Econ Test - Unit 2: Money & Personal Finance

Barter Economy

A moneyless economy that relies on trade

Medium of Exchange

Something that is accepted by all parties as payment for goods and services

Commodity Money

Money that has an alternative use as an economic good or commodity

Measure of value

Express worth of something in terms that most people understand

Fiat Money

Money by government decree

Store of value

The feature of money that allows purchasing power to be saved until it is needed

Bitcoin/cryptocurrency

A decentralized digital currency that uses blockchain technology to enable peer-to-peer transactions without the need for a central authority like a bank or government

Mortgage

A loan used to purchase or maintain a home, plot of land, or other real estate. The borrower agrees to pay the lender over time

Credit vs. Debit card

When you use a debit card, the funds for the amount of your purchase are taken from your checking account almost instantly. When you use a credit card, the amount will be charged to your line of credit, meaning you will pay the bill at a later date, which also gives you more time to pay

Bankruptcy

Ch. 7 bankruptcy is typically for those with lower incomes and few assets who cannot afford to pay their debts anymore (a “liquidation” bankruptcy). Ch. 13 bankruptcy requires 3-5 years to repay debts and allows debtors to keep their property (a “reorganization” plan).

Interest

The monetary charge for the privilege of borrowing money, typically expressed as an annual percentage rate

Secured vs. Unsecured credit

Secured credit: The bank or organization provides you with credit that you immediately convert into debt (ex. home mortgages, car loans, and other installment loans)

Unsecured credit: Bank or company is taking a risk to allow you to charge up to a certain credit limit that is specific to you (ex. credit cards, personal loan, student loan)

FICO score

Number range of a credit score is 300-900 (depicts a consumer’s credit worthiness - how likely you are to pay back a loan on time)

Certificate of Deposit (CD)

A loan that an investor makes to a financial institution. Attractive to small investors as they can cost as little as $500-$1,000

• Has a specific, fixed term before money can be withdrawn without penalty and generally higher interest rates than a regular savings account (there’s a time factor at work)

Savings Account

A service offered by banks intended to be a place where customers can save their money and earn interest

• No risk

• Very low interest rate (average national interest rate is 0.35%)

Checking Account

A bank account designed for everyday use that makes it easy to deposit, withdraw and transfer money

Mutual Fund

A pool of money from many people that is invested together in a variety of stocks and bonds. It is administered by an investment manager.

Money Market Account

An interest bearing account that offers higher interest rates than a traditional savings account, but requires a higher minimum balance

Compound Interest

The interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods 

Savings bond

A safe and easy way for individuals to loan money directly to the government and receive a return on their investment.

Stock Exchange

A marketplace where financial instruments, primarily equities (stocks) and bonds, are traded

Traditional IRA

The yearly contributions that a person makes are not taxed when they are deposited, but the person has to pay tax on the whole amount when they withdraw the funds upon retirement

Bear vs. Bull Market

Bear Market: The economy is bad and a recession is looming.

Bull Market: The economy is great and stock prices are rising.

Corporate Bonds

A debt obligation in which investors lend money to a company, receiving interest and principal, but not equity (remaining value of an asset or investment after considering or paying any debt owed)

Stock Broker

A person or company authorized to buy and sell stocks on behalf of investors

Roth IRA

A person has taxes taken out before making deposits, so they do not have to pay taxes when withdrawing money at retirement

NYSE

The world's largest stock exchange by total market capitalization of listed companies

Junk Bonds

Issued by companies that are financially struggling and have a high risk of defaulting or not paying their interest payments

• Very risky investments (carries the most risk of all bond types)

• Because of the higher risk, investors are compensated with higher interest rates

Diversification

The strategy of investing in different asset classes and asset types to reduce portfolio risk associated with price volatility

Selling Short

A person is betting that the stock’s price will go down. It’s accomplished through borrowing shares, selling them on the market, and then buying them back at a lower price later to return to the lender.

NASDAQ

One of the first global electronic marketplaces for buying/selling securities

***More than 5,000 domestic and foreign companies are listed with a major focus on technology

Stock (Growth vs. Income)

Growth Stocks: Companies that are always expanding and their stock tends to rise very quickly (buy low, sell high)

Income Stocks: Stocks that pay dividends (A portion of a company's profit paid to shareholders), providing steady income; slower growth

401k

Tax-advantaged, employer-provided retirement plan where employees contribute a percentage of their income, often with employer matching

Option (call/put)

Option: To purchase a derivative that gives you the right to purchase a given asset at a price and date that are agreed upon

Two types: Call—> A bet that a stock will rise; Put—> A bet that a stock will fall

Dow Jones Industrial Average

30 most significant stocks in the stock market (most popular measure of stock market performance)

Ponzi scheme

• Involves luring new investors to take profits from the funds of those investors

• Con artist is just taking money from new investors and paying early investors until he can leave town

Nigerian 419 scam

• Scheme in which a sender requests help facilitating the illegal transfer of money

• Scammer exchanges emails w/ victim getting to know them

• Sender offers the recipient a commission - sometimes up to several million dollars

Pyramid scheme

A fraudulent investment where participants make money primarily by recruiting new investors rather than from legitimate businesses

E-mail phishing

Online scam where criminals impersonate legitimate organizations via email, text message, advertisement, or other means in order to steal sensitive info

MLM

A system where participants earn commissions on their personal product sales, as well as sales made by people they recruit

Craig’s List scams

Common Craigslist scams include overpayment scams, fake listings, and rental scams, where scammers use fake checks, pressure you to wire money, or create fake advertisements. To protect yourself, meet in person for local transactions, avoid wiring money or using untraceable payment methods, and be wary of listings that seem too good to be true, especially those involving remote sellers or unusual payment requests

Modeling & Talent Scam

• Flattery lures you in - they tell you that you have “the look”

• Promises of money, stardom are followed by close misses

Bait and Switch

A sales tactic in which a customer is attracted by the advertisement of a low-priced item but is then encouraged to buy a higher-priced one