Untitled Flashcards Set

Savings and Investing

1. What is the opportunity cost of compounding interest in your savings account?

   • The opportunity cost is the potential higher returns you could earn from other investments, like stocks or real estate.

2. Why should you save when you're young?

   • Saving early allows you to take advantage of compound interest, helping your money grow over time.

3. What is the opportunity cost of saving vs. spending?

   • Saving means sacrificing immediate consumption for future security or investment opportunities.

4. Why do people save too little in the U.S.?

   • Reasons include insufficient income, lack of financial literacy, consumer culture, or no structured savings plan.

5. How do stocks make you money? (Two ways)

   • Dividends: Periodic payments from companies to shareholders.

   • Capital Gains: Profit from selling stocks at a higher price than you paid.

6. What is the role of a stockbroker?

   • A stockbroker buys and sells stocks on behalf of clients, guiding investment decisions.

7. What does the SEC do?

   • The Securities and Exchange Commission (SEC) regulates the stock market to protect investors and ensure fairness.

8. What’s the difference between market indicators and security exchanges?

   • Market indicators reflect overall market performance (e.g., Dow Jones, S&P 500).

   • Security exchanges are places where securities are bought and sold (e.g., NYSE, NASDAQ).

9. What are the major stock exchanges (NYSE, AMEX, NASDAQ)?

   • These are major platforms for buying and selling stocks: NYSE (New York Stock Exchange), AMEX (American Stock Exchange), and NASDAQ (National Association of Securities Dealers Automated Quotations).

10. What risks apply to savings/investing? (Financial, Inflation, Market Price, Liquidity)

    • Financial risk: Potential loss of investment.

    • Inflation risk: Loss of purchasing power due to inflation.

    • Market price risk: Fluctuations in asset prices.

    • Liquidity risk: Difficulty in selling an investment quickly.

11. What is the relationship between risk and reward in investing?

    • Higher risk typically offers higher potential reward, while lower risk tends to have more stable, but lower returns.

12. How do you calculate the real rate of return on an investment?

    • Subtract inflation from the nominal return: Real Rate of Return = Nominal Return - Inflation Rate.

13. What does being a shareholder mean in relation to company ownership?

    • As a shareholder, you own a part of the company, and may receive dividends and have voting rights on company decisions.

Credit Scores

1. What impacts your credit score?

   • Payment history, amounts owed, length of credit history, new credit, and types of credit used.

2. Why is your credit score important? What does it affect?

   • It impacts loan approval, interest rates, and the terms of credit (e.g., mortgage rates, car loans).

3. How does your credit score impact loan terms?

   • A higher credit score typically results in better loan terms (lower interest rates, higher approval chances).

Insurance

1. Why buy insurance?

   • Insurance protects you from large financial losses due to unexpected events like accidents, health issues, or property damage.

2. What are a deductible, premium, and co-pay in insurance?

   • Deductible: The amount you pay before insurance starts to cover expenses.

   • Premium: The regular payment you make to maintain insurance.

   • Co-pay: A fixed amount you pay for services, like doctor visits.

3. Can you be over-insured?

   • Yes, if you have too much coverage, you may be paying for unnecessary protection, resulting in wasted money.

Credit Cards

1. What are the benefits and risks of credit cards?

   • Benefits: Convenience, rewards programs, and building credit history.

   • Risks: High-interest rates, accumulating debt, and fees if not managed well.

2. What’s the meaning of annual fee, finance charge, and grace period?

   • Annual Fee: A yearly charge for having a credit card.

   • Finance Charge: Interest charged on balances carried over.

   • Grace Period: A period where no interest is charged if the full balance is paid.

Home Buying

1. What are the types of mortgages?

   • Fixed-rate, adjustable-rate, interest-only, and government-backed loans (FHA, VA, USDA).

2. What is PMI, and when is it required?

   • PMI (Private Mortgage Insurance) is required if you put down less than 20% on a conventional mortgage.

3. What factors impact property taxes and home value?

   • Property location, market demand, and condition of the home affect both taxes and value.

4. Why do you need homeowners insurance?

   • It protects against loss or damage to your home from disasters (e.g., fire, theft, natural disasters).

5. How are mortgage interest rates set?

   • Mortgage interest rates are influenced by market conditions, inflation, and central bank rates.

Economic Terminology

1. What is an economic dilemma caused by scarcity?

   • The dilemma occurs when limited resources must be allocated to meet unlimited wants, forcing choices to be made.

2. What are markets, demand, and supply?

   • Markets: Places where goods and services are exchanged.

   • Demand: The willingness and ability of consumers to buy at various prices.

   • Supply: The quantity of goods and services producers are willing to sell at various prices.

3. What is opportunity cost?

   • The value of the next best alternative that you forgo when making a decision.

4. What is cost-benefit analysis?

   • A process of evaluating the benefits of a decision versus its costs to determine if it's worth pursuing.

5. What are incentives in economics?

   • Incentives are factors that motivate individuals or organizations to take certain actions (e.g., tax breaks to encourage business investment).

6. What is marginal thinking in decision-making?

   • The principle of evaluating whether the benefit of one more unit of something outweighs its cost.