Banking
What is the primary purpose of a checking account?
To manage daily transactions like deposits and withdrawals.
What is a budget?
A plan for managing income and expenses over a period.
What is a credit score?
A numerical representation of a person's creditworthiness.
What is the purpose of insurance?
To protect against financial loss from unforeseen events.
What is the primary goal of investing?
To grow wealth over time through asset appreciation and income.
What does FDIC stand for, and what does it do?
Federal Deposit Insurance Corporation; it insures deposits in banks up to a certain limit.
Define "opportunity cost."
The value of the next best alternative foregone when making a decision.
Name two factors that can positively impact your credit score.
Timely payments and low credit utilization.
Define "premium" in the context of insurance.
The amount paid periodically to keep an insurance policy active.
Define "diversification" in investing.
Spreading investments across various assets to reduce risk
Explain the difference between a savings account and a money market account.
Both earn interest, but money market accounts often have higher interest rates and may require higher minimum balances.
What is the "pay yourself first" strategy?
Allocating a portion of income to savings before spending on other expenses.
What is the difference between a secured and an unsecured loan?
Secured loans are backed by collateral; unsecured loans are not.
What does a deductible represent in an insurance policy?
The amount the policyholder pays out-of-pocket before insurance coverage begins.
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Question: What is the differe
Stocks represent ownership in a company and may pay dividends; bonds are loans to companies or governments that pay interest over time
What is the purpose of a bank reconciliation?
To compare and adjust the bank statement with the check register to ensure accuracy.
Explain the concept of "mental accounting" in behavioral economics.
Treating money differently based on its source or intended use, which can lead to irrational financial decisions.
Explain the term "annual percentage rate (APR)."
The yearly interest rate charged on borrowed money.
Differentiate between term life and whole life insurance.
Term life provides coverage for a specific period; whole life offers lifelong coverage with a cash value component.
What is compound interest, and why is it powerful for investing?
Compound interest is when you earn interest on both your initial investment and on the interest it has already earned. It helps investments grow faster over time.
Describe the process and benefits of setting up direct deposit.
Direct deposit electronically transfers paychecks into a bank account, ensuring faster and safer access to funds.
How does the "sunk cost fallacy" affect financial decisions?
It leads individuals to continue investing in a decision based on prior investments rather than current benefits.
What are the potential consequences of defaulting on a loan?
Damage to credit score, legal action, and loss of collateral.
Explain the concept of "risk pooling" in insurance.
Combining resources from many policyholders to cover the losses of a few.
What are the risks and benefits of investing in the stock market compared to a savings account?
The stock market offers higher potential returns but comes with greater risk of loss. A savings account is safer and insured but offers lower returns.