FINANCIAL LITERACY > exam

ways to deposit money into account

• deposit a check at a bank

• deposit a check using mobile deposit

• deposit cash at an ATM

• use direct deposit for your paycheck

ways to withdraw money from an account

• withdraw money from an ATM

• make a purchase with a debit card

• use online bill pay

• write a check

• transfer money to another account

advantage of opening a checking account at a credit union

• community banks typically have lower fees and charges when compared to a national bank

• community banks typically give back and support the local community 

main differences between a checking account and a savings account

• checking accounts are where you put your money if you want easy access to it while savings accounts are for storing money to earn interest 

• checking accounts have few restrictions on where and when you deposit and withdraw while savings accounts have more restrictions such as limit on number of withdrawals 

• checking accounts have fees associated with them while savings accounts do not 

traditional savings account

provides easy access to funds and has physical bank branches, but typically the lowest interest rates

online savings account

typically offers high interest rates for a standard savings account but has no physical bank branches

money market account

typically offers high interest rates but requires a minimum balance and offers limited ability to write checks 

certificate of deposit

typically offers the highest interest rate but restricts access to funds for a set period of time

investing

• meant for long-term goals (10+ years)

• assets usually include stocks, bonds, and a variety of funds in the hopes of making a profit

• goal is to build wealth for the future; returns are intended to outpace the rate of inflation to maximize your purchasing power in the future

• can be risky depending on what you invest in

saving

• meant for short-term goals (0-5 years)

• assets usually include cash, t-bills, or money market accounts 

• goal is to save for a purchase or create an emergency fund

• average annual returns tend to be lower

• low risk

trading

• meant for quick, short-term profits and gains

• assets usually include individual stocks

• high risk because you are trying to constantly outperform the marker but you don’t know how the market is going to perform

bull market

more investors are buying stocks which causes stock values to increase

bear market

investors are selling stocks which causes stock values to decrease

social security is a government program that pools contributions from current workers to then provide retirement support benefits to those who are eligible

true

you will need slightly less income in each year of retirement

false

the longer your retirement the more money you need to have saved

true

the longer your retirement the more money you’ll be able to withdraw each year

false

stock

an investment option that allows you to own a small piece of a company

stock quote

the price of a stock that is listed on an exhange

stock split

an action where a company increases the number of shares outstanding and lowers the individual value of each share

active investing 

• has a human fund manager

• higher fees

• goal is to outperform the marker

• higher risk

passive investing 

• matches the performance of an index - no human manager

• lower fees

• goal is to match the return on the market

• lower risk

differences between an IRA and a 401(k)

• you can open an IRA on your own with a financial institution whereas you get a 401(k) through your employer

• the annual contribution limit for an IRA is lower than that of a 401(k)

• with an IRA you have to manually transfer to your account

• with a 401(k) you can have you contributions deducted from your paycheck 

• IRAs may offer a better set of investment options and can be easier to consolidate or move to a different financial institution 

• with a 401(k) your employer may match your contribution up to a certain amount 

why is it important to invest for retirement

• investing has the potential to earn an higher rate of return than most saving accounts

• most people unfortunately do not have enough money saved for retirement and future generations cannot rely on social security or pensions as older generations 

benefit of starting to invest early

the earlier you start the more you will benefit from the power of compound interest 

may have overdraft fees

debit card

spending limit is how much is preloaded onto the card

prepaid debit

helps build credit score

credit card

great for travel

credit card and prepaid debit card

spending limit is set by how much is in your checking account

debit card

charges interest on balances

credit card

may have reward programs

credit card

ways people under 21 can start building a credit history and have a credit score

• get a cosigner so you can open up a credit card account

• start paying off the interest on student loans while you’re in school to bump up your credit score

• get a secured credit card

• become an authorized user on a parent or guardian’s credit card account

Ryan just opened a credit card account and says to you, “Managing a credit card is so easy! I can buy a ton of stuff, and then just make the minimum monthly payment each month. What a great deal!” What would you say to Ryan to clear up his misconceptions?

you are still responsible for paying off the whole balance

• making only the minimum monthly payment means you are still carrying over a part of your balance

• because you have not paid back all of the money you have borrowed, you are charged interest on that amount. As a result, you now have to pay the balance and the interest that accrues, costing you more in the long run

• if you continue to only pay the minimum monthly payment, then the majority of your payment will go towards paying off the accrued interest not the balance, which can lead to a cycle of debt

if you have a loan with a longer term you are more likely going to have __________ monthly payments and pay ___________ in total interest

lower; more

increase or decrease your monthly auto payment > you have a large down payment

decrease

increase or decrease your monthly auto payment > the term on your auto loan is long

decrease

increase or decrease your monthly auto payment > you have a low credit score

increase

increase or decrease your monthly auto payment > your loan has a high APR

increase

3 steps someone can take to pay off their debt

• pay more than the minimum payment

• cut unnecessary spending

• increase income by getting a raise, working more hours, etc

why might a lender, landlord, employer or other party look at your credit report

• credit report shows payment history which can indicate how responsible you are with your finances and how likely you are to pay back a loan and make on-time payments

