Opportunity Costs |
is what you give up by making a choice |
Trade-Offs |
cannot always be measured in dollars |
Inflation risk |
rising or falling (deflation) prices that cause changes in buying power |
Interest rate risk |
changes in the cost of money which can affect your costs and benefits |
income risk |
result from a loss of a job or encountering illness |
personal risk |
involves tangible and intangible factors that create a less than desirable situation such as health or safety concerns |
liquidity risk |
when savings and investments that have potential for higher earnings are difficult to convert to cash or to sell without significant loss in value |
convenience users |
pay off their balances every month |
borrowers |
do not pay their balances off every month |
grace period |
a time period during which no finance charges will be added to your account |
finance charge |
the total dollar amount paid to use credit |
debit cards |
electronically subtract money from your savings or checking account to pay for goods or services |
store cards- |
using a magnetic stripe technology to store information and track funds |
smart cards |
is a plastic card equipped with a computer chip that can store 500 times as much as a normal credit card |
travel and entertainment cards |
balances are due in full each month unlike credit cards Diners Club and American express |
net worth |
the difference between total assets and total liabilities |
insolvency |
the inability to pay debts when they are due because liabilities far exceed the value of assets |
emergency fund |
an amount of money you can obtain quickly in case of immediate need |
variable interest rate |
based on fluctuating rates in the banking systemm, such as the prime rate |
secured loan |
pledge property or other assests as collateral |
copayment |
a provision under which the insrued pays a flat dollar amount each time a covered medical service is received after the deductible has been met |
comparison shopping |
is the process of considering alternative stores brands and prices |
impulse buying |
is unplanned purchasing which can result in financial problems |
national brand |
are highly advertised items available in many stores |
store brand |
products sold by one chain of stores are low cost alternatives |
unit pricing |
standard unit of measurement to compare the prices of packages of different sizes |
rebate |
is a partial refund of the price of the product |
warranties |
a written guarantee from the manufacturer or distributor of a product that specifies the conditions under which the product can be returned, replaces, or repaired |
service contracts |
an agreement between a business and a consumer to cover the repair costs of a product |
overdraft protection |
is an automatic loan made to checking account customers to cover the amount of checks written in excess of the available |
term insurance |
life insurance protection for a specified period of time; sometimes called temporary life insurance |
renewable term |
the coverage ends at the conclusion of the term but could continue for another term |
multiyear level term |
straight term policy that guarantees that you will pay the same premium for the duration of your policy |
conversion term |
allows you to change from term to permanent coverage, this will have a higher premium |
decreasing term |
pays less to the beneficiary as time passes |
return of premium term |
returns all premiums of you survive to the end of your policy term |
cash value |
the amount received after giving up a life insurance policy |
universal policy |
a whole life policy that combines term insurance and investment elements |
limited payment policy |
charges premiums usually 20 or 30 years until the insured reaches a certain |
variable life policy |
premiums are fixed |
adjustable life policy |
able to change you coverage as your needs change |
group life insurance |
variation of term insurance and covers a large number of people |
credit life insurance |
used to pay off certain debts such as auto loans or mortgages, in the even that you die before they are paid in full |
endowment life insurance |
life insurance that provides coverage for a specific period of time and pays an agreed upon a sum of money to the policy holder of he or she is still living at the end of the endowment period |
actual cash value |
a claim settlement method in which the insured receives payment based on current replacement cost of a damaged or lost item, less depreciation |
replacement value |
a claim settlement method in which the full cost of repairing or replacing a damaged or lost item |
asset allocation |
the prices of spreading your assets among different types of investments to lessen risk |
portfolio investing |
securities in the portfolio |
risk |
chance of uncertainty of loss; also used to mean “the insured” |
peril |
the cause of possible loss |
hazard |
a factor that increases the likelihood of loss through some peril |
personal risks |
loss of income or life due to illness, disability, old age, or unemployment |
property risks |
include losses to property caused by perils such as fire or theft |
liability risks |
involve losses caused by negligence that leads to injury or property damage |
negligence |
is the failure to take ordinary or reasonable care in a situation |
pure risks |
are accidental and unintentional |
speculative risk |
is a risk that carries a chance of either loss or gain |
risk management |
is an organized plan for protecting yourself your family and your property |
self insurance |
is setting up a special fund perhaps from savings to cover the cost of a loss |
deductible |
the set amount that the policy holder must pay per loss on an insurance policy |
appraisal |
an estimate of the current value of property, can provide a good indication of the price you should set |
leasing |
is a contractual agreement with monthly payments for the sue of an automobile over a set time period, typically three, four, or five years |
capitalized cost |
which is the price of the vehicle |
money factor |
which is the interest rate being paid on the capitalized cost |
payments schedule |
which is the amount paid monthly and the number of payments |
residual value |
the expected value of the vehicle at the end of the lease |
negotiation |
may also be used in other buying situations to obtain a lower price or additional features |
sticker price label |
printed on vehicle with the suggested retail price |
invoice price |
the amount less than a sticker price |
set price dealers |
