is the most important part of your credit score?

On-time payments.

Why is it important to pay your bills on time?

To improve your credit score and maintain trust with credit card companies.

What is utilization in your credit score?

The ratio of current debt compared to credit limits.

What are hard inquiries?

When financial institutions check your credit when you ask for loans.

Which two parts of your credit score carry the most weight?

Utilization and on-time payments.

What are examples of money drainers?

Predatory lending facilities, rent-to-own furniture stores, and check cashing places.

What is bad debt?

Bankruptcy, student loans, credit card debt, and payday loans.

What is good debt?

A mortgage on a house, townhouse, or condo.

Why does a commercial bank insure the money of its customers?

The FDIC insures the money to prevent bank failures as seen during the Great Depression.

What type of car insurance policy is required by every state if your car hits another car?

Comprehensive/Full Coverage or Liability.

If a house costs $200,000 and the interest rate is 6%, how much interest would be paid in a year?

$12,000 (calculated by multiplying $200,000 by 0.06).

What happens to your interest payment over a 30-year loan with a 6% interest rate?

Calculating this requires amortization, which totals to about $432,221.06 over 30 years.

If the interest rate was 8%, how much interest would be paid in a year?

$16,000 (calculated by multiplying $200,000 by 0.08).

What is the total interest paid over 30 years at an 8% interest rate?

Calculating this requires amortization, which totals to about $600,763.16 over 30 years.