Personal Finance S1 Review KEY Finance, Stats, Decision Making Name Key

1) Different kinds of savings vehicles include (circle all that apply):

a) A Savings Account

b) A Checking Account

c) A Money Market Account

d) A Certificate of Deposit

2) When you open a savings account, which of the following actions will allow you to earn more interest

(check all that apply)?

e) Select an account with a high interest rate that compounds

f) Leaving money in the account for a long period of time

a) Transferring money into checking every month

3) Which compounding frequency will earn you the most money?

a) Compounding once a year

b) Compounding quarterly

c) Compounding monthly

g) Compounding daily

4) The Rule of 72 gives you an __ESTIMATE__ of the time it will take for your money to __DOUBLE___

at a given interest rate. This formula is useful for financial estimates and understanding the nature of

compound interest.

1. At 6% interest, your money takes __(72/6) 12 years___ to double.

2. To double your money in 10 years, get an interest rate of ___72/10_____ or ___7.2____%.

3. If your country’s GDP grows at 3% a year, the economy doubles in __72/3____ or __24_ years.

4. If your growth slips to 2%, it will double in _36__ years. If growth increases to 4%, the economy

doubles in __18_ years.

You can also use the rule of 72 for expenses like inflation or interest:

5. If inflation rates go from 2% to 3%, your money will lose half its value in __36_or _24_ years.

6. If college tuition increases at 5% per year (which is faster than inflation), tuition costs will double in

_72/5_ or about __14.4_ years.

7. If you pay 15% interest on your credit cards, the amount you owe will double in only __72/15__ or

__4.8_ years!

Personal Finance S1 Review KEY Finance, Stats, Decision Making Name Key 5) You can calculate the amount your money will grow when compounded “n” times a year by using the

formula: 𝐴 = 𝑃 1 + !!

!" , A = Final Amount, P = Initial Amount, t = time in years,

r = rate (decimal), n = number of times interest is compounded annually

6) If you put $500 in a money market account with 3% APR (annual percentage rate – simple interest) for 4

years, how much would you have with compound interest?

𝐴 = 500 1 +0.031

!∙!

= $562.75

7) If you put $1500 in a money market account with an interest rate of 4% compounded quarterly, how

much would you have with compound interest in 3 years?

𝐴 = 1500 1 +0.044

!∙!

= $1690.24

8)

Personal Finance S1 Review KEY Finance, Stats, Decision Making Name Key Scenario 1: Your current balance in your checking account it $500.00. You make a deposit of $765.50. You write check #106 to Chase VISA for $632.75 and check #108 to Verizon Wireless for $72.43. You also take out $40 from the ATM. Write the checks below and record all transactions on your checkbook ledger at the top of the page.

Scenario 2: While you are out of town, you deposit another check for $230.66 at the ATM machine and take out another $20. Additionally, you write another check #109 to the Holiday Inn for $83.24. Record these transactions in your checkbook ledger.

9) Identify the routing number, the bank account number and the check number in the checks above. 10) What are the different kinds of fees you can incur while banking? Give me at least four. What strategy

for checking your checking account register with your actual bank transactions must you use in order to avoid ay penalties?

Routing Number Checking Account Number

Check Number

Personal Finance S1 Review KEY Finance, Stats, Decision Making Name Key

Minimum Balance Fee/ Minimum Daily Balance Fee ATM Fee (Unaffiliated Bank or International) – For any transaction including checking balance Overdraft Fee (any time you incur a negative balance on your checking account) Bounced Check/Nonsufficient funds Fee Returned Check Fee

1) Check your account balance and transactions online on a weekly basis for errors in daily recording.

2) Before writing large checks or making payments for large amounts check your balance online to verify availability of funds.

3) Before traveling determine locations of bank affiliated ATM machines.

11) Compare and contrast the Checking Accounts, Savings Accounts, Money Market Accounts and Certificates of Deposit.

Checking Accounts Savings Accounts Money Market Accounts Certificate of Deposit

(CDs) Higher Liquidity – Frequent transactions possible, more access to funds

Lower Liquidity – Limited number of withdrawals and deposits allowed.

A kind of Savings Account. Lower Liquidity - Limited number of withdrawals, deposits allowed.

Investment option between savings accounts and stocks. Lowest Liquidity.

No or Very low interest rate

Small amount of interest earned.

Higher interest earned. Higher Interest rate earned.

May or may not require a minimum balance.

Minimum balance required.

Requires a higher minimum balance.

Minimum Balance required.

Write checks, use ATM/Tellers, Debit Cards

No check writing to access funds, ATM use available

Limited amount of Check writing and ATM access available.

Cannot access funds until maturity date without an early withdrawal fee.

12) Compare and contrast credit and debit cards.

Credit Cards Debit Cards

Payment by: Borrowing money that must be paid back.

Drawing money directly from your checking account pays for purchases.

Interest: A high interest must be paid on balance that is not paid in the allotted time.

Not borrowing money here so no interest must be paid. Money is withdrawn from your own account.

Credit Rating: Can build/improve your credit rating by paying off your bills on time and managing borrowing responsibly. Can damage credit rating by maxing off credit cards.

