Henning 2012-13
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Financial Literacy Final Exam Study Guide
Chapter 1
1. What affect does education have on your earnings? What else can affect income?
a. More education means more money
b. Also, natural talent and hard/soft skills affect income
2. What are some ways you can pay for college?
a. Student Loans, Grants, Scholarships
b. Grants and Scholarships are NOT loans, they do not have to be paid back
3. What details are included in job descriptions?
a. Education, skills, work environment, tasks to be performed
b. Salary is NOT usually mentioned in a job description
4. What are the college degrees we discussed?
a. Associates, Bachelors, Masters, Doctorate
b. Doctorate is the highest level of education
5. How are subsidized and unsubsidized loans different?
a. Subsidized do not accrue interest while you are still in school
b. Unsubsidized begin accruing interest as soon as taken out
6. What do you call a thank you letter to a potential employer and when should you
send it?
a. Called a follow up
b. Send shortly after the interview
7. Define job shadowing.
a. Following someone around to see how they do their job
8. Name some good advice for resumes:
a. Have a master and tailor it specifically for each job prospect – proofread!
b. Keep it simple and attractive – easy to read – no fancy fonts, etc.
c. Keep it to one page with most important info on top 1/3 of page
9. Name some good advice for job interviews:
a. Rehearse open-ended questions to be able to talk about yourself when asked
b. Speak slowly and clearly, do not rush
c. Be on time or a bit early and know something about the company
Chapter 2
1. How are salaried and wage workers different?
a. Salaried get no overtime, no time card
b. Hourly wage employees punch a time clock, get paid overtime over 40 hours
2. Why is a 401k a good way to save for retirement?
a. No taxes until withdrawn
b. Reduces taxable income amount now
Henning 2012-13
3. What the two types of businesses for entrepreneurs and describe them?
a. Venture business– starts small but designed for expansion and unlimited
growth
b. Lifestyle business- designed to stay small and local, usually is owner’s hobby
4. List some “Perks” an employee may get along with salary and benefits in their job?
a. Perks – car, phone, parking spot, office with a view, coffee station
5. How much is overtime pay?
a. 1 ½ times regular hourly rate
6. How is net pay calculated?
a. Gross income – deductions (taxes, insurance, retirement fund IRA)
7. What kind of tax is a progressive tax? (i.e. Tax increases as amount gets higher)
a. Federal Income tax
8. What is “pay without work” and list some examples:
a. Definition: when an employee who is not working is being paid
b. Examples: Paid vacations, holidays, sick days
9. Define benefits:
a. Benefits are forms of pay other than salary or wages – such as health
insurance paid by company, paid time off, profit sharing
Chapter 3
1. Explain purchasing power. What makes it go up?
a. One’s ability to buy. Purchasing power goes up with merit raises (or when
utilizing credit)
2. What does COLA stand for? Does it give you more purchasing power?
a. Cost of Living Adjustment
b. No, it just keeps you equal with inflation % - no increase in purchasing power
3. Is inflation always bad? Explain.
a. No, 2 or 3 percent is good for economy to keep it thriving
4. What are reflation, deflation, and hyperinflation?
a. Reflation prices fluxuate -go up and down, example: gas prices
b. Deflation things get cheaper,
c. Hyperinflation is extreme inflation – over 50%.
5. How is inflation measured?
a. CPI – Consumer Price Index
6. Name and describe the 3 types of buying strategies (good and bad)?
a. Emotional buying – desire rather than logic
b. Impulse buying – spur of the moment
c. Rational buying – acting in own best self-interests by economizing and
optimizing
7. Define the time value of money:
a. Concept that says a dollar you receive in future will be worth less than a dollar
you receive today.(Ex: $100 of groceries today is not as much as it was a year ago)
8. What agency is the clearinghouse for handling complaints on identity theft?
Answer: Federal Trade Commission (FTC)
Henning 2012-13
9. What is the federal agency that enforces laws to prevent selling of mislabeled foods,
drugs, cosmetics and medical devices? Answer: FDA (Food and Drug Administration)
Chapter 4
1. What is a liability and name some examples?
a. Money that is owed, such as rent, car payment and credit card debt
2. Needs and wants are _unlimited, but resources are limited. So consumers must
choose wisely.
3. How is net worth calculated?
a. Assets – Liabilities = Net Worth
4. What is a benchmark in long-term goal setting?
a. The standard progress is measured against in order to reach long term goals
5. Give an example of a fixed expense and a variable expense
a. Fixed – same every month: rent, car payment, student loan
b. Variable – can change each month: Utility bill, gas, entertainment
6. What can be done your budget does not balance?
a. Look to increase income by getting a second job
b. Adjust amount of savings,
c. Lower some of the variable expenses like entertainment, etc.
7. Define Assets, Liabilities and Financial resources
a. Assets: Money or items of value that you OWN
b. Liabilities: Money that you OWE
c. Financial resources: money or other items that people use to buy things
8. Know the Budget Equation: Income = Savings + Expenses and explain what
adjustments you could make if your budget is not balanced. Explain why a budget
is important (Essay)
Chapter 5
1. List an example of a demand deposit accounts (customer can withdraw money at
any time)
a. Checking, savings, and money market checking account
2. What is a disadvantage of a CD?
a. Money is locked in for a certain period of time – penalty to withdraw early
3. What do you write on a special endorsement?
a. “Pay to the order of”
4. What do you write on a restrictive endorsement?
a. “For deposit only”
5. Describe liquidity. Which is the most liquid, a savings account or an IRA (individual
retirement account)?
a. Liquidity is how fast/easy it is to get your money out.
b. Savings is much more liquid than IRA
6. What does it mean if the bank posted an NSF (non sufficient funds) notice?
a. You bounced a check!
b. You will incur fees
Henning 2012-13
7. What kind of interest calculates on the principal as well as previously earned
interest?
a. Compound Interest
8. What is an outstanding check?
a. Has been written and sent but not yet received and cashed by your bank
Chapter 6
1. Who is a beneficiary?
a. Person that gets the payout of a life insurance policy, NOT the person insured
2. What does renter’s insurance protect?
a. Your contents in the apartment,
b. Your property in your car or at office.
c. Liability if someone is injured inside your apartment.
