Financial Literacy Review

Discounts and Percentages

• What is a percent?
  A portion of the total.

• How do you convert fractions to percentages?
  Convert the fraction to a decimal and 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 all represent the same proportional relationship in different ways.

• What is a ratio (proportion)?
  A comparison of two quantities.

• How do you calculate the percentage of a given amount?
  Use the formula: $( ext{Part} / ext{Whole}) imes 100$

• Why are wholesale and retail discounts offered?
  To incentivize bulk purchases and clear inventory.

• How are increased sales related to discounts?
  Discounts can stimulate demand, leading to higher sales volumes.

• What is a seasonal discount?
  A discount offered during a specific time of the year.

• Difference between trade and cash discounts:

  • Trade discounts are offered to businesses in the same trade.
  • Cash discounts are offered for early payment.

• Terms for early payment discounts:
  For example, "2/10, n/30" means a 2% discount if paid within 10 days, with the net amount due in 30 days.

• What is a trade discount?
  A discount offered to businesses in the same trade.

• Relationship between discounts and consumer action:
  Discounts often motivate consumers to make purchases.

Savings

• Consumer choices for saving:
  Savings accounts, money market accounts, certificates of deposit (CDs).

• Saving vs investing:
  Saving is setting aside money for future use, while investing seeks a return on that money.

• What is the time value of money?
  The principle that money available today is worth more than the same amount in the future due to its potential earning capacity.

• Rule of 72:
  $ext{Years} = \frac{72}{\text{InterestRate}}$
  Used to estimate how long it will take for an investment to double.

• What is financial liquidity?
  The ease of converting an asset into cash without affecting its market price.

• Discipline of saving:
  Consistently setting aside income while avoiding unnecessary spending.

• What are insured savings accounts?
  Accounts that are protected by insurance (like FDIC insurance).

Checking Accounts

• Benefits of a checking account:
  Convenient management of funds, paying bills, making transactions.

• How to open a checking account:
  Provide ID, fill an application, and deposit funds.

• Advantages of online banking:
  Convenience and accessibility – Disadvantages: security risks and potential technical issues.

• Types of check endorsements:
  Blank, restrictive, and special endorsements.

• What is overdraft protection?
  Covers transactions when insufficient funds are available.

• Reconciliation of a bank statement:
  Comparing the statement to personal records and resolving discrepancies.

• What is the FDIC?
  The Federal Deposit Insurance Corporation insuring bank deposits.

• Difference between debit and credit cards:
  Debit cards use bank funds directly; credit cards allow borrowing money.

• Managing a check register:
  Important for tracking transactions and maintaining account accuracy.

• Direct deposit:
  Electronic transfer of payments into bank accounts for faster access.

• Checking account routing number:
  Unique code identifying the bank.

Decision Making

• Maslow’s Hierarchy of Needs & financial decisions:
  Prioritizes needs before wants.

• Data gathering for financial decisions:
  Research options and seek advice.

• Determining possible outcomes:
  Evaluate potential risks and rewards of options.

• Steps in decision making:
  Identify problem, gather info, evaluate alternatives, make a decision, review.

• Impact of changing financial situations on decisions:
  Require adjusting plans.

• Long-term vs short-term goals on decision making:
  Long-term requires planning; short-term may involve immediate spending.

• Rational vs emotional decision making:
  Rational is logic-based, emotional is impulse-driven.

• Time for financial decisions:
  Important to allow for thorough research.

• Unexpected events and decision making:
  May require adjustments in financial plans.

• System of prioritization in decisions:
  Allocate resources to the most important needs first.

• Large purchases vs daily decisions:
  Large requires more planning; daily is routine.

• Distinction between wants and needs:
  Needs are essential; wants are optional.

• Choosing the best financial planner:
  Consider qualifications and fees.

• Importance of budgeting:
  Helps track income/expenses, set goals, and make informed decisions.

Taxes

• Types of taxes:
  Income tax, property tax, sales tax, excise tax.

• Use of taxes to influence business:
  Tax incentives encourage activities; high taxes may discourage them.

• Government use of taxes:
  Fund public goods/services like infrastructure and education.

• Role of property taxes:
  Taxes on real estate/property used for funding.

• Public goods:
  Provided by government, funded by tax dollars.

• Role of the IRS:
  Administers and enforces federal tax laws.

• Progressive income tax:
  Rate increases with taxable amount.

