1. Money Management Chapter 5

2. Analyzing Credit and Debt  Credit can be useful and convenient. If you’re not careful, it can lead to excessive debt and financial trouble.  Credit is money that you ____________ and promise to pay back.  Debt is the money that you borrowed and owe.  If you owe money, you are a debtor.  If you loan money, your are a creditor.

3. Analyzing Credit and Debt There are two basic types of credit:  Cash credit let you borrow money. You can get cash credit from a bank, an insurance company, some retailers, and from credit card companies.  Sales Credit let you ______ things. You can get sales credit from business, such as stores that want you to buy their merchandise.  Manage credit and debt responsibly shows that you are trustworthy, that you understand the difference between needs and wants, and that you can make healthy financial decisions.

4. What is a Loan?  A loan is a ______________ in which the lender agrees to give the borrower money and expects to be repaid in full.  Loans are either secured or unsecured.  To get a secured loan, the borrower pledge to give an asset ( such as car or property) as collateral for the loan.  It the borrower can’t pay the loan the borrower can’t pay off a secured loan, the lender, or creditor, can seize the collateral.

5. What is a Loan?  Businesses rely on your credit score. This is one of the things credit card companies look at when they decide to offer you a credit ____________.

6. What Are the Terms?  Most ___________ have terms that are written in a contract that both the lender and borrower sign.  A contract protects both the lender and the borrower and spells out all the conditions so everyone involved knows what to expect.

7. Should I have a Credit Card?  When you use a _____________, the credit card company is loaning you money for the purchase.  A credit card is useful and convenient.

8. Responsible credit card use means.  Paying the entire balance by the due date each month  Only using it to buy items that you can afford  Using your credit card sometimes, but also using cash, checks or your debit card  Having only one or two credit cards in your name  Saving all receipts and checking your statement carefully for errors each month

9. Credit Card Woes  A credit card can get you into financial trouble if you aren’t careful.  If you use it to buy more that you can afford and if you fail to pay your bill in full each month, you end up deep in debt.  The information will become part of your credit __________, and banks, landlords, and even employers will doubt your ability to make responsible decision and repay loans.

10. Credit Card Woes Common terms and conditions of credit cards:  Credit limit: the maximum amount of purchase you can charge to the card  Annual percentage rate: the interest you pay on your outstanding balance  Annual fee: the yearly charge for using credit  Grace _________: the length of time from when you make a purchase to when you start accumulating interest.  Late fee: the fee charged when you make a payment past the due date.  Over-limit fee: the fee you pay when you charge an amount over your credit limit.  Minimum payment: a percentage of the outstanding balance that must be paid each month

11. How Do I Establish Credit? At some point in your life, you will need a loan…. For example:  _________ loan (college)  auto loan (car)  mortgage loan (house)  They will check your credit history to see how you manage money.

12. How to Establish Credit? Positive steps for establishing credit include:  Maintaining bank account balances  Earning a __________  Paying bills on times  Paying rent  Having a credit card is also a good way to establish credit.

13.  Commercial ___________ including Savings & Loans associations, offer the widest variety of loans. These include credit cards, lines of credit, term loans, and installment loans.  Consumer Finance Companies make smaller loans that the commercial banks avoid, and they approve loans for people with bad or no credit histories.  Life Insurance Companies lend cash on the value of your life insurance policy.  Short term credit sources such as pawnbrokers and payday loan companies, give borrowers short term single-payment loans. Who Gives Me Credit?

14. What’s a Credit Report?  A credit ___________ is a summary of your credit history usually for the past sever to 10 years.  If you have a good credit history lender will loan you money.  If you have a bad credit history the lender will won’t.

15. What’s a Credit Report? A credit report lists:  All of the loans you have received including all credit cards.  Your outstanding balances- the money you owe  Whether you have paid your bills on time.  The names of the agencies or companies who have recently requested copies of your credit report  Your credit score, which is a three-digit number that ranks your likelihood of repaying your loans.  The information is collected by a credit bureau, or consumer credit reporting company and sold to banks other lenders.

16. How Do I Avoid Debt?  Some debt is inevitable over the course of your life.  As long as you as you make your payment is full on time, you are managing your debit responsibility.  The costs of the ________, fees, penalties and finance charges-continue to accumulate and you are unable to meet your obligations.

