Financial Literacy STATE Test Review

Values

Core beliefs or practices in your life that are desirable or important to you.

Where do we get our values? How do they influence our spending habits?

Our values are derived from our environment. i.e. our parents, teachers, friends, religious and political leaders.

We spend our money on things that are important to us. Our values shape what we perceive as needs and wants.

Need

Require something because it is essential or very important.

Want

Things that are unnecessary, bu desired, which increase the quality of one’s life.

Hierarchy of Needs

Motivational theory in psychology comprising a five-tier model of human needs.

Tier 1: Physiological Needs- food, water, shelter, sleep, clothing, air, reproduction.

Tier 2: Safety Needs: personal employment, security, resources, health, property.

Tier 3: Love and Belonging- friendship, family, intimacy, sense of connection.

Tier 4: Esteem- respect, self esteem, status, recognition, strength, freedom.

Tier 5: Self-Actualization- desire to become the most that one can be.

Supply and Demand

The amount of goods and services that are available compared to the amount of people that want to buy them.

The Law of Supply

Law that states that as a price of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa.

The Law of Demand

A higher price for a good or service, leads people to demand a smaller quantity of that good or service.

Low Supply + High Demand =

High Prices

High Supply + Low Demand =

Low Prices

Scarcity

An economic principle stating that because of limited resources choices must be made between what people want and need.

Opportunity Cost

Refers to what a person gives up when a decision is made.

The 4 Pillars of Free Enterprise

Private property rights, the price system, competition, and entrepreneurship

Free Enterprise

An economic system that permits the conduct of business with minimal government intervention.

Economics

Based on the production, distribution, and consumption of goods and services.

Economic Systems

The method used by society to produce, distribute, and consume goods and services.

3 Economic Questions

* All economic systems must answer these questions.

1. What goods and services should be produced?

2. How should these goods and services be produced?

3. Who consumes these goods and services?

Traditional Economy

Relies on habit or custom to decide what to produce, how to produce it, and who to distribute it to. A society where economic decisions are guided by customs.

Command Economy

The central government makes all of the decisions about the production and consumption of goods and services. An economy in which production, investment, prices, and incomes are determined centrally by the government.

Market Economy

An economic system in which production and prices are determined by unrestricted competition between privately owned businesses. Economic decisions are made by individuals and are based on exchange or trade.

Free Market

An economic system that permits the conduct of business with minimal government intervention.

Mixed Economy

A system that combines tradition and the free market with limited government intervention. A balance of needs and wants are met by the government and in the marketplace.

Consumer Prices

Changes in the buying power of the dollar; inflation.

Consumer Spending

Demands for goods and services.

Gross Domestic Product

The total value of goods and services produced within a country.

Recession

Two successive quarters of decline in the gross domestic product (GPD).

Housing Starts

The number of new homes being built.

Interest Rates

The cost of borrowing money.

Money Supply

Funds available for spending in the economy.

Stock Market Index

Indicates general trends in the value of U.S. stocks such as the Dow Jones Averages or the S&P 500.

Unemployment

The number of people without employment of work.

Factors That Affect Decision Making

Consumer Prices, Consumer Spending, GDP, Housing Starts, Interest Rates, Money Supply, Stock Market Index

Personal Risk

Factors that create a less than desirable situation. May be in the form of inconvenience, embarrassment, or safety of health.

Inflation Risk

Rising prices cause lower buying power. Buying an item later may mean higher prices.

Income Risk

Changing jobs can result in a lower income or loss of employment.

Liquidity Risk

Certain types of savings and investments may be difficult to convert to cash quickly.

Potential Risks of Decision Making

Personal Finance, Inflation Risk, Income Risk, Liquidity Risk.

Spontaneity

Choosing the first option that comes to mind without thinking about the consequences.

Compliance

Going along with others expectations for your decisions.

Procrastination

Postponing action until options are limited.

Desire

Choosing the option that might achieve the best result regardless of the risk involved.

Security

Choosing the option that will bring some success, offend the fewest people, and pose the least risk.

Agonizing

Accumulating as much info as possible to the point where trying to analyze is overwhelming.

Intention

When your heart and your mind agree.

Decision Making Strategies

Spontaneity, Compliance, Procrastination, Desire, Security, Agonizing, Intention.

What is a Decision?

The process of considering and analyzing information in order to make a choice.

What are the two types of decision?

Routine: made on a day-to-day basis and don’t require a lot of thought, can even become habitual.

