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Personal Finance 11th edition Chap 1

Terms in this set (52)

Financial literacy
Knowledge of facts, concepts, principles, and technological tools that are fundamental to being smart about money.
Personal finance
The study of personal and family resources considered important in achieving financial success; it involves how people spend, save, protect, and invest their financial resources.
Financial responsibility
Means that you are accountable for your future financial well-being and that you strive to make wise personal financial decisions.
Trade-off
Giving up one thing for another.
Savings
Income not spent on current consumption.
Investments
Assets purchased with the goal of providing additional income from the asset itself.
Standard of living
Material well-being and peace of mind that individuals or groups earnestly desire and seek to attain, to maintain if attained, to preserve if threatened, and to regain if lost.
Financial success
The achievement of financial aspirations that are desired, planned, or attempted, as defined by the person who seeks it.
Financial security
The comfortable feeling that your financial resources will be adequate to fulfill any needs you have as well as most of your wants.
Financial happiness
The experience you have when you are satisfied with your money matters, which is in part a result of practicing good financial behaviors.
Economic growth
A condition of increasing production (business spending) and consumption (consumer spending) in the economy and hence increasing national income.
Business cycle/economic cycle
Business cycles can be depicted as a wave like pattern of rising and falling economic activity; the phases of the business cycle include expansion, peak, contraction (which may turn into recession), and trough.
Recession
A recurring period of decline in total output, income, employment, and trade, usually lasting from six months to a year and marked by widespread contractions in many sectors of the economy.
Deleveraging
A period when credit use shrinks in an economy instead of expanding as during normal economic times.
Double dip recession
This occurs when the economy has a recession and them, soon after emerging from the recession with a short period of growth, quickly falls back into recession.
Economic indicator
Any economic statistic, such as the unemployment rate, GDP, or the inflation rate, that suggests how well the economy is doing now and how well it might be doing in the future.
Gross domestic product(GDP)
The nation's broadest measure of Economic health; it reports how mich economic activity (all goods and services) has occurred within the u.s borders during a given period.
Leading economic indicators
Statistics that change before the economy changes, thus helping predict how the economy will do in the future, such as the stock market, the number of new building permits, and the consumer confidence index.
Infex of leading economic indicators (LEI)
A composite index reported by the conference board that suggests the fiture direction of the U.S economy.
Inflation
A steady and sustained rise in General price levels across economic sectors; measured by the changing cost over time of a "market basket" of goods and services that a typical household might purchase.
Deflation
A broad, sustained decline in prices of goods and services that is hard to stop once it takes hold, causing less consumer spending, lower corporate profits, declining home values, rising unemployment, and lower incomes.
Purchasing power
Measure of the goods and services that one's income will buy.
Real income
Income measured in constant prices relative to some base time period.it reflects the actual buying power of the money you have as measured in constant dollars.
Nominal income
Also called money income; income that has not been adjusted for inflation and decreasing purchasing power.
Consumer price index (CPI)
A broad measure of changes in the prices of all goods and services purchased for consumption by urban households.
Fed
The federal reserve board, an agency of the federal government.
Federal funds rate
The short-term rate at which depository institutions lend balances at the federal reserve to other depository institutions overnight.
Interest
The price of borrowing money.
Opportunity cost
The opportunity cost of any decision is the value of the best alternative that must be forgone.
Marginal utility
The extra satisfaction derived from gaining one more incremental unit of a product or service.
Marginal cost
The addition (marginal) cost of one more incremental unit of some item.
Marginal tax rate
The tax rate at which your last dollar earned is taxed.
Tax-exempt income
Income that is totally and permanently free of taxes.
Tax-sheltered (tax-deferred) income
Income exempt from income taxes in the current year but that will be subject to yaxation in a later tax year.
Time value of money
A method by which one can compare cash flows across time, either as what a future cash flow is worth today (present value) or what an investment made today will be worth in the future (future value) also, the cost of money that is borrowed or lent;
Principl
The original amount invested.
Compound interest
Compound interest is earning of interest on interest is added to the principl so that, from that moment on, the interest that has been added also earns interest.
Compounding
The addition of interest to Principl; the effect of compounding depends on the frequency with which interest is compounded and the periodic interest rate that is applied.
Annuity
A stream of payments to be received in the future.
Future value
The valuation of an asset projected to the end of a particular time period in the future.
Present value
The current value of an asset (or stream of assets) that will be received in the future; known as discounted value.
Employee benefit
Compensation for employment that does not take the form of wages, salaries, commissions or other cash payments.
Cafeteria plan (flexible benefits plan)
A type of employee benefit plan where employees choose their benefits from a "menu" of taxable cash and one or more qualified nontaxable benefits, thereby providing a funding mechanism by which employees may pay for the benefits they choose on a pretax basis.
Health care plan
An employee benefit designed to pay all or part of the employee's medical expenses.
High-deductible health care plan (HDHP)
A plan that requires individuals to pay a higher deductible to cover medical expenses before insurance plan payments begin; chosen to save money on premiums.
Health savings account (HSA)
Special savings account intended for people who have a high-deductible health care plan (with annual deductibles of at least $1000 for individuals and $2000 for families).
Tax advantages
Advantages bestowed by legislation that reduce a tax on some preferred activity, such as employee participation in an employer's cafeteria plan, health savings account, or retirement plan.
Flexible spending account (FSA)
An employer-sponsored account that allows employee-paid expenses fpr medical or dependent care to be paid with an employee's pretax dollars rather than after-tax income.
Pretax dollars
Money income that has not been taxed by the government.
Tax-sheltered retirement plan
Employer-sponsored, defined-contribution retirement plans including 401 (k) plans and similar 403 (b) and 457 plans.
Financial planner
An investment professional who evaluates the personal finances of an individual or family and recommends strategies to set and achieve long-term financial goals.
Investment policy statement
A written document that spells out the relationship between an investor and his or her financial advisor and guides how the advisor will invest the person's money; it should detail the person's investment philosophy, financial situation, and the risks he or she is willing to take, as well as what tasks the advisor will perform.
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