17. How Do I Avoid Debt?  Using a budget, savings, and setting financial goals will help you keep your debit in control.  Pay all of your _______ in full and on time every month.  Keep accurate records, so you always know how much you have and how much you owe.  Do not purchase more than you can afford.

18. How Do I get Out of Debt? 1.Figure out how much you owe 2.Stop using your credit cards 3.Assess your budget and cut out all non essential expenses. 4.Allocate as much as possible to paying your bills. The last straw is when you have spent all of your money and cannot pay any of your bills, At that point you may be faced with ______________.

19. Understanding Bankruptcy  Bankruptcy-is a process in which a judge approves your request to declare yourself legally unable to pay your outstanding debts. It is usually the worst case scenario.  It remains on your credit report for 10 years and make it difficult to buy a car, home, purchase insurance or get a job.  Chapter ____-is considered a way to get a quick “fresh start” by wiping out most of your debts including those owed to credit card companies and doctors or hospitals.  Chapter ____-is known as a reorganization bankruptcy, and those who have to high an income to declare Chapter 7. You agree to pay off debt in 3-5 years.

20. Understanding Bankruptcy  Most bankruptcy is _________, meaning a person initiates the bankruptcy process.  When creditors force people and business due to large debt is involuntary bankruptcy. 

21. Calculating Interest  Recall that interest is a ______ paid for using someone else money. It is calculated as a percentage of the principal the account balance or loan amount.  You earn interest on savings and investments. When you deposit money in a account the bank pays you interest because they use your money.  You pay interest on debt. When you borrow money, you pay the lender interest because you are using their money.

22. Interest Rate  Interest __________ vary, usually depending on how risky a loan might be….  Ex. The interest rate for a car loan is likely to be lower than the interest rate on a credit card.

23. APR vs. APY Interest important rates.  The annual percentage rate ________ is the annual interest rate without compounding or other added charges.  The annual Percentage Yield (APY) is annual interest including compounding. Banks usually promotes this rate because it make the amount of interest you will earn seem greater than it really is.

24. Calculating Simple Interest  Most students ______________ use simple interest. So do many certificates of deposits (CDs)  P(Principal) x I (Interest Rate) x T (Time)=Interest  If you deposit $500 in a saving account that earns 2 percent annual interest at the end of the year you will earn $10.00 earn.  500.00 x.02x1=10.00

25. Calculating Compound Interest  Compound interest is calculated based on principal and on interest that has already been added to the principal The following use ____________ interest:  Credit cards  Auto Loans  Mortgages  Investments

26. Using an Average Daily Balance  Most credit card companies use an average daily balance as the principal amount when they calculate how much interest you owe.  What if you charge $200.00 for gifts on December 15?  The credit card company uses the following formula to calculate your interest.

27. Paying Taxes  A __________ is money we pay the government. There are three basic categories of taxes:  Income taxes are based on wages and other earnings and are deducted from your paycheck.  Consumption taxes are sales taxes based on things or services we buy, such as computers, gasoline, hair cut, hotel stay. The tax is added to your bill.  Assets taxes are based on things we already owns, such as houses or cars.

28. Who Gets the Taxes?  Income taxes and Social ____________ taxes are withheld from our paychecks.  Sales tax is a percentage of the purchase price of something you buy.  Some taxes we pay to the federal-national-government.  Some taxes we pay to state government.  Some taxes we pay to the local government-the community where we live.

29. How is the Tax Money Spent? The federal government uses tax money for…..  defenses and homeland security  health benefits for people who are over 65 (Medicare)  people who can’t afford healthcare (Medicaid),  national road  transportation infrastructure  national education programs  disaster _________

30. Budgeting for Taxes  It is important to figure in the cost of taxes when you create a budget or set a financial goal.  You must calculate the cost of sales tax when you save for a purchase.  People call sales tax “___________” meaning it takes more from people with lower incomes and is hence unfair.  Sales tax are a way to discourage undesirable behaviors, such as smoking (cigarette taxes) or drinking (alcohol taxes)

31. How Much Income Tax Do I Owe?  Income tax is a percentage of your income that you pay to the government.  The US has a progressive _______ system, which means the more you earn, the more you pay.  Income is categorized into level, called tax brackets

32. How Much Income Tax Do I Owe?  Your tax ___________ is based on your taxable income, which is not the same as your annual salary.  To calculate your taxable income you add up all your income and then subtract tax deductions.  Once you know your tax bracket, you can calculate the amount of actual tax you owe. From that, you may be able to subtract tax credits, which are expenses your are allowed to subtract from your actual tax payment.

