Personal Financial Literacy
Consumer – Someone who buys a product or service
Income – The money you receive from all sources: Salary/wages, rent, interest, dividends, investment returns, insurance payments, government transfer payments (Social Security, welfare, food stamps, medicare, etc.)
Disposable Income – The money left over after all taxes have been paid.
Discretionary Income – The money left over after paying taxes and necessities
Consumer Rights and Responsibilities
Consumer Bill of Rights – 1. The right to a safe product
2. The right to be informed
3. The right to choose
4. The right to be heard
5. The right to redress
Comparison Shopping - Gather information, use advertising, avoid emotional decisions, decide where to buy, use a cost-benefit analysis, consider alternatives.
Report Faulty Products or Services – Report problems immediately, do not fix the product yourself, check the warranty, contact the seller and/or the manufacturer, keep accurate records, be polite and professional seek a solution not a confrontation
Budgets and Planning
Budget – an accurate record of the money you earn and spend. A plan to match your expenses with your income.
Income - The money you earn
Expenses – The money you spend
Budget Planning – Make a list of all the money you spend in a specified period like a month. Categorize the spending into sections like rent, food, utilities, clothing, transportation, entertainment, personal items, donations, gifts and savings.
Record all the income you receive from all sources during the same period. Analyze the data and make decisions – do you need more income? Can you work extra hours or get a second job? Can you reduce or eliminate any expenses? Differentiate between needs and wants.
Set Goals – Set short term, medium term and long term goals. Use your budget to make a plan to achieve those goals. Make spending changes as necessary.
Credit
Credit – Borrowing money to pay for something now while promising to repay it later.
Lender – The person who loans the money
Borrower – The person who receives the loaned money
Annual Percentage Rate (APR)- The cost or interest rate of the loan
Collateral – Property such as a house or car that a borrower pledges as security for a loan
Sources of Credit – Banks, Credit Unions, Finance companies. Credit Cards.
Uses of Credit – Large purchases like a house, a car, furniture, appliances, consumer goods.
Managing Credit – Pay off debt as quickly as possible. Pay off entire bill immediately, if possible. If not, make regular monthly payments. Do not skip a payment. Pay as much as possible. Paying the minimum on high interest loans and credit cards can double or triple or more the cost of the goods purchased.
Bankruptcy – a legal judgement against you for failure to pay your debts. This judgement can remain on your credit rating for 7-10 years making it impossible for you to get a loan or credit for anything.
Savings and Investing
Saving – to put money aside to use later.
Savings Account – putting funds in an interest bearing instrument at a bank or similar financial institution
Interest – the payment received for lending money
Principal – the amount of money you deposit in a savings account or borrow in a loan.
Checking Account – type of bank account that lets you deposit funds and write checks against the deposits. These accounts usually do not pay interest and charge small fees.
Check – a legal instrument that is used for payment of debt.
Return – profit earned from investment
Stock – certificates that represent partial ownership of a company.
Dividend- a portion of the company earnings
Bond – a loan to a company or government.
Corporate Bond - The company pays the bondholder interest but the bondholder does not own a piece of the company like stock.
Government Bond – Government borrowing money from the people to pay for its expenses.
Mutual Funds – Pools of stocks and bonds that people can invest in instead of individual stocks and bonds thereby reducing the risk involved in purchasing individual stocks and bonds.
1. ___________ is the cost of credit expressed as a percentage of the amount borrowed.
2. A _________________ judgement remains on a person’s credit rating for at least seven years making it almost impossible to get a loan.
3. Comparison shopping means that a consumer should consider ____________________ in addition to the one product that attracts them.
4. The money you put into your savings account is called the ______________________.
5. The bank adds _________________ to the money you deposited in your savings account.
6. Some companies pay stockholders _______________________ based on the number of shares they hold.
7. The Fair Packaging and Labeling Act is an example of protection under the ________________________________
8. To avoid paying interest on a credit card, a consumer should _______________________ in full.
9. Compared to stocks, mutual funds are considered a _________ risky investment.
10. Savings benefits both __________________ and _____________________.
11. In order to best manage your money, it is a good idea to create a financial plan or ____________.
12. A budget or financial plan should include all your ___________ and __________________ over a specified period of time, like a month.
13. Use a budget to help you reach your financial _______________.
14. When you analyze the data in your budget, you can decide to _________________ what you earn or what you spend.
15. A ___________ is a legal document that you use to pay your bills instead of cash.