Financial Literacy

What is a percent?

A portion of the total.

How do you convert fractions to percentages?

Convert the fraction to a decimal and then multiply by 100.

How do you calculate an amount based on a percentage?

Multiply the base value by the percentage (in decimal form).

What is the base value?

The numerical value to which a part is compared.

How do you convert a percentage to a decimal?

Divide the percentage by 100.

What is the relationship between percentages, decimals, fractions, and ratios?

They represent the same proportional relationship.

What is a ratio (proportion)?

A comparison of two quantities.

How do you calculate the percentage of a given amount?

(Part / Whole) * 100.

Why are wholesale and retail discounts offered?

To incentivize bulk purchases and clear inventory.

How are increased sales directly related to discounts?

Discounts stimulate demand, leading to higher sales volumes.

What is a seasonal discount?

A discount offered during a specific time of year.

What is the difference between trade and cash discounts?

Trade discounts are offered to businesses in the same trade, while cash discounts are for early payment.

What are the terms for early payment discounts?

Incentives for paying invoices early, such as '2/10, n/30'.

What does '2/10/n/30' mean in discount terminology?

A 2% discount if paid within 10 days, net amount due in 30 days.

What is a trade discount?

A discount offered to businesses in the same trade.

What is the relationship between discounts and consumer action?

Discounts motivate consumers to make purchases.

What are some consumer choices for saving?

Savings accounts, money market accounts, and certificates of deposit (CDs).

What is the relationship between saving and investing?

Saving sets aside money for future use, investing uses money to generate a return.

What is the time value of money?

Money available today is worth more than the same amount in the future.

How do you use the Rule of 72?

Estimate how long it will take for an investment to double; Years = 72 / InterestRate.

What is financial liquidity?

The ease with which an asset can be converted into cash without affecting its market price.

What is the discipline associated with saving money?

Consistently setting aside a portion of income and avoiding unnecessary spending.

What are insured savings accounts?

Savings accounts protected by insurance, such as FDIC insurance.

Why should one have a savings account?

To safely store money, earn interest, and have funds available for future needs.

What is simple interest?

Interest calculated only on the principal amount.

What is the difference between simple and compound interest?

Simple interest is calculated only on the principal, compound interest is on principal and accumulated interest.

Why should one have a checking account?

For convenient management of funds, paying bills, and making transactions.

How do you open a checking account?

By providing identification, filling out an application, and depositing funds.

What are the advantages and disadvantages of online banking?

Advantages include convenience; disadvantages include security risks.

What are paperless bank statements?

Bank statements provided electronically rather than on paper.

What are the three types of check endorsements?

Blank, restrictive, and special endorsements.

What is overdraft protection?

A service that covers transactions when an account has insufficient funds.

How do you reconcile a bank statement?

By comparing the bank statement to your own records and resolving any discrepancies.

What is the FDIC?

Federal Deposit Insurance Corporation; it insures deposits in banks and savings associations.

What is the difference between a debit and a credit card?

A debit card uses funds directly from your bank account; a credit card allows you to borrow money.

Why is it important to maintain a check register?

To keep track of transactions and maintain an accurate record of account balances.

Why is it important to develop a solid relationship with your bank?

To receive better service and potentially qualify for loans or other financial products.

What is direct deposit?

An electronic transfer of a payment directly from the payer's account to the recipient's account.

What is a checking account routing number?

A unique code that identifies the bank or financial institution.

What is the role of the drawer for a checking account?

The account holder who writes the check.

What is the role of the payee for a checking account?

The person or entity to whom the check is made payable.

How does Maslow’s Hierarchy of Needs affect financial decisions?

It prioritizes needs before wants.

What is the process of gathering data before making a financial decision?

Researching options, comparing prices, and seeking advice.

Why is it important to determine possible outcomes of financial decisions?

To evaluate potential risks and rewards.

What are the steps associated with decision making?

Identifying the problem, gathering information, evaluating alternatives, making a decision, and reviewing.

How do changing financial situations impact decision making?

They require adjusting financial plans and priorities.

How is financial decision making impacted by long-term vs short-term goals?

Long-term goals require careful planning, short-term may involve immediate spending.

