Personal Finance Unit 2

What is a depository institution? Businesses that provide financial services
What are the two main types of depository institutions we discussed in class? Commercial banks and credit unions
What are three characteristics of each type of depository institution? Commercial bank: for profit, open to anyone, offers numerous financial servicesCredit Union: owned by members, have membership qualifications, don’t offer as many services as banks
Who insures each depository institution and for how much? FDIC and NCUA, $250,000
What is interest? the price paid for using someone else’s money
What are the two most common types of savings tools? Checking account and saving account
What are two characteristics of each type of savings tool? Checking: provides and easy method for transferring money, can write checks/use debit card/withdraw cash, not always interestSaving: designed to hold money not currently in usage, access to money is more limited than than checking, has interest
Services offered by depository institutions may offer certain features. List and explain the five features we discussed in class. Online banking (complete online), mobile banking (use an app), debit cards, automated teller machines, contact-less payment (wave card in front of sensor)
List and explain three common fees that a depository institution may charge. Overdraft (draw out more than you own), ATM (charge for using it), and Minimum Balance
List and describe the three ways you can endorse a check. Bank Endorsement: just sign your name, least safe wayRestrictive Endorsement: for deposit only and then sign your name and put account #Endorsement in Full/Special: transferring the money over to another party. Pay to the order of, the other party’s name and then your name
What does reconciling an account mean? Balancing the check register each month with the balance shown on the bank statement
What are taxes? A sum of money demanded by a government to support the government itself as well as specific facilities or services
Define and give an example of each of the following taxes: excise tax, property tax, sales tax, income tax and payroll tax. EXCISE taxes charged on consumption items (gas, hotel rooms) PROPERTY: a tax on property, such as land, buildings (including homes), and motor vehicles SALES: taxes on items purchased in retail stores (clothes) INCOME: tax on earned and unearned income (federal income and state income) PAYROLL: A tax on earned income that supports the Social Security and Medicare programs (also known as FICA)
What does the government use tax money for? Parks, roads, other community things
What is a Statement of Financial Position? What is a Statement of Financial Position?
What is the difference between net worth and income? Net worth is the objective value of worth whereas income is money you actually earn
What is the difference between an asset and a liability? Assets are anything someone owns with monetary value whereas liabilities are something owed to others.
List and describe the three main parts of the Asset section of the Statement of Financial Position. Monetary assets: assets that can be quickly and easily converted into cashTangible assets: personal property that was purchased to create a lifestyle or improve your lifeInvestment assets: assets purchased for the purpose of making more money.
Define market value The price at which an item would sell or trade at the current moment.
What type of items would fall under the Liabilities section of the Statement of Financial Position? Home mortgage, Car payment, Student loans, Credit card balance
What is the difference between a liability and an expense? Liability is money owed to others, expense is money that is spent, but not owed
What is the formula for calculating Net Worth? Assets – Liabilities = Net Worth
How can you increase your Net Worth? By lowering your liabilities & raising your assets
What is an Income and Expense Statement? List/summary of income & expense transactions that have taken place over a period of time
How can an Income and Expense Statement help you manage your money? It lets you know how your money is being spent, how much you are depositing & withdrawing, & how much money you are making.
What are the three main components of and Income and Expense Statement? Income, savings, expenses
List and describe the three sections of the Income component. Earned income, unearned income, received income
What is the difference between gross income and net income? Gross income is your income before withholdings, taxes, ect. Net income is your income after all these deductions.
Define and list examples of expenses. Housing costs, food, entertainment, pet supplies, medicine, personal care items, clothing, savings.
What are three methods you can use to track your expenses? Record in writing, use a smartphone, keep all receipts
What is the difference between a net gain and a net loss? Net gain is when your income is greater than your expenses, net loss is when expenses are greater than your income.
What is a Spending Plan? A document used to record planned and actual income and expenses over a period of time
List four reasons why a Spending Plan an important part of financial planning. Helps you manage money, allows you to take control of your spending, control your financial future, and can help you increase net worth and achieve financial goals.
List and explain the five steps in the Spending Plan Development Process. Track current income & expenses, personalize your spending plan, allocate money to each category, implement and control, and evaluate & make adjustments
What is the difference between contractual and non-contractual expenses? Contractual – requirement to pay for a specific amount of time, not easy to reduce or eliminate. Non-contractual is easy to reduce or eliminate
What are the six main categories of the Spending Plan Guide and what percentage of your income should you allocate to each category? Other = 18%Food = 15%Saving & Investing = 10%Housing = 30%Insurance = 7%Transportation = 20%
List and explain the five types of control systems. Money management computer systems, internet-based spending plan program, Depository Institution programs, check register system and envelope system

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