Personal Finance: Term Exam

Cognitive Bias

A subconscious error in thinking that leads to irrational decision making

Loss Aversion

The tendency to regard losses as considerably more important than gains of comparable magnitude

Overestimation

When a person believes they are better at something than they actually are

Overnight Test

A strategy used to combat loss aversion by imagining that overnight something you own has been replaced with cash, then determining whether you would prefer to keep the cash or buy the item back

FOMO (Fear of Missing Out)

The tendency to feel anxiety/fear that an exciting or interesting event may currently be happening elsewhere, often aroused by posts seen on a social media website

Endowment Effect

The tendency to put more value on things you already own

Sunk Cost Fallacy

The tendency to make decisions about a current situation based on what resources you have already invested in the situation

Herd Mentality

The tendency to conform to the behaviors and beliefs of the people around you

Sunk Costs

Costs that have already been incurred and cannot be recovered

Hedonic Adaptation

The tendency to return to a baseline level of happiness regardless of whether you go through a positive or negative experience or event

Behavioral Economics

The subfield of economics that applies psychological insights into human behavior and to explain economic decision making

Confirmation Bias

The tendency to search for information that supports our preconceptions and to ignore or distort contradictory evidence

\n ATM

Automatic Teller Machine. Allows a person to manage a bank account holder's funds through actions such as withdrawing or depositing money, viewing account balances, etc.

Balance

The amount of money you have in your bank account

Bank Statement

A monthly document prepared by your financial institution which shows all of the transactions related to your account

Canceled Check

A check that has been paid or cleared by the bank. It will appear on your bank statement.

Check

A written, dated, and signed order to the bank that tells it to pay a definite sum of money to a payee

Check Register

A record that allows you to keep track of checks you have written, ATM/debit card transactions, as well as deposits and withdrawals

Credit Card

A card that allows the holder to make purchases without cash by borrowing money

Debit Card

A card that is directly connected to your checking account; it enables you to conduct ATM transactions and to make purchases instead of using cash or writing a check

Deposit

Money you put into your account

Direct Deposit

An automatic electronic deposit of net pay to an employee's designated bank account

Endorse

To sign the back of a check made out to you so it can be cashed or deposited

Interest

A fee paid to you for keeping your money in an account OR a fee charged to you for a loan or credit card

Maintenance Fee

A monthly fee that some banks charge to provide access to checking or savings accounts

Minimum Balance

A certain amount of money that must be kept in an account as required by that particular financial institution

Mobile Deposit

A mobile banking tool that allows you to deposit checks to your bank account using your mobile device

Money Order

A certificate that allows the stated payee to receive cash on

Online Bill Pay

A consumer banking technology that allows you to schedule and make payments over the internet

Outstanding Check

A check that has been written but has not yet been cashed or deposited by the payee

Outstanding Deposit

A deposit that has been made but not yet added to the person's bank account

Overdraft Fee

A fee charged to your account when it lacks the funds to cover a withdrawal, but the bank allows the transaction to go through anyway

Overdraft Protection

A loan banks offer to their customers when they try to withdraw more funds than they have in their account, usually for a fee and with interest

Reconcile

To compare your bank's monthly account statement with your own records of activity for the same account

Unbanked

A term used to describe a person who does not use or does not have access to traditional financial services

Underbanked

A term used to describe a person who has a bank account, but often relies on alternative financial services such as check cashing

Unusual Activity Alert

A notification that lets you know when there is suspicious activity with your account

Voided check

A check with "VOID" written across it so that it can no longer be used

Wire Transfer

An electronic communication that moves funds from an account in one bank to an account in a different bank instantly. It is a useful option to send money securely when the two parties are not in the same geographic location.

\n 1040

The standard Internal Revenue Service (IRS) form that individuals can use to file their annual income tax returns

1099

A form that details all "non-employee" compensation, including for specific jobs like freelancers or contractors

Allowances

Employee-claimed exemptions on the W-4 to determine how much of an employee's pay to withhold from his or her paycheck for taxes

Dependent

Someone you financially support who can be "claimed" on a tax return to reduce your taxable income and lower your taxes

Discretionary Spending

Spending by the federal government determined by legislative action and approved through votes by elected officials

Earned Income

Any income (wages/salary) that is generated by working

Exemption

The set amount of money, per dependent, you can subtract from your taxable income

Filing Status

A category that defines the type of tax return an individual will use, primarily based on marital status; it also determines the size of your tax brackets and how much of your income is taxed at each rate

Income Tax

Taxes paid by employees to federal and state government through a direct deduction from their paycheck

Paycheck Stub

A document attached to every paycheck that details your earnings and the amount withheld for taxes, health insurance, retirement funds, etc.

Standard Deduction

A standardized dollar amount that reduces your taxable income, specifically for individuals who do not receive additional benefit by itemizing their deductions into medical expenses, donations, etc.