3. List the risk strategies discussed.
a. Avoiding risk – not doing it
b. Assuming risk – self insuring
c. Transferring risk – buying insurance
d. Reducing risk – using safety measures (Ex: wearing a helmet)
4. Explain the stop loss provision in a health insurance policy.
a. You pay deductible and copays up to a certain amount, and then insurance
pays 100% of the rest. (Stops your loss at a certain amount for the year)
5. Describe these car insurances: Collision, Comprehensive, Liability
a. Collision – for YOUR car if its YOUR fault
b. Comprehensive – if something happens like tree branch falls
c. Liability – for their car if it’s your fault (required by law to carry this)
6. In health insurance, what is major medical insurance? What is basic?
a. Major medical: Helps pay for long term stay in hospital – major surgery
b. Basic: covers routine Dr. visits and outpatient services
7. Define insurance premium and deductible
a. Premium: the price you pay for insurance coverage (what it costs)
b. Deductible: amount you must pay toward medical bills FIRST before
insurance pays
8. Be able to explain at least three different types of insurance – Auto, homeowners,
renters, health, life, and disability. Why is insurance important? (Essay)
Chapter 7
1. What is credit?
a. Ability to borrow and pay back with interest.
2. What are you doing when you look at pros and cons or buying something and lining
it up with your goals?
a. Using Systematic decision making
3. List some rewards of being financially responsible
a. Ability to enjoy free time and vacations
b. Savings for emergencies and retirement
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4.
5.
6.
7.
c. Financial freedom
What are characteristics of financial irresponsibility?
a. Poor family relationships due to stress and frustration
b. Unbalanced lifestyle/poor health
c. Lack of recreation/fun
How does making late credit card payments affect you?
a. Penalties and fees, higher interest rate, bad credit score
What are benefits of using credit card?
a. Convenience, Fraud protection, rewards, increased purchasing power
Be able to describe and explain characteristics of a financially responsible and
financially irresponsible lifestyle. (Essay)
8. Be able to name at least three types of credit and be able to explain them: (Essay)
a. Installment: equal payments over time when buying a high-priced item
Ex: Washer/dryer, computer
b. Easy access credit: easy to get but often has high or hidden fees
c. Revolving credit: open account you can add to monthly and pay off over
time. Ex: credit cards
d. Service credit: receive services now and pay later. Ex: Utilities, doctors
Chapter 8
1. When should you get a preapproved loan?
a. To find out how much you can afford before shopping for car/home loan.
2. What is an unsecured loan?
a. No collateral is used to secure the loan
3. What does it mean to be upside down on a loan?
a. You still owe more than it’s worth. Ex: Still owe $5000 on a car that is only
worth $4000. This is why a large down payment is a good idea – cars
depreciate.
4. Who may offer high interest unsecured loans to people that can’t get credit?
a. Loan sharks
5. What is the security deposit in a rental agreement used for?
a. Paying for damages beyond normal wear and tear
b. Examples: holes in wall, stained carpet, broken fixtures
Chapter 9
1. Can any possessions be kept by a person when declaring bankruptcy? Anything?
a. Do not lose everything. Can keep some limited exemptions – tools of trade,
some home equity, some jewelry, small amount for car…
2. How long does bankruptcy stay on your credit?
a. Up to 10 years
Henning 2012-13
3. What are the 3 forms of bankruptcy and briefly describe them?
a. Chapter 7 – (individual) complete wipe out of debt
b. Chapter 13 - (individual) reduces debt and has a 3-5 year debt repayment
plan
c. Chapter 11 – (business) reorganizes debt and has a debt repayment plan so
business can stay open
4. What can happen to your car if you don’t pay your car loan and you ignore collection
attempts?
a. Repossession
b. You can get it back only if you pay it off in full plus repo fees
5. The process of helping consumers resolve problems with creditors and others is
called what? A. Consumer advocacy
6. What is the Fair Credit Reporting Act?
Answer: Allows you to see what’s in your credit report
7. What is included in Truth in Lending Act? – Loan companies must disclose what up
front to borrowers?
Answer: All fees, finance percent (APR), and how finance charges are
computed, total amount you will pay over the course of the loan
IMPORTANT KEY TAKEAWAYS FROM FINANCIAL LITERACY:
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Formal and/or informal _education_ increases your _earning_ potential and your job_
opportunities, so plan it out and research the 10 year outlook for your chosen major!
Don’t _spend__ more than you _earn_. Think of the peace of having a financially
responsible lifestyle!
RE: Savings: Start _early_ and don’t raid the _piggy bank_. Pay yourself first!
Budget equation: Income = Savings + Expenses_. Make a budget and stick to it.
Using credit is spending money you have not _earned yet, so use it wisely.
Never pay only the minimum payment required on a credit card.
Bankruptcy is the very last resort.
Please come back and see me when you are out on your own and tell me how it is going!
SINCERE BEST WISHES for a solid financial future – I believe you can do it well!