Major: have long-term effects on life, and are made with careful consideration.

6 Steps in the Decision Making Process (DECIDE)

1. Define your goal.

2. Establish your criteria.

3. Choose two or three good options.

4. Identify the pros and cons.

5. Decide what’s best.

6. Evaluate the results.

Pressures of Purchasing Decisions

Friends, Advertising, the Internet, Direct Mail, Radio, Celebrities, Gossip, Acceptance, Disapproval, Insecurity, Clubs/Athletes, Significant Others.

SMART Goals

Specific

Measurable

Attainable

Realistic

Time-Bound

Financial Planning

A thinking process that helps achieve goals. A blue print or plan for managing all components of money.

Components of a Financial Plan

Goals, Net Worth, Budget, Income and Expense Records, Insurance Plans, Savings Plans.

5 Steps to Financial Planning

1. Set SMART goals.

2. Analyze Information

3. Create a Plan

4. Implement the Plan

5. Monitor and Modify the Plan

An example of a self employed person would be…

A trades person, builder, plumber, mobile hair dresser.

A shift worker…

Works an 8 hour shift within a 24-hour period.

A salaried employee…

Gets paid by the month with a twelfth of their annual salary.

Money received from stocks and shares is called…

DIVIDENDS

What is the money received from a deceased person and their estates called?

INHERITANCE

What tax is paid on a deceased estate?

Inheritance Tax

What is a Resume?

A document that provides information about you to a potential employer.

What goes in the education portion of your resume?

The name of your school.

When crediting a resume it is important to use…

Perfect punctuation and grammar.

Once you have created a resume, how often should you update it?

Every time something changes in your work experience, or if you learn something new.

Resumes are like…

Advertisements of yourself.

What is the purpose of a resume?

To get a job interview.

If you don’t have any work experience, what could you list in your resume?

Activities, Achievements, Skills

Gross Pay

The total amount of earnings BEFORE any deductions are taken out.

Net Pay

The total amount of earnings AFTER deductions have been taken out.

What percentage of gross pay is deducted for social security?

6\.2%

What percentage of gross pay is deducted for Medicare?

1\.45%

How many credits do you need to receive full retirement benefits for retirement age (67)?

40 credits

Which tax form is used to provide information about your previous years pay and deductions from that year?

W2 Form

Who is responsible for providing you with a W2 form?

Your employer.

Which tax form is used to tell your employer the amount of allowances you will be claiming?

W4 Form

When is a W4 filled out?

When you are first hired and start a job.

Which tax form provides you with information on how much you have earned in an interest in your savings tools such as savings accounts?

1099 INT

Who provides you with your 1099 INT?

Your bank.

Which tax form must you use if you make more than $100,000 per year?

1040

When is tax day?

April 15th

What do you call a learning program that allows you to earn money while you learn on the job?

An apprenticeship

A 2-year degree that typically takes place after High School. Usually at a Community College or technical school.

Associate’s Degree

A degree that first requires a Bachelor’s Degree that allows learners to focus on a specialty in a certain area.

Master’s Degree

How long is a typical Bachelor’s Degree?

4 years

What program allows learners to pay to focus on acquiring a specific skill while learning hands on?

Trade/Vocational School

Earned Income

Wages, Salaries, and Tips.

Unearned Income

Income that has not been worked for such as interest dividends or gambling winnings.

Payroll Taxes

Taxes that have been withheld from an employee’s wages or salary.

Salary

The fixed rate of pay for a week, month, or year.

Wages

Pay based on the number of hours worked.

What are the 4 common taxes to come out of your payroll?

1. Federal Income Tax

2. State Income Tax

3. Medicare Tax

4. Social Security Tax

Who is considered a dependent on a W4?

You, your spouse, your child.

What government department collects personal income tax?

The IRS (Internal Revenue Service)

True or False: Unearned income is reported on your tax form and taxes must be paid on them

TRUE

What is a bank?

A financial institution licensed to receive deposits and make loans.

The FDIC is…

An independent federal agency insuring deposits in the U.S. banks in the event of a bank failure.

What is a Checking Account?

A deposit account held at a financial institution.

What is a Debit Card?

A payment card that deducts money directly from a consumer’s checking account to pay for the purchase.

What is a Bounced Check?

A check that cannot be processed because the account holder has non-sufficient funds. Banks bounce or return these checks.

Principal

The original sum of money borrowed in a loan or put in an investment.

What is Saving?

The portion of your current income not spent on consumption.