use no haggling car selling with the prices presented to be accepted or rejected as stated |
low balling |
when quoted a very low price that increases when add on costs are included at the last moment |
high balling |
when offered a very high amount for trade in vehicles with the extra amount made up increasing the new car price |
lease |
a legal document that defines the conditions of rental agreement |
security deposit |
usually one months rent |
balance sheet |
a financial statement that reports what an individual or a family owns and owes; also called a net worth statement of financial position |
assets |
cash and other tangible property with monetary |
liquid assets |
cash and items of value can be easily be converted into cash |
real estate |
includes a home a condominium, vacation property, or other land that a person or family owns |
personal possession |
are a major portion of assets for most people |
investment assets |
are funds set aside for long term financial needs |
liabilities |
amounts owed to others |
current liabilities |
debts that must be paid within a short time usually less than a year |
cash flow |
is the actual inflow and outflow of cash during a given time period |
Cash flow statement |
also called a personal income and expenditure |
income |
inflows of cash to an individual or a household |
take home pay |
earnings after deduction for taxes and other items also called disposable income less than 5% for people under 25 and more than 40% for people older |
discretionary income |
money left over after paying for housing, food, and other necessities |
Fixed expenses |
are payments that do not vary from month to month |
variable expenses |
are flexible payments that change from month to month |
savings |
provides safe storage of funds for future use commonly referred to as |
time deposits |
money in savings accounts and certificates of deposit are examples of savings plans |
payment services |
offer an ability to transfer money to others for daily business activities |
demand deposits |
checking accounts and other payment methods |
borrowing |
used by most people at some time during their lives |
trust |
a legal agreement that provides for the management and control of assets by one party for the benefit of another |
asset management account |
all in one account that includes savings checking, borrowing, investing, and other financial services for a single fee |
deposit institutions |
serve as intermediaries between suppliers and users of funds |
commercial banks |
a financial institutions that offers a full range of financial services to individuals, business, and givernment agencies |
saving and loan assistance |
which traditionally specialized in savings accounts and mortgages |
mutual savings banks |
financial institution that is owned by depositors and specializes in saving accounts and mortgage loans |
credit union |
a user owned, non profit, cooperative, financial institutions that is organized for the benefit of its members |
non deposit institutions |
offer various financial services |
money market funds |
a savings investment plan offered by investment companies with earnings based on investment in various short term financial goals |
will |
the legal declaration of a persons mind as to the disposition of his or her property after death |
intestate |
without a valid will |
trust |
a legal arrangement through which ones assets are held by a trustee |
probate |
the legal procedure of providing a valid or invalid will |
holographic will |
is a handwritten will that you prepare yourself |
formal will |
usually prepared with the help of an attorney |
statutory will |
prepared on preprinted from available from lawyers or stationary stores |
executor |
someone willing and able to perform the tasks involved carrying out your will |
guardian |
a person who assumes responsibility for providing children with personal care and managing the decease’s estate for them |
codicil |
a document that modifies provisions in an existing will |
living will |
a document that enables an individual while well to express the intention that life be allowed to end if he or she becomes terminally ill |
power of attorney |
a legal document authorizing someone to act on ones behalf |
revocable trust |
is one in which you have the right to end the trust or change its terms during your lifetime |
irrevocable trust |
is one that cannot be changed or ended |
pension plans |
is a retirement plan that is funded by an employer |
defined contribution |
an individual account of each employee to which the employer contributes a specific amount annually |
401 k |
set aside a portion of your salary from each paycheck to be taken out from your gross pay and placed in a special account |
vesting |
is the right to receive at retirement age, based on your total earnings and years on the job |
individual retirement account |
is a special account in which the person sets aside a portion of income for retirement |
regular IRA |
annual contributions are not tax deductible but the earnings accumulate tax free |
simplified employee pension |
is an IRA funded by an employer |
spousal IRA |
lets you make contributions on behalf of your non working spouse if you file a joint tax return |
roll over IRA |
is a traditional IRA that lets you roll over TRANSFER all all or a portion of your tax deductible distribution from a retirement plan or other IRA |
education IRA |
allows individuals to contribute $2,000 per year toward the education of any child under the age 18 the contributions are not tax deductible |
keogh plan |
a plan in which tax deductible contributions fun the retirement of self employed people and their employees |
tax avoidance |
the use of legitimate methods to reduce ones taxes |
tax evasion |
the use of illegal actions to reduce ones taxes |
capital gains |
profits from the sale of a capital asset such as stocks, bonds, real estate |
income dividends |
are the earning a fund pays to shareholders from its dividend and interest income |
capital gain distributions |
are the payments made to a funds shareholders that result front he sale of securities in the funds portfolio |
capital gain |
the profit that results when you sell your shares in the mutual fund for more than you paid for them |
turnover ratio |
measures the % of f funds holdings that have changed or been replaces |
reinvestment plan |
a service provided by an investment company in which income dividends and capital gain distributions are automatically reinvested to purchase additional shares of the fund |