financial literacy

Introduction to Economics

Trade offs- when you do one thing at the expense of another 

Scarcity - lack of resources that are needed (land, labor, capital) 

Wants and Needs - Wants are things that we desire to have while needs are things that are necessary for living 

Entrepreneur - a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so 

Importance of competition - it drives economic growth in the Stock Market, leads to innovation, drives prices down

Opportunity cost- value placed on the next best alternative 

Factors of production - the factors or inputs needed to create a good or service  (land, labor, capital (human and physical)

Profit incentive- the motivation for businesses and individuals to earn profit, which is the money made above all expenses 

Investing

Rule of 72: The Rule of 72 is a quick formula used in investing to estimate how long it will take for an investment to double in value, given a fixed annual rate of return. 

Compound Interest (how to calculate it)- interest accumulated from a principal sum and previously accumulated interest

Ex-Dividend → the day when a stock starts trading without the upcoming dividend. In order to receive the dividend, you must own the stock before the ex-dividend date

Investment analysis: things to consider - look at the graph (is it going up and to the right?), EPS growth, P/E ratios as it compares to its peers and 5/10 year averages, does the stock give a dividend? What does the business do? Does it do something that no one else in the market can do?

Volume → how many shares of stocks have been traded that day 

Diversification: Diversification is an investment strategy that spreads your money across different assets so that you’re not relying on just one investment to perform well. The goal is to reduce risk and make your portfolio more stable over time. 

Bonds - a loan you make to an entity, like a government or cooperation, for a set period. In return, the issuer pays regular interest payments and eventually repays the original loan amount on a specific date 

Risk vs. Reward - 

Risk - the possibility of an investment not performing as expected, including the potential loss of some or all of your money

Reward - the potential profit or return an investor can expect to gain from an investment, usually in the form of capital appreciation or dividends. 

Mutual funds → a collection of money from investors that is used to buy stocks or bonds 

Volatility - degree of trading prices over time which demonstrates how quick an asset's prices will change. 

Budgeting and Insurance

Importance of a budget - so that you don’t spend too much money on one thing and go broke 

Health insurance premiums - the monthly amount you pay for your health insurance coverage.

Renters insurance- Renters insurance is an affordable policy that provides financial protection for tenants, covering their personal belongings, liability claims, and additional living expenses if the rented property becomes uninhabitable. 

Disability insurance: Disability Insurance is the lost wages if you are unable to work 

Emergency fund: This is money that you should put aside in case of emergencies which should last you for about 3-6 months. 

Liability: Liability is a type of coverage under auto insurance and describes the damages that you cause 

Fixed expenses-the motivation for businesses and individuals to earn profit, which is the money made above all expenses 

Auto insurance → insurance for your automobile - 5 types: liability, collision, comprehensive, person injury protection, uninsured/overinsured motorist coverage 

Managing debt responsibly - 

Banks, Loans and Credit Scores

Balancing a checkbook →making sure that your records match the statement issued by the bank 

Mortgages: The money a person owes on their house. 1.) fixed rate mortgage: locks in interest rate. 2.) Adjustable mortgage rate: when the mortgage's interest rate can fluctuate which is based on the economy.  

FDIC (Federal Depository Insurance Corporation) - insures banks up to $250,000

P2P payment features - sending and receiving money to and from trusted people rather than establishments, beneficial for paying someone back 

Interest →a charge placed on money you borrow 

Secured loan- A loan that has collateral attached to it, meaning that if you fail to pay back your loan, the bank can repossess that item 

Credit scores - a measure of how likely you are to pay a debt/loan 

Annual Percentage Rate (APR) → the yearly cost of borrowing money, a higher APR means the more expensive the loan is 

Certificate of Deposit (CD)- a savings account with a fixed interest rate 

Defaulting on a loan consequence → damage your credit, bankruptcy declaration, being sued by your creditors

Building a credit history → start with a secured credit card or be a co-signer on someone else’s card

Savings- saving for future expenses 

Good and bad reasons to take out a loan → good reasons: debt consolidation, education expenses, home and car ownership. Bad reasons: borrowing to take a vacation, spending beyond your means

Secured credit card - a secured credit card is a credit card that has collateral on it through cash deposits. 

Taxes and Paying for College

Subsidized and Unsubsidized loans→ a subsidized loan is a loan that the government pays interest on while you are in school. Unsubsidized loan is when you have to pay the interest that your loan gained after college. 

Discretionary spending- money you can choose how to spend; the opposite of mandatory spending 

Borrowing for college →federal student loans and private student loans. Subsidized loans: Gov’t pays the interest on the loan while you are in college; unsubsidized loans: you are responsible to pay the interest on the loan while you are in college.

Earned income → money you have earned from your job before taxes are taken out 

Form W-4- The form filled out when starting a new job, information about yourself and your family, determines how much money gets taken out of each paycheck. 

Progressive Tax→ a progressive tax is a tax that regardless of your level of income everyone pays the same rate 

Regressive Tax→ a regressive tax is a tax that the more you make the less you pay 

Proportional tax - everyone pays the same rate of taxation 

Ability to pay principle-those who have money should pay more than those who don't.

Benefits received principle- if you benefit from it you shouldn't pay for it.

Net cost of college - this is the actual amount of money you have to pay for college after scholarships, FAFSA, grants, and any other aid given to you. Formula: Sticker price - grants and scholarships = Net price.