• Sales taxes:
  Fund state/local government programs.

• Tax filing deadline:
  April 15th.

Investing

• Types of investments:
  Stocks, bonds, real estate, mutual funds.

• Investment risks:
  Market risk, credit risk, liquidity risk.

• Investment liquidity:
  Ease of converting into cash without loss.

• Buying/selling investments:
  Through brokers or online platforms.

• Risk vs rate of return:
  Higher risk can lead to greater potential returns but more loss risk.

• Regulatory agencies:
  Securities and Exchange Commission (SEC) protects investors.

• Types of stocks:
  Common and preferred stocks.

• What are bonds?
  Debt instruments paying interest to investors.

• Real estate as an investment:
  Generates rental income, appreciates over time.

• Speculative investments:
  High-risk with potential for significant returns/losses.

Budgeting

• What is a budget?
  A financial plan for managing income/expenses; vital for future planning.

• Fixed vs variable (flexible) expenses:
  Fixed are consistent, while variable can fluctuate.

• Active vs passive income:
  Active is from work; passive is from investments.

• Category of a budget:
  Income, expenses, savings.

• Percentage of income for savings:
  Essential for building wealth/security.

• Opportunity cost:
  Value of the next best alternative forgone.

• Depreciation definition:
  Decrease in asset value over time.

• First step in budgeting:
  Monitoring and categorizing spending.

Insurance

• What is insurance?
  Contract protecting against financial loss.

• Role of insurance agent:
  Sell policies and provide advice.

• What is an insurance policy?
  Contract outlining terms of coverage.

• Need for health insurance:
  Covers medical expenses.

• Who is a beneficiary?
  Person/entity receiving benefits from a policy.

• Life insurance concept:
  Financial protection for beneficiaries after the insured's death.

• Need for liability insurance:
  Protects against losses from legal claims.

• Homeowner’s vs renter’s insurance:
  Homeowner’s covers property; renter’s covers personal items in rentals.

• Insurance deductible:
  Amount paid before insurer covers claims.

Consumer Awareness

• Consumer Bill of Rights:
  Right to safety, informed choice, redress, and consumer education.

• Consumer awareness & purchase decisions:
  Informed choices reduce scams.

• Responsibilities of consumer awareness:
  Stay informed, use products correctly, speak against wrongdoing.

• Importance of Consumer Reports:
  Offers valuable product info.

• What are product recalls?
  Market removal of unsafe products.

• Importance of reading product labels:
  Make informed choices and avoid hazards

• Comparison shopping importance:
  Find best values and avoid overspending.

Credit Cards

• Definition of credit:
  Borrowing money to repay later, used for significant purchases.

• Appropriate credit use:
  For planned expenses where more practical than cash.

• C’s of credit:
  Character, cash flow, capacity, collateral, capital, conditions – factors for creditworthiness.

• Dangers of excessive credit use:
  Accumulating debt and damaging credit scores.

• Impact of credit on life:
  Affects loan ability, renting, job opportunities.

• Types of financial credit:
  Installment, non-installment, revolving, mortgage, line of credit.

• Higher interest rates for high-risk consumers:
  Due to increased default risk.

• Major credit reporting agencies:
  Experian, Equifax, TransUnion.

• Secured vs unsecured loans:
  Secured have collateral; unsecured do not.

Return on Investment

• Definition:
  Asset aimed at income or appreciation; percentage gain/loss on investment.

• Financial portfolio:
  Collection of investments held.

• Calculating rate of return:
  $(\text{Rate of Return} = \frac{\text{Dollar Increase}}{\text{Original Investment}})$

• Importance of time in investments:
  Allows for growth and compounding.

• Importance of diversification:
  Reduces risk by spreading investments.

• Relationship of risk and return:
  High-risk can lead to higher losses or gains.

• Investment in stock market:
  Buying/selling shares in companies.

• Economic impact on stock market:
  News influences investor sentiment.

Identity Theft

• Definition of identity theft:
  Fraudulent acquisition/use of personal information.

• Types of identity theft:
  Medical, criminal, financial, child identity.

• Increase due to technology:
  Offers more access for criminals.

• Protection systems from identity theft:
  Credit monitoring, fraud alerts, strong passwords.

• Vulnerable populations:
  Targeted groups, e.g., elderly.

• Avoiding identity theft:
  Shred documents, use strong passwords.

• Definition of credit card fraud:
  Unauthorized credit card use.