What is the difference between rational vs. emotional financial decision making?

Rational is based on logic; emotional is driven by feelings.

Why should some financial decisions be given more time?

To allow for thorough research and avoid impulsive choices.

How does decision making require flexibility due to unexpected events?

Unexpected expenses may require adjusting financial plans.

How does financial decision making involve a system of prioritization?

By allocating resources to the most important needs and goals first.

How does decision making differ for large vs. daily purchases?

Large purchases require more planning, daily purchases are routine.

How do you distinguish between financial wants and needs?

Needs are essential for survival; wants are desires not necessary.

How do you choose the best financial planner?

By considering qualifications, experience, and fees.

Why is a financial budget important?

It helps track income and expenses, set goals, and make informed decisions.

Why is it important to maintain accurate financial documents?

Accurate records provide a clear picture of financial health.

What are the different types of taxes?

Income tax, property tax, sales tax, excise tax.

How are taxes used to encourage and discourage business?

Tax incentives encourage activities; high taxes discourage them.

How does the government use taxes?

To fund public goods and services.

What are property taxes?

Taxes on real estate and other property.

List the top expenditures that use property taxes.

Education, public safety, and local government services.

What are public goods?

Goods and services provided by the government, funded by tax dollars.

What is the role of the IRS?

To administer and enforce federal tax laws.

What is a progressive income tax?

A tax where the rate increases as the taxable amount increases.

What are sales taxes and how are they used?

Taxes on sales of goods and services, used to fund government programs.

How do different states compete for business with/without sales taxes?

States with no sales tax attract businesses seeking lower taxes.

When is the tax filing deadline?

April 15th.

What is a tax deduction?

An expense that reduces taxable income.

What is a tax exemption?

A fixed amount deducted from gross income to reduce taxable income.

What is a tax holiday?

A period when certain taxes are temporarily suspended or reduced.

What are excise taxes?

Taxes on specific goods, such as alcohol or tobacco.

What is a tariff?

A tax on imported goods.

What are FICA taxes?

Taxes that fund Social Security and Medicare.

What are different types of investments?

Stocks, bonds, real estate, mutual funds.

What are the risks associated with different types of investments?

Market risk, credit risk, liquidity risk.

What is investment liquidity?

The ease of converting an asset into cash without affecting its market price.

How do you buy and sell investments?

Through a broker or online trading platform.

What is the relationship between risk and rate of return?

Higher risk investments typically offer higher returns but also greater potential losses.

What is the difference between simple and compound interest?

Simple interest is on the principal; compound interest is on the principal and accumulated interest.

What agencies regulate financial markets?

Securities and Exchange Commission (SEC).

How do you evaluate professional financial advisors?

Considering their qualifications, experience, and fees.

What are different types of stocks?

Common stock and preferred stock.

What are bonds?

A debt instrument issued by a corporation or government.

How is real estate an investment possibility?

It can generate rental income and appreciate in value.

What are speculative investments?

High-risk investments with the potential for significant gains or losses.

How is the level of risk associated with possible rate of return?

Higher risk investments have potential for higher returns but also higher losses.

How are broker and investment planner fees calculated?

As a percentage of assets or as a flat fee.

What is the importance of estate planning?

To ensure assets are distributed according to your wishes after death.

Why is there a need for wills?

To provide legal instructions for distribution of assets.

What is a budget?

A plan for managing income and expenses; helps achieve financial goals.

What is the difference between fixed and variable expenses?

Fixed expenses are consistent; variable expenses fluctuate.

What is the difference between active and passive income?

Active income is earned through direct work; passive income is from investments.

What is the reason for a budget?

To track income and expenses, set financial goals.

What are the categories in a budget?

Income, expenses (fixed and variable), savings.

Why should a percentage of income be budgeted for savings?

To build wealth and achieve financial security.

What is opportunity cost?

The value of the next best alternative forgone when making a decision.

How do you define depreciation?

The decrease in value of an asset over time.

What is the first step for creating a budget?

Monitoring and categorizing spending.

How is maintenance of a checking account related to successful budgeting?

It helps track income and expenses accurately.

What is insurance?

A contract that protects against financial loss.