33. Filing Income Tax Returns  Each year, you must file income tax return for income you earned the previous year.  You must file the income tax returns by April 15 th.  Income tax ______________ are forms on which you calculate the amount of income tax owe.  You file federal tax returns to the Internal Revenue Service (IRS) the agency responsible for collecting federal taxes and you file state tax returns with your state’s revenue department.

34. Keeping Your Personal and Financial Information Safe _____________ information includes:  Name  Address  Phone number  E-mail address.  Social Security number (SSN)

35. Keeping Your Personal & Financial Information Safe  Most businesses use your __________ legitimately.  Your bank uses it to maintain your bank accounts  The supermarket uses it to offer you coupons and special deals  An online retailer uses it to process your order

36. Keeping Your Personal & Financial Information Safe  Some criminals use the information to commit fraud.  They might steal your credit card information and make unauthorized purchases.  They might steal your bank account information and withdraw your money.  They might sell your information to someone else.

37. Identity Theft is Big Business  Expects believe that identity ___________ is one of the fastest growing crimes in the United States.  The Federal Trade Commission --- the government agency responsible for protecting consumer-estimates that as many as 9 million American have their identifies is stolen each year.

38. Protect Your Records What types of document should you secure?  Personal records such as a birth certificate and Social Security Cards  Medical records showing when had immunizations  School records showing what should you attend, how you do on report card and standardized tests, and your student ID  Financial records such as bank statements, credit and debit card number, and loan information's  Copies of tax returns, pay stubs, and insurance records.  Driver’s license, marriage certificate and passport  Household inventory  You can keep these times in a safe, or in a safe deposit box, which is a box in a fireproof vault that you can rent from your bank.

39. Should I Give Out My Social Security Number?  Your Social __________ number is key to your financial identify.  There is no law that prohibits a company or organization from asking benefits.  You can request that the business use an alternative ID number, instead.

40. I lost My Wallet!  File a report with the police immediately and keep a copy.  Report the loss the fraud department at your band and other financial institutions.  Cancel your credit, debit, and ATM card immediately  Apply for new cards with new account numbers  Call the fraud departments of the three major credit reporting agencies  Ask each agency to put out a fraud alert on your. A fraud alert is like a red flag on your accounts that shows your information be in the hands of the unauthorized persons.  Review your credit reports regularly and have them corrected when necessary.  Report a missing driver’s license to your states department of motor vehicles.  If your keys are missing, change the locks on your home and car.

41. Analyzing Banking & Credit Regulation  Both your state and the U.S. government want to keep your money safe. They depend on you to:  __________, which helps companies stay in business  Save, which gives banks money to loan  Pay taxes, which gives the government money to use to support public resources.  So they have passed many laws and regulations designed to protect you and your money.

42. Who Regulates the Banks? There are 3 Federal Agencies that regulate banks:  1. The Office of Comptroller of the Currency (OCC) is part of the Treasury Department.  2. The Federal Reserve Board supervises and regulates banks not subject to the OCC’s supervision, including bank holding companies, some state-chartered banks, and some foreign branches of member banks  3. The __________-examines and supervises financial institutions such FDIC insured state charted banks that are not members of Federal Reserve System and FDIC insured branches of foreign banks.

43. What about Investments?  _______________ accounts are not insured by the government the way saving accounts are.  One way to immunize the risks of investing is to make sure you have as much information about security you are investing in a possible.  The Securities and Exchange Commission (SEC) is a government agency responsible for supervising's and regulating companies to protect investors.

44. Protecting Credit Some of the most important federal acts regarding credit include:  The Fair Credit Reporting Act  The Equal Credit Opportunity Act  The Fair Credit Billing Act  Truth in Lending Act

45. Monitor Your Own Accounts  What if you notice an unauthorized charge on your credit card statement?  Notify the credit card company by phone and in writing immediately  Check you other statements to see if there are any other unauthorized charges  Check your credit report to see if there are any signs of fraud  Pay the undisputed charges in full and on time.