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Terms in this set (105)financial literacy how well you can understand and use personal finance-related information internal view of the financial world (3) - financial risk tolerance financial knowledge ability to understand personal finance information financial risk tolerance your willingness to engage in financial endeavors that have uncertain outcomes feelings of control reflects the amount of control you feel you have when making financial decisions key actions to be successful financially (4) 1. keep records how many americans do NOT have $1000 set aside for an emergency 65% human capital your ability and willingness to work, learn, earn, and make wise decisions about how to save and invest money social capital how well you are able to form connections with other people what is an indicator of the value of your human capital and is closely related to your level of formal education your earnings investment payback period equation total costs/increase in annual income resources that increase your human capital (4) 1. formal education informal networks interpersonal relationships you form with your family and close friends formal networks connect you with people in professional, recreational, leisure, and social communities risk the uncertainty associated with any physical, social, emotional, environmental, labor market, or financial activity risk-taking doing something that involves the possibility of a gain or a loss how do you accumulate a large amount of wealth? take informed financial risks with savings SMART goal stands for specific goal time horizon the time between creating a goal and achieving it short term goal horizon less than a year long term goal horizon more than a year past-oriented time perspective based on memories; good or bad present oriented time perspective based on hedonistic perspective and fatalistic perspective hedonistic perspective - doing things for pleasure, experience, and excitment fatalistic perspective - unable to visualize a meaningful future (fear based) future oriented time perspective based on calculations of the consequences of actions in terms of a future payoff two ways to increase importance of a goal 1. external factors: money, rewards, sharing goals with others, validation self-efficacy how well you believe you can do something tips on how to improve self-efficacy - break complex foals into objectives and tasks what is essential to achieving goals planning procrastination placing more value on the present at the expense of the future hyperbolic discounting occurs when the value of future benefits is perceived to be lower than that of an alternative available right now heuristics mental shortcuts that help up make decisions instead of laboring over every choice heuristics are... - based on past experiences status quo bais - personal preference for keeping things
the same optimism bias people who think they will rarely, if ever, experience painful losses confirmation bias leads to overconfidence in future decisions loss aversion - not liking to lose 6 steps to using heuristics 1. identify the problem 6 shortcuts to persuasion 1. reciprocity reciprocity obligation to give when you receive scarcity - people want more of what they
cannot have authority people follow the lead of credible, knowledgable people consistency - asking for small commitments at a time liking people say yes to those they like- people who are similar, compliment us, cooperate interior finance your knowledge, attitudes, perceptions, and abilities exterior finance observable actions you take with money and the associated outcomes such as interest price paid for use of money the FDIC and NCUA protect your deposit up to... $250,000 APR - annual percentage rate APY -
annual percentage yield advantages of patient planning - some financial accounts have early withdrawal penalties how to determine the amount of time needed to double your money 72 / interest rate future value of a lump sum FV = PV(1 + I)^N net worth assets - liabilities current ratio - proportion of current assets to current liabilities debt ratio total liabilities/ total assets how to make a personal budget 1. use SMART goal approach budget a financial tool that helps to regulate how quickly and in what ways your money is going to be used 3 sections of a budget 1. income savings ratio savings/income emergency fund ratio monetary
assets/necessary expenses total debt-to-income ratio total debt payments/total income consumer debt to income ratio consumer debt payments/ total income 6 steps to create a financial plan 1. set a financial goal how do you accumulate wealth? - generate a surplus how to calculate wealth income - living expenses why is incurring a deficit bad? 1. overspending leads to more borrowing targeted savings ratio savings/income payroll deduction when an employer takes money automatically from paycheck and contributes it directly to a retirement fund or other account save more tomorrow idea of putting half of every future raise towards savings income ALL sources of money obtained by individuals and households and come include allowances, public assistance, interest, dividends, and social security earnings compensation received for services performed for an employer wage what an employer pays employee; usually hourly salary payment for work for a set period of time; usually annual amount commission payment based on sale of product or service bonus an extra payment usually based on performance overtime - working more than 40 hours in a week self-employed can also be... independent contractors advantages of self-employment 1. can set own work hours sole proprietorship advantages and disadvantages - business owned by one person general partnerships - decision making is by majority limited partnerships general partner manages the business and one more more limited partners invest money limited liability partnerships partners are not liable for actions of other partners but are liable for general obligations of the business limited liability companies (LLCs) - shields personal assets of owners from liabilities of the business corporations another way to avoid being personally responsible for the liabilities of a business, but is more expensive and you are kind of taxed twice
what is a corporation? a legal structure that is separate from the owners of the business earned income - money from work through the labor market unearned income - money from non-labor sources you make money 4 ways: 1. employment objective risk can be measured using probabilties subjective risk refers to personally developed probabilities based on expectations, fears, or worry capital asset - almost everything you own use for personal of investment purposes capital gain selling asset for more than you paid capital loss selling asset for less than you paid how to calculate capital gains selling price - basis - selling costs % rate increase capital gain/basis unemployed benefits - cash payments made to individuals due to no fault of
their own medicaid low income medicare elderly supplemental nutrition assistance program (SNAP) food stamps temporary assistance for needy families (TANF) provides supplemental income to very low-income, unemployed households, typically with children grant - provides financial aid typically for education finances social security - based on earnings history what funds social security - employee contributions Students also viewedFHCE 3200 exam 1 Study Guide95 terms sharzildhananiPlus Personal Finance 3200, Units 1-430 terms hutchc FIN20 terms elang0721 FHCE Ch.133 terms Jordan_Harris550 Other sets by this creatorDENT 511: Radiographic Images Revised181 terms jordantmcnallyPlus DENT 511 Radiology Final303 terms jordantmcnallyPlus DENT 511 Final- Radiographic Images181 terms jordantmcnallyPlus DENT 501 Final- Craniofacial Development198 terms jordantmcnallyPlus Other Quizlet setsAccounting42 terms Carmen_Abello Elders questions36 terms annacarlson5695 my lab ch 1321 terms morganstumpe Problems in Policing By Ross, Jeffrey Ian Ch 4-649 terms Molly_McInnnis What is said to occur when the value of future benefits is perceived?The principle of anticipation states that value is created by the anticipation of future benefits, which leads in fact to one definition of value as the present worth of future benefits.
Which of the following happens when you sell an asset for less than you paid for it?If you sell an investment asset for less than its cost basis, you have a capital loss. Capital losses from investments—but not from the sale of personal property—can typically be used to offset capital gains.
Which of the following refers to your willingness to engage in financial endeavors that have uncertain outcomes?Financial risk tolerance is your willingness to engage in financial endeavors that have uncertain outcomes. Feelings of control reflects the amount of control you feel you have when making financial decisions.
Which of the following refers to placing more value on the present at the expense of the future quizlet?Procrastination means: placing more value on the present at the expense of the future. Most people dislike losing, especially money. In other words, people tend to be loss-averse.
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What is said to occur when the value of future benefits is perceived to be lower than that of an alternative available right now quizlet?
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