FBLA Personal Finance Study Guide

1. Banking & Financial Institutions

• Federal Deposit Insurance Corporation (FDIC) – A U.S. government agency that insures deposits at banks and savings institutions up to a certain amount (typically $250,000 per depositor).

• National Credit Union Administration (NCUA) – Provides insurance to credit unions, similar to the FDIC.

• Commercial Bank – A for-profit financial institution that provides services such as savings accounts, checking accounts, loans, and credit cards.

• Credit Union – A nonprofit financial institution owned by its members, often offering lower interest rates on loans and higher interest rates on savings accounts.

• Annual Percentage Rate (APR) – The total cost of borrowing money, including interest and fees, expressed as a yearly percentage.

• Certificate of Deposit (CD) – A savings instrument with a fixed interest rate and a set maturity date, typically offering higher interest rates than regular savings accounts.

• Money Market Account – A type of savings account that offers higher interest rates but may require higher minimum balances and limit withdrawals.

• Overdraft Fee – A fee charged when an account holder withdraws more money than is available in their bank account.

2. Credit & Debt

• Credit Score – A numerical representation of a person’s creditworthiness, usually ranging from 300-850. A higher score indicates better credit.

• Credit Report – A detailed history of an individual’s credit usage, including loans, credit cards, and payment history, issued by credit bureaus (Experian, Equifax, TransUnion).

• Debt-to-Income Ratio (DTI) – A measure of a person’s debt obligations compared to their income; used by lenders to assess financial stability.

• Secured Loan – A loan backed by collateral (e.g., a car or house). If the borrower fails to repay, the lender can seize the collateral.

• Unsecured Loan – A loan that does not require collateral; approval is based on creditworthiness (e.g., credit cards, student loans).

• Minimum Payment – The lowest amount a borrower can pay on a credit card bill without facing penalties or additional interest.

• Predatory Lending – Unethical lending practices that exploit borrowers, often involving extremely high interest rates or hidden fees (e.g., payday loans).

• Credit Freeze – A security measure that restricts access to a person’s credit report, preventing identity thieves from opening new accounts in their name.

3. Investing & Retirement

• Stock – A type of investment that represents ownership in a company. Shareholders may earn dividends and benefit from stock price increases.

• Bond – A fixed-income investment where an investor loans money to a company or government in exchange for periodic interest payments and the return of principal at maturity.

• Mutual Fund – A pooled investment managed by professionals that spreads risk by investing in a variety of stocks, bonds, or other securities.

• Diversification – The practice of spreading investments across different asset types to reduce risk.

• Roth IRA – A retirement savings account where contributions are made with after-tax dollars, and withdrawals (including earnings) are tax-free after retirement.

• Traditional IRA – A retirement savings account where contributions may be tax-deductible, but withdrawals are taxed as income during retirement.

• 401(k) Plan – An employer-sponsored retirement savings plan with tax advantages. Employers may offer matching contributions.

• Compound Interest – Interest earned on both the initial principal and any accumulated interest. The formula is:

where is the final amount, is the principal, is the annual interest rate, is the number of times interest is compounded per year, and is the number of years.

4. Budgeting & Financial Planning

• Fixed Expense – A recurring expense that remains the same each month (e.g., rent, car payment, insurance).

• Variable Expense – An expense that changes from month to month (e.g., groceries, gas, entertainment).

• Discretionary Expense – A non-essential expense that can be adjusted (e.g., eating out, subscriptions, travel).

• 50/30/20 Rule – A budgeting guideline suggesting 50% of income should go to needs, 30% to wants, and 20% to savings and debt repayment.

• Emergency Fund – A savings account set aside for unexpected expenses (e.g., medical bills, job loss, car repairs); recommended to cover 3-6 months’ worth of expenses.

5. Taxes

• Income Tax – A tax on earnings from wages, salaries, and investments.

• Sales Tax – A tax on goods and services at the point of sale.

• Property Tax – A tax levied on real estate by local governments.

• Excise Tax – A tax on specific goods (e.g., gasoline, tobacco, alcohol).

• Tax Deduction – An expense that reduces taxable income (e.g., mortgage interest, student loan interest).

• Tax Credit – A direct reduction of the amount of tax owed (e.g., Child Tax Credit, Earned Income Tax Credit).

• 529 Plan – A tax-advantaged savings plan designed to encourage saving for future education costs.

6. Insurance

• Premium – The amount paid for an insurance policy, typically monthly or annually.

• Deductible – The amount a policyholder must pay out of pocket before insurance covers the remaining costs.

• Health Insurance – Coverage that pays for medical expenses. May include HMOs, PPOs, and high-deductible plans.

• Auto Insurance – Protects against financial loss due to accidents, theft, or damage. Includes liability, collision, and comprehensive coverage.

• Disability Insurance – Provides income protection if an individual cannot work due to injury or illness.

• Life Insurance – Provides a lump sum payment to beneficiaries upon the policyholder’s death.

7. Consumer Protection & Fraud Prevention

• Federal Trade Commission (FTC) – The U.S. agency responsible for consumer protection and preventing fraudulent business practices.

• Equal Credit Opportunity Act (ECOA) – Prohibits discrimination in lending based on race, gender, religion, national origin, marital status, or age.

• Fair Credit Reporting Act (FCRA) – Ensures accuracy, fairness, and privacy of credit reports.

• Identity Theft – When someone illegally uses another person’s financial information for fraudulent activities.

• Phishing – A scam in which fraudsters use fake emails or messages to trick individuals into revealing personal information.

• Credit Monitoring – A service that alerts consumers of changes in their credit report to help prevent identity theft.