Unit 7 Review:Personal Financial Literacy

By Kaylee Saaranen, Nina Wilder, and Emiley Burriss

A budget is a plan for how an individual, family, or organization will raise and spend money.

Steps for creating a budget:

1. List fixed costs that you will have for the month

2. Estimate variable cost based on experience

3. Set aside amount you want to put away or save each month as soon as you get paid

4. List large purchases you plan to make later on and set aside money

Monitoring your spending is important so that you can make smart changes to your budget over time.

Different Types of Accounts• home account: keep money in piggy bank

at home (risky)

• Checking account: money kept in bank where you can write a check, use debit card, or withdraw cash

• Savings account: money put in an account with withdrawal fees

• Certificates of deposit (CD’s): consumers agree not to withdraw money for a specific time

• Individual retirement accounts (IRA’s): money for retirement; usually in stock market

Debt is money you owe to creditors for purchases you make

Having debt is not always bad if the consumer can pay it off over time

Credit Cards• When credit cards are used to

purchase they are taking out a small loan

• Using credit requires user to pay interest (money charged for credit)

• Shop around for the best interest rate, lower is better

• More likely to get lower rate if you have a good credit score/history

Building Wealth

• Put money in savings or CD’s: will grow slowly but guaranteed return

• Buy US gov.t bonds and treasury bills: give gov.t money but guaranteed return + interest

• Buy a home: gains value

• Invest in stock market: very risky and no return guarantee

Ways to make money on stock:

1. Dividends: piece for company’s profit for owning shares in that company

2. Capital gains: selling stock for more than you bought it for

Insurance Terms To Know:

• Insurance – when a company provides a guarantee of compensation for a specified loss, damage, illness, or death in return for payment

• insurance agent- person who sells and manages insurance policies

• Claim- a demand made by the insured or their beneficiary for payments provided by the policy issued

• Deductible- the amount of money the person must pay out of pocket before the insurance kicks in

Types of insurance

Health : provides for medical care, doctor visits, prescriptions, rehabilitation, etc.

Life: pays money to beneficiaries upon death of the insured to cover death expenses and for lost income due to death

Automotive: in case of car accident it will pay for medical expenses of those injured and property damage

Home owner/renter insurance: provides money for personal property and structural damage or theft

The government protects consumers from unsafe and fraudulent business practices:

• Federal Trade Commission (FTC)

• Consumer Product Safety Commission (CPSC)

• Food and Drug Administration (FDA)

• Federal Communication Commission (FCC)

• Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF)

• NC Department of Justice

Other information• Impulse buying – buying things based on

emotion instead of thought

• Comparison shopping – looking at multiple brands/stores to find the best or cheapest product

• Disposable vs. discretionary income: disposable money (aka net pay) is what’s left after taxes and discretionary income is the money left after paying for necessities

• Collateral- if borrower fails to repay a loan, the lender shall seize the collateral (property with value, ex: car, jewelry, house, etc.)

Don’t forget… stocks, bonds, and mutual funds

Stock- buying partial ownership in a company

Bond- lending money to the government but there is a guaranteed return of full amount plus interest

Mutual Fund- pools of money from multiple people who are invested in many different stocks and bonds