UNIT 1 - Financial Attitudes and Behaviors
What is loss aversion?
The tendency to prefer avoiding losses rather than acquiring equal gains.
What is a dividend?
A payment made to shareholders from a company’s profits.
What is a fixed expense? Give one example.
A cost that stays the same each period (rent, insurance).
What does a credit score tell a lender?
How likely a borrower is to repay loans responsibly.
What is inflation?
The rise in prices over time, reducing the purchasing power of money.
What is herd mentality?
When people follow what others are doing instead of making independent decisions.
What do taxes pay for?
Public services such as schools, roads, military, healthcare programs, and government operations.
Give two examples of budgeting tools.
Spreadsheets, budgeting apps (Mint, YNAB), paper trackers.
Define collateral.
a valuable asset that a borrower pledges as security for a loan, serving thus as a guarantee for the lender
One advantage and disadvantage of a savings account?
Advantage: safe, earns interest; Disadvantage: lower interest than other accounts.
How can values influence spending?
Values guide priorities; for example, valuing family may lead to spending on experiences, while valuing security may lead to saving more.
Why might someone enter the workforce instead of college?
Costs: tuition, student loans; Benefits: earning income sooner, gaining experience.
Why is it important to understand the obligations and responsibilities in a contract?
Compare secured vs. unsecured credit.
Secured loans/cards require collateral; unsecured do not and usually have higher interest rates.
How do the Federal Reserve and FDIC protect consumers?
Federal Reserve regulates banks and monetary policy; FDIC insures deposits up to $250,000.
A teen buys a laptop because everyone else has it. Which bias is this?
Herd mentality
Explain interest, dividends, and capital gains.
Interest = money earned from lending/saving; Dividends = company profit payments; Capital gains = profit from selling an asset at a higher price.
How do you identify a billing error?
Check for duplicate charges, wrong amounts, or unauthorized transactions; agencies like CFPB or FTC can help dispute charges.
Why does a larger down payment reduce loan cost?
It reduces the amount financed, lowering interest and total repayment.
How does inflation affect purchasing power?
Prices increase, so money buys less; savings lose value if interest doesn’t keep up.
Explain how present bias and anchoring can lead to poor decisions.
Present bias causes people to choose immediate gratification over long-term goals, while anchoring causes them to rely too heavily on the first price or idea they encounter. Together, they can lead to overspending or poor financial planning.
Costs and benefits of gig employment
immediate income but unstable earnings and few benefits
Name three contracts.
Cell phone plan, car lease, apartment lease, loan agreement, subscription service.
How can someone with low credit improve borrowing costs (aka lower fees or avoid high interest rates)
Using credit counseling, making a down payment, lowering debt, and making on-time payments to improve score and qualify for lower rates.
Best account for $2,000 depending on goals? (Short term vs. long term)
Short-term: savings or MMA (liquidity)
Longer-term: CD (higher interest, locked in)