Bank Accounts
What type of bank account is typically used for everyday transactions and does not earn interest?
Checking Account
What percentage of your income should ideally go towards savings, according to the 50/30/20 rule?
20%
What is the smallest amount that must be paid each month on a credit card to avoid penalties?
Minimum Payment
What is the original amount of money borrowed in a loan called?
Principal
What is a Certificate of Deposit (CD)?
A savings account that holds a fixed amount of money for a fixed period at a fixed interest rate.
What is the main advantage of keeping money in a savings account?
It earns interest over time.
Define the difference between fixed expenses and variable expenses.
Fixed expenses are costs that do not change month to month, while variable expenses fluctuate.
What is a credit limit?
The maximum amount of money that can be borrowed on a credit card.
What is a loan term?
The period over which a loan must be repaid.
What is compound interest?
Interest calculated on the initial principal and also on the accumulated interest from previous periods.
What happens when you withdraw more money than you have in your bank account?
You incur an overdraft and may face overdraft fees.
How can discretionary spending affect your budget?
Discretionary spending is non-essential, and overspending in this category can lead to insufficient savings or unmet needs.
What does APR stand for, and what does it represent?
Annual Percentage Rate; it represents the annual cost of borrowing money, including interest and fees.
What is the difference between fixed and variable interest rates?
Fixed interest rates stay the same throughout the loan term, while variable rates can change.
What is the relationship between risk and reward in investments?
Generally, higher potential returns come with higher risk.
Explain the difference between a checking account and a savings account in terms of interest and access.
A checking account allows easy access to funds but typically does not earn interest, whereas a savings account earns interest but has limitations on withdrawals.
According to the 50/30/20 rule, if your monthly income is $3,000, how much should you allocate for wants?
$900 (30% of $3,000)
How can making only the minimum payment on a credit card balance affect your debt?
Making only minimum payments will result in paying more interest over time and taking longer to pay off the debt.
What are the benefits of consolidating loans?
Easier management and potentially lower monthly payments, although it may result in higher interest over time.
What is a mutual fund?
An investment program funded by shareholders that trades in diversified holdings.
John has $3,000 and is deciding whether to keep it in a checking account for easy access or a savings account that earns 1.5% interest annually. What should he consider, and which option might be better for an emergency fund?
John should consider ease of access, interest earned, and withdrawal limitations. A savings account is generally better for an emergency fund because it earns interest, but he should also keep some liquid cash in a checking account for immediate access.
Rachel currently spends $300 on groceries, $200 dining out, and $500 on miscellaneous shopping. She earns $3,000 per month. How can she adjust her budget to better fit the 50/30/20 rule?
Rachel should reduce her spending in the wants category (dining out and miscellaneous shopping) to align with 30% ($900) and increase her savings to meet 20% ($600).
Emma has a credit card balance of $1,200 and an annual interest rate of 18%. She only makes the minimum payment of $50 each month. What are the consequences of this, and what is a better strategy?
The consequences include paying high interest and taking a long time to pay off the balance. A better strategy is to pay more than the minimum, ideally paying off the full balance to avoid interest charges.
Alex is deciding whether to consolidate his student loans, which include $5,000 at 5%, $8,000 at 6%, and $12,000 at 7%. The consolidation loan offers 6.25%. Should he consolidate, and what are the pros and cons?
Consolidating would simplify payments and may lower his monthly payments. However, it could also lead to paying more interest overall compared to the lower rate loans.
Alice starts investing $200 per month at age 25, while Bob starts investing $400 per month at age 40. Both invest at an average annual return of 6%. Who will have more at retirement at age 65, and why?
Alice will have more because starting earlier allows her investments to grow through compound interest over a longer period, despite investing less each month.