PF - Personal Finance Overview

Personal Finance

Introduction

In this unit you will learn about personal financial decision-making. As wage earners and consumers, you will be faced with major personal economic decisions including how to use economics to analyze major life decisions such as buying a house or car, budget your income, select financial institutions for saving and investment, and make consumer decisions based on interest rates.

Lesson Objectives

In this module, students should be able to:

  1. Analyze major life decisions using economics-based decision-making skills.
  2. Analyze income as a scarce resource that can be allocated effectively through budgeting.
  3. Explain how the financial system channels funds from savers to investors.
  4. Explain how interest rates affect various consumer decisions.
  5. Evaluate the costs and benefits of using credit.
  6. Analyze how insurance and other risk-management strategies protect against financial loss.
  7. Describe how the earnings of workers are determined in the marketplace.
  8. Explain ways consumers are protected by rules and regulations.
  9. Explain sources of and protection against identity theft.

 

Key Terms

The following key terms will help you understand the content in this module.

  • Bond – debt obligations of corporations or governments
  • Budget – a spending and saving plan based on your expected income and expenses
  • Cryptocurrency – a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority
  • Compound interest – interest computed on the original principal plus accumulated interest
  • Deductions – amounts subtracted from your gross pay
  • Diversification – the spreading of risk among many types of investments
  • Dividends – money paid to stockholders from the corporation’s earnings
  • Fixed interest – interest rate that does not change
  • Grants – forms of educational funding that do not have to be repaid
  • Gross pay – the total amount you earn before any deductions are subtracted
  • Interest – money paid for the use of money; earnings on a savings account
  • Investing – the use of savings to earn a financial return
  • Mortgage – a loan to purchase real estate
  • Mutual fund – a large, professionally managed group of investments
  • Net pay – the amount left after all deductions are taken out of your gross pay
  • Net worth – the difference between assets and liabilities
  • Overdraft – A check written for more money than your account contains
  • Salary – the amount of monthly or annual pay you will earn for your labor
  • Scholarships – cash allowances awarded to students to pay education costs
  • Simple interest – interest computed only on the amount borrowed, without compounding
  • Stock – a unit of ownership in a corporation
  • Variable interest – interest rate that goes up and down with inflation and other economic indicators
  • Work-study – a program where students work on campus to earn money

 

  • Asset protection – protects assets like your home and car if you need extra insurance coverage to keep from losing them
  • Bankruptcy – a legal process that relieves debtors of the responsibility of paying their debts or protects them while they try to repay
  • Collateral – property pledged to a creditor to assure repayment of a loan
  • Credit – the use of someone else’s money, borrowed now with the agreement to pay it back later
  • Credit bureau – a business that gathers, stores, and sells credit information to other businesses
  • Credit history – the complete record of your borrowing and repayment performance
  • Credit rating – a measure of creditworthiness based on an analysis of your credit and financial history
  • Credit report – a written statement of a consumer’s credit history, issued by a credit bureau to businesses
  • Credit score – the total of assigned points used to determine the likelihood that you will repay debt as agreed
  • Disability insurance – an insurance plan that makes regular payments to replace income lost when illness or injury prevents the insured from working
  • Insurance – a method for spreading individual risk among a large group of people to make losses more affordable for all
  • Life insurance – insurance that provides funds to beneficiaries when the insured dies
  • Premium – the cost (usually monthly) of an insurance policy
  • Renter’s policy – insurance that protects renters from property and liability risks
  • Shared liability – when accidents occur where the responsibility must be shared among the parties involved
  • Term life insurance – the most common form of temporary life insurance – a life insurance policy that remains in effect for a specified period of time
  • Whole life insurance – a policy for which you pay fixed premiums throughout your life, and the policy pays a stated sum at death to your beneficiary

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