ASSEB HS Financial Literacy flashcards
ASSEB HS Financial Literacy · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Net income
- The amount an employee actually receives after all deductions, including federal and state taxes, FICA, and benefit contributions, are subtracted from gross pay.
- Zero-based budget
- A budgeting method in which every unit of income is assigned to a specific category so that total planned outflows exactly equal total income.
- 50/30/20 rule
- A guideline allocating 50 percent of net income to needs, 30 percent to wants, and 20 percent to savings and debt repayment beyond minimum payments.
- Emergency fund
- Liquid savings set aside to cover essential expenses during income loss or unexpected costs, commonly targeted at three to six months of expenses.
- Fixed versus variable expenses
- Fixed expenses stay the same each period, such as rent; variable expenses fluctuate, such as utilities, groceries, and fuel costs.
- Gross pay
- Total earnings before any deductions, calculated as hours worked multiplied by the hourly rate, with overtime paid at a premium rate.
- FICA taxes
- Payroll taxes funding Social Security and Medicare, split between employee and employer, with Social Security capped by an annual wage base.
- Marginal tax rate
- The rate applied to the next dollar of taxable income within a bracket, which differs from the effective rate on total income.
- Tax deduction versus credit
- A deduction reduces taxable income and saves tax equal to the deduction times the marginal rate; a credit reduces tax owed dollar for dollar.
- W-4 form
- An employee withholding certificate telling an employer how much federal income tax to withhold, affecting take-home pay and refund size.
- Self-employment tax
- A 15.3 percent tax on net self-employment earnings covering Social Security and Medicare, with half deductible for income tax purposes.
- Compound interest
- Interest calculated on both the original principal and previously accumulated interest, producing growth faster than simple interest over time.
- Rule of 72
- A shortcut estimating doubling time by dividing 72 by the annual percentage return; at 8 percent, money doubles in roughly nine years.
- Diversification
- Spreading investments across assets so that poor performance in one holding is offset by others, reducing company-specific risk in a portfolio.
- Risk-return tradeoff
- The principle that investments offering higher expected returns generally carry greater volatility and greater possibility of loss.
- Stock versus bond
- A stock is an ownership stake with residual claim on assets; a bond is a loan paying fixed interest with priority claim on repayment.
- Real return
- Investment return adjusted for inflation, approximately equal to nominal return minus the inflation rate, showing change in purchasing power.
- APR
- Annual percentage rate, the annualized cost of credit including interest and certain fees, used to compare borrowing offers on a common basis.
- Credit utilization ratio
- Total revolving balances divided by total credit limits; lower ratios, generally under 30 percent, support higher credit scores.
- Debt avalanche method
- Repaying debts in order of highest interest rate first while paying minimums elsewhere, minimizing total interest paid over the repayment period.
- Debt snowball method
- Repaying debts in order of smallest balance first while paying minimums elsewhere, using quick wins to sustain motivation during repayment.
- FICO score factors
- Credit score components weighted as payment history, amounts owed, length of history, new credit, and credit mix, ranging from 300 to 850.
- Secured credit card
- A card requiring a refundable cash deposit that serves as collateral and typically sets the credit limit, used to build or rebuild credit.
- Deductible
- The amount an insured person pays out of pocket for a covered loss before the insurer begins paying, with higher deductibles usually lowering premiums.
- Coinsurance
- The percentage of covered costs the insured shares after meeting the deductible, with the insurer paying the remaining percentage up to the policy limit.
- Term versus whole life
- Term life provides death benefit coverage for a set period with no cash value; whole life provides permanent coverage plus accumulated cash value.
- Policy limit
- The maximum amount an insurer will pay for a covered claim; any loss above that amount is the policyholder's financial responsibility.
- Renters insurance
- A policy covering a tenant's personal property and personal liability, while the landlord's policy covers the building structure itself.
- Fair Credit Reporting Act
- A federal law giving consumers the right to access credit reports and dispute inaccurate information that agencies must investigate and correct.
- Phishing
- A fraud technique using messages that impersonate legitimate institutions to trick recipients into revealing passwords, account numbers, or other sensitive data.
- Opportunity cost
- The value of the next-best alternative given up when a financial choice is made, central to comparing the true cost of decisions.
- Sunk cost
- Money already spent and unrecoverable, which should be ignored in forward-looking decisions because it cannot be changed by future choices.