• this may help a lender or other party decide whether or not they want to approve you for a new line of credit, apartment, etc

increase or decrease your credit score > you make payments on time every month

increase

increase or decrease your credit score > you apply for 5 new credit cards in 2 months

decrease

increase or decrease your credit score > your credit utilization rate drops from 22% to 10%

increase

increase or decrease your credit score > you pay off your balance in full each month

increase

increase or decrease your credit score > you miss a payment one month on your auto loan

decrease

increase or decrease your credit score > you have credit cards but no other type of loan(s)

decrease

true or false > the FAFSA becomes available in october each year 

true

true or false > its best to wait until june 30th to file your FAFSA

false

true or false > you only have to file the FAFSA once in your life

false

true or false > you should only file the FAFSA if you think you are eligible for financial aid

false 

true or false > your FAFSA submission summary includes your SAI; the lower your SAI, the more need-based financial aid you’ll be eligible to recieve

true

it costs money to file the FAFSA

false

order someone should accept types of financial aid

1. scholarships and grants

2. federal work-study

3. federal loans

4. private loans

subsidized direct loans

the federal government pays the interest while you’re still in school at least half-time

unsubsidized direct loans

the borrower is responsible for paying off all the interest that accrues on the loan

direct plus loans

loans that are available for graduate and professional students and parents of undergraduate students

fixed interest loans

loans where the amount of interest you have to pay stays the same until you pay off the loan

main tips for negotiating salary when you receive a job offer

• do market research on salaries for comparable positions

• ask for slightly more than your goal salary

• stay calm

• provide concrete reasons you deserve a higher salary such as previous work experience, pas accomplishments, etc

• explain the value you would add to the company

• consider negotiating other benefits like signing bonuses or time off

why is it important to consider job benefits when receiving a job offer

Job benefits will significantly impact your total compensation and experience at the job. For example, health insurance and retirement benefits can have a high monetary value. Paid time off, remote work, or development opportunities can impact how you feel about work. A job with a lower salary and good benefits could be a better overall compensation package. 

good or bad suggestion for career development > change jobs at least once a year to make more professional contacts

bad

good or bad suggestion for career development > learn new skills even if they are not directly related to your current job

good

good or bad suggestion for career development > avoid all social media as much as possible

bad

good or bad suggestion for career development > schedule informational interviews with professionals in your field

good

good or bad suggestion for career development > join a professional association

good

401(k) employer match

money your employer adds to your retirement savings when you do

health insurance

a plan that helps pay for your medical expenses

paid time off (PTO)

days you get paid for not working like a vacation or personal days

life insurance

a policy that gives money to your family if you pass away

flexible spending accounts

an account set up through an employer to cover health costs with pretax dollars

sick leave

days you can get paid for not working due to medical reasons

if you choose a plan with a lower monthly premium you are likely to have a ____________ deductible and a ____________ coverage limit

higher; lower

true or false > premiums generally cost more if your car is more valuable

true

true or false > your auto insurance premium can be impacted by your age, mileage, and driving history

true

true or false > liability coverage will pay for the damage to your car if you are in an accident

false

true or false > uninsured/underinsured coverage will pay for your medical bills if the other driver doesn’t have auto insurance to cover them

true

true or false > personal injury protection will pay for the other driver’s medical bills if you are in an accident

false

true or false > most states require drivers to have a minimum amount of liability coverage

true

Megan has an auto policy that includes collision coverage with a deductible of $500 and a coverage limit of $50,000. She is in a car accident that results in $3,700 in damages to her car. How much will she pay out of pocket? How much will the insurance pay?

• out of pocket > $500

• insurance > $3,700 - $500 = $3,200

deductible

the amount you will pay before your insurance starts paying

coinsurance

a percentage that you pay for medical care after meeting your deductible

premium

the monthly payment to maintain insurance coverage

copay

a fixed dollar amount that you will pay each time you receive medical treatment

out-of-pocket maximum

the most you will spend on health care in a year before insurance covers everything

FICA

a mandatory deduction to pay for social security and medicare

federal income tax

a mandatory deduction to pay for national government program

401(k) contribution

a voluntary deduction to your retirement account

gross pay

your total earnings before any deductions are taken out

health insurance

a voluntary deduction to pay for your health coverage

YTD net pay

your total take-home pay for the year so far

true or false > in january your employer mails you the tax forms W-2, W-4, and I-9

false

true or false > your W-2 form tells you how much you earned as and employee

true

true or false > form 1099 is the standard federal income tax form completed each year

false

true or false > january 1 is the last day to submit income tax forms or request an extension

false

true or false > when starting a new job you will complete a W-4 and an I-9 form

true

true or false > if your tax situation is changing you can fill out another W-4 to update how much tax is withheld from your paycheck

true

pay yourself first

save part of your paycheck before you do anything else

50/30/20

divide your money between needs, wants, and savings

zero-based budgeting

track every dollar you spend

envelope budgeting

set aside cash for each of your budget categories for the month