Tax Return

An annual report to the IRS summarizing total income, deductions, and the taxes withheld by employers

Tax Refund

An amount that a government gives back to a taxpayer who has paid more taxes than were due

Unearned Income

Income received from sources other than employment

W-2

A form that an employer must send to an employee and the IRS at the end of the year to report the employee's annual wages and taxes withheld from their paycheck

Tax Deduction

An amount that can be subtracted from person's tax liability that lowers their taxable income

W-4

A form completed by an employee to indicate his or her tax situation (exemptions, marital status, etc.) to the employer, who then withholds the corresponding amount of taxes from each paycheck

Withholding

The portion of an employee's wages that is not included in their paycheck because it goes directly to federal, state and local taxes

Capitalized Interest

Unpaid interest that has been added to the principal balance of a loan

Cosigner

Someone who legally agrees to take responsibility for a person's debt if they cannot repay it

Default

Long-term failure to repay a loan according to the terms agreed to, which has a substantial negative impact on the borrower's credit score

Deferment

A process that allows a borrower to pause their federal student loan payments; interest does NOT accrue during this time period on subsidized loans

Delinquency

Describes the status of being behind on one or more loan payments

Direct Plus Loans

A federal loan available to graduate or professional students and eligible parents of dependent undergraduate students to help pay for the cost of the student's education at participating schools

Direct Subsidized Loan

A federal student loan available to undergraduate students; the federal government pays interest on the loan as long as the student is in school at least part-time

Direct Unsubsidized Loan

A federal student loan available to undergraduate and graduate students; the student is responsible for paying the interest during the time they are in school, which means they must pay that interest while studying or have it rolled into the principal amount of their loan

Disbursement

A portion of a federal student loan that the school pays out by applying the funds to the student's school account or by paying the borrower directly. Students generally receive their federal student loans in more than one disbursement.

Work-Study

A federal program that provides part-time jobs for undergraduate and graduate students with financial need, allowing them to earn money to help pay education expenses

Entrance Counseling

A mandatory information session which takes place before a student receives their first federal student loan. It explains their rights and responsibilities as a student borrower.

Expected Family Contribution (EFC)

An index number used to determine your eligibility for federal student financial aid. This number results from the financial information you provide in your Free Application for Federal Student Aid (FAFSA) form. It's reported to you on your Student Aid Report (SAR).

Exit Counseling

A mandatory information session which takes place when a student graduates, leaves school, or attends school less than half-time. It explains the student's loan repayment responsibilities and when repayment begins.

Federal Student Aid

The largest form of student aid in the country; federal aid programs come in the form of government grants, loans, and work-study opportunities

Financial Aid Offer

The total amount of financial aid (federal and nonfederal) a student is offered by a college, designed to help meet a student's education costs

Free Application For Federal Student Aid (FAFSA)

A free online application that current or prospective college students can submit each year to determine their eligibility for financial aid

Gift Aid

Financial aid that does not have to be paid back, such as scholarships and grants

Grace Period

A period of time during which a borrower is typically not required to make loan payments. It generally begins on the day after a borrower graduates, leaves school, or drops below half-time enrollment. This period typically lasts 6 to 9 months but can vary.

Grants

Student aid coming from the state or federal government, the school, or from private sources that does not need to be repaid

Loan Consolidation

A process that allows a borrower to COMBINE multiple federal loans into one, allowing the borrower to make one monthly payment. The new interest rate of the loan is a weighted average of the prior loans' rates.

Loan Servicer

The organization that collects payments on a loan, responds to customer service inquiries, and performs other administrative tasks associated with maintaining a loan on behalf of a loan holder

Master Promissory Note (MPN)

A legal document in which you promise to repay your federal student loan(s) and any accrued interest and fees to your lender or loan holder

Pell Grant

A federal grant usually awarded to undergraduate students who display exceptional financial need and have not earned a bachelor's, graduate, or professional degree. This grant does not have to be repaid.

Private Student Loan

A non-federal student loan made by a bank, credit union, or other entity, which sets the terms and conditions for the interest rate, grace period, and length of repayment

Scholarship

A type of aid primarily awarded for academic merit (good grades) or for something you have accomplished (volunteer work, athletics, etc) that does not need to be repaid

Sticker Price

Total expense of going to college which may include tuition, room and board, fees, books and supplies, transportation, health insurance, etc. Also known as Cost of Attendance or a school's published price.

Student Aid Report (SAR)

The report you receive after submitting your FAFSA. It contains your EFC, Pell Grant eligibility, whether you've been selected for verification, and all other information that colleges will use to determine your financial aid package.

Tuition

The sticker price for the academic portion of your college expenses, which does not include room and board, textbooks, or other fees

Interest Rate

The rate charged for borrowing money usually expressed as a percent of the amount borrowed

Authorized User

A person who has permission to use and/or carry another person's credit card, but isn't legally responsible for paying the bill

Mortgage

A loan taken by individuals and businesses to make real estate purchases without paying the entire value of the purchase up front

Fixed-Rate Mortgage

A mortgage that has a fixed interest rate for the entire term of the loan as long as on time payments are being made

Revolving Credit

An open line of credit that can be used for any purchases as long as you are under the limit; its payments vary monthly based on size of the debt

Cosigner

Someone who legally agrees to take responsibility for a person's debt if they cannot repay it

Balance Transfer

The act of transferring debt from one credit card account to another, usually for a fee

Annual Fee

A yearly fee that may be charged for having a specific credit card, independent of how you use the card

Joint Account

A bank or credit account that is shared between two or more people which allows everyone named on the account to access the funds

Credit Card Agreement

A legal document that outlines the terms and conditions for using your credit card

Payday Loan

A small loan, offered through a business, lent at a high interest rate, and meant to be paid as soon as you receive your next paycheck

Fixed-Rate Loan

A loan with an interest rate that does not change over the life of the loan

Crowdfunding

The practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet

Variable-Rate Loan

A loan in which the interest rate can change, based on prime rate or index rate, over the course of the loan

Term

The amount of time you have to repay your entire loan