Credit rating can be damaged only if debit cards are used to pay for transactions that cannot be covered by the balance on your account.

Fraud Protection: Available. (Dispute charges, close account if stolen)

Less fraud protection is available.

Personal Finance S1 Review KEY Finance, Stats, Decision Making Name Key

Affordability: Can defer payment until grace period ends, do not have to pay right away.

Can only make purchases based on available checking account balance.

Transaction Method: Finalize transaction by signing for the amount.

Enter pin number and/or sign for final amount.

Resources

http://www.investor.gov/outreach/students#.VKNCiSe6rX8

http://www.debt.org/credit/

http://money.cnn.com/magazines/moneymag/money101/

https://www.khanacademy.org/economics-finance-domain/core-finance

1. A person’s net worth is a person’s _____ASSETS___ minus ___LIABILITIES______.

2. “Capital” relates to _ASSETS_________, _LEVEL OF FINANCIAL

OBLIGATIONS__ and __LEVEL OF LIABILITIES_____ in reference to credit.

3. Define credit score.

A three digit numerical score that reflects a person’s ability to payback their debts. It varies from 300 – 850 (Transunion – 250 – high 800s). It helps financial institutions determine how risky it is to loan you money.

4. Name the three credit bureaus.

Experian, Equifax and Transunion.

5. Compare and contrast the differences between having a High and Low Credit Score.

High Credit Score

Low Credit Score

Payback Debts: You are more likely to pay back your debts.

You are considered a higher risk and less likely to pay off your debt.

Money Habits: You have good money habits such as repaying your bills on time and you manage what you borrow responsibly.

You have bad money habits such as maximizing your credit cards.

Impact on Loans: You are likely to receive better loan terms such as low interest rates.

You may not qualify to buy your dream home or a new car. You may not qualify to get credit cards with reasonable interest rates.

When applying for a job, it may indicate that you are not responsible with your money/borrowing habits.

6. What components of your financial profile do banks look for when they determine your credit score? Which two components most significantly impact your credit score?

Personal Finance S1 Review KEY Finance, Stats, Decision Making Name Key

1) Payment History (35%) – Even 1 late payment can damage your credit score 2) Amount Owed (30%) – Best to owe less than 30% of available credit 3) Length of Credit History (15%) – Longer the better 4) New Credit (10%) – People who apply for several new lines of credit can lower their

score. 5) Types of Credit (10%) – Car Loan, Mortgage (Are you able to manage what you

borrow responsibly in different areas?)

7. One way to get a loan from the bank when you have a poor credit history is to enlist help

from a friend/relative who has good credit history. How would the bank handle this situation? In this situation, the bank would ask your friend/relative to be a cosigner. This means your friend/relative will be held liable to pay off the loan amount if you were unable to do so.

How long does is take to fix bad credit? (http://www.debt.org/credit/improving-your-score/) It could take a long time to build a better credit history.

1. Review your credit report and dispute any errors. This is the closest you can get to a quick credit fix. Notifying the credit reporting agency of wrong or outdated information can affect your score as soon as the false information is removed.

2. Set up payment reminders if you miss payment deadlines because you forget to pay or lose track of bills. Write down the deadlines for each bill in a planner or calendar, or set up reminders online. Consistently paying your bills on time can raise your score within a few months.

3. Contact your creditors immediately to set up a payment plan if you miss payment deadlines and can’t afford your monthly bills. Quickly addressing your problem can ease the negative effects of late payments and high outstanding balances.

4. Reduce your total debt rather than shifting balances to different accounts. Your credit report and credit score look at the sum of your debt as well as individual accounts.

5. Keep credit card balances low, even if you pay the balance in full each month. Your credit score only takes your total balance into account. It doesn’t differentiate between a balance carried over from last month and a balance new to this month.

6. Apply for new credit sparingly. Although it increases your total credit limit, it’ll hurt your score if you open several new accounts in a short time period.

7. Don’t close unused credit card accounts. The age of your credit history matters, and a longer history is better. If you must close credit accounts, close newer ones.

8. What is considered a good credit score? (Give me a number) 710 + is considered a good credit score.

9. What effect does your credit score have on a loan you are applying for? (Explain as much as you know. This is your place to show me all that you know in this area.)

Impact on Loans: You are likely to receive better loan terms such as low interest rates with a good credit score.

Personal Finance S1 Review KEY Finance, Stats, Decision Making Name Key

You may not qualify to buy your dream home or a new car or to get credit cards with reasonable interest rates if you have a low or poor credit score.

10. How often should you check your credit history to look for discrepancies?

http://genxfinance.com/how-often-should-you-check-your-credit-score/ You should check your credit report at least once a year to make sure your identity has not been compromised. It's a good idea to also check your credit report before applying for a loan, if you've been denied for credit, you think your identity has been stolen, or you're planning to repair your credit.

11. A 529 college savings plan can be opened for someone at what age?

Any age.

http://www.debt.org/credit/

http://www.bankrate.com/

http://www.investor.gov/outreach/students#.VKNCiSe6rX8

http://money.cnn.com/magazines/moneymag/money101/

https://www.khanacademy.org/economics-finance-domain/core-finance