Economics Personal Finance Test

Checking Account A bank account where money can be withdrawn or deposited at any time.
Savings Account A bank account used to keep money for a long period of time that gains interest.
Certificate Deposit Stating money has been deposited for a specific time
Bonds Certificates of debt that carry a promise to buy back the bonds at a higher price
Stocks shares of ownership in a company
Federal Deposit Insurance Corporation the government agency that insures customer deposits if a bank fails
Principal The money originally invested or loaned, on which basis interest and returns are calculated
Annual Percentage Rate – The rate you pay on your debts- The percent rate does not consider the effects of compounding- However, the money is still compounded
Annual Percentage Yield – Yield you get on your savings/investments- Takes into consideration the effects of compounding
Stafford and Perkins Loans – Subsidized Loans: Government Pays Interest While in College- Unsubsidized Loans: Interests Accumulates While in School
Standard Repayment – Usually pay back within 10 years with a fixed payment each month
Loan Fee – Upfront cost of taking out a loan, usually 1-4% of the principal
Income Based Repayment – A series of plans that allows you to pay different amounts each year of your income, usually 10-15% of your yearly income
Student Loan Forgiveness – After 10 years at a nonprofit or 20 years for everyone else
Amortization – Table summarizing debt decrease
Negative Amortization – Monthly payments do not cover monthly accrued interest
Federal Direct Student Loan Program Federally sponsored loan programs, which include the Stafford Loan and Parent PLUS Loan.
Subsidized Loans – Government pays the interest on the loan
Unsubsidized Loans – $3500 subsidized, $5500-7500 total
Insurance Premium The payment to an insurance company by a policyholder to purchase and maintain an insurance policy.
Deductible Amount you must pay before you begin receiving any benefits from your insurance company
Liability A debt; something disadvantageous
Collision Insurance Provides coverage for damages sustained by your vehicle
Comprehensive Insurance covers your car for reasons other than a collision, such as theft, fire, vandalism
Term Insurance Life insurance coverage for a specified period of time, less expensive than whole
Coinsurance – The percentage of health services you are requited to pay for, the insurance company will cover the rest
Copay – A required payment for medical services set by a beneficiary before insurance starts to kick in
Credit Score a number assigned to a person that indicates to lenders their capacity to repay a loan.
Pension A sum of money paid regularly as a retirement benefit; money paid under given conditions to a person following retirement or to surviving dependents.
Defined Benefit Plan A pension plan in which the amount of benefits paid to an employee after retirement is fixed in advance in accordance with a formula given in the plan.
Defined Contribution Plan A pension plan wherein a certain amount or percentage of money is set aside each year (by either the company and/or the employee) for the benefit of the employee. There are restrictions as to when and how you can withdraw these funds without penalties.
401(k) A type of defined contribution retirement account funded through pre-tax payroll deductions. The funds in the account can be invested in a number of different stocks, bonds, mutual funds or other assets, and are not taxed until they are withdrawn. The retirement savings vehicle gets its name from the section of the Internal Revenue Code that describes it: Section 401(k).
Health Benefits Benefits (compensation in addition to salary) that may be provided to employees for sickness, accidental injury, or accidental death. These benefits generally include payment of hospital and medical expenses. Employers are not obligated to provide health benefits to their workers. When employers do not provide health benefits, increasing numbers of people either cannot afford or choose not to purchase them.
Social Security A federal benefits program developed in 1935, Social Security is funded through a tax levied on employers and employees. The program includes retirement benefits, disability income, veteran’s pension, public housing, and even the food stamp program.
Medicare A federal program that provides some level of health benefits for people over age 65 or who collect Social Security for disability.
IRA A special type of account that allows investors to make tax-deductible contributions. The money can be invested in stocks, bonds, mutual funds, etc., and the earnings grow tax-free until the account’s owner turns 59 1/2 years old. At this time, the account holder is allowed to begin withdrawing money from the account to fund their retirement.
Roth IRA Roth IRAs allow investors who do not exceed a specific income level to contribute a limited amount of money toward retirement annually. Unlike the traditional IRA, the contributions are not tax deductible. However, Roth IRA account holders are not taxed when they begin withdrawing money at or before retirement (subject to certain rules and regulation.

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