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369 Cards in this Set

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  • Back

What are the 3 forms of financial counseling?

Remedial - when clients experience emotional/personal discomfort

Productive - when clients are financially stable but desire to use resources better

Preventive - when clients perceive need for productive use of resources to prevent remedial

What are the 3 learning styles?




What are the 8 elements of persuasion?






Social Proof

Power of Because

Primacy and Recency

What are the 3 methods of communication?



Tonality, rate, and volume

What are the 5 major components of communication?

Sender- originator

Message - idea or feeling conveyed

Channels - 5 senses used to send message

Receiver - recipient of message

Environment - context in which communication takes place

What are the 4 general rules of communication?

1. Respond to main idea

2. Respond to emotional message

3. Remember significant details

4. Make justifiable inferences (make sense of what is said)

What is nonverbal pacing?

Mirroring posture, hand gestures, etc. to convey acceptance, warmth, and empathy

What is verbal pacing?

Fully attending to clients and mirroring them verbally

What is restating?

Repeating what client said with a focus on content

What is paraphrasing?

Restating in your own words what client said

How do you pace learning styles?

Use the language that correlates with the clients learning style


Visual - I SEE what you are saying

Auditory - TALK yourself into it

Kinesthetic - We've got to GET GOING on this

What are the various types of questions and probes?




Level 1 probe - gather facts

Level 2 probe - 5 w's

How does cooperation, scaling, and re-framing help facilitate good communication?

Helps maintain control of process, maximize counseling leverage, and focus the counseling

What are the 7 principles of effective goal setting?

1. Under the client's control

2. Emphasize what the client will do/behave

3. Specify what client will be doing when on track

4. Specify the conditions behavior can be viewed

5. Specify actions acceptable during time (#,%,)

6. Stated in positive terms

7. Stated in clients language

How can role playing, visualization, and the miracle question help explore a client's situation and lead to effective goal setting?

Help to mentally remove problems and obstacles and focus client on future solutions

Why should a counselor consider cheerleading with a client?

Help client overcome negative perceptions that prevent them from succeeding and to reinforce positive outcomes

What are some various decision making and problem solving methods?

Follow and accepted rule

Utilize a rational process

Acting to gain social approval

Following intuition

Leaving it to fate

Arranging a compromise

Consulting an expert

What are the 4 rules for brainstorming?

Avoid censoring

Avoid clarifying

Avoid assigning names

Use other people's ideas

What role do values, beliefs, and attitudes have in financial counseling?

They serve as the cornerstone of interaction, and provide counselors with a foundation on which to build the counseling relationship

What should take place in counseling stage 1: Initiating?

Build rapport, ease tensions, overview counseling process and terms, any initial questions

What should take place in counseling stage 2: Exploring?

Find out goals of client, values, and gather financial information

What should take place in counseling stage 3: Understanding?

Have client create action plan to meet THEIR goals

What should take place in counseling stage 4: Acting?

Execution of action plan and evaluation of success

What are some key points when providing feedback to client?

1. Focus on behavior, not person

2. Focus on immediate situations

3. Focus on potential value for the receiver, not the value or release it provides you

What is a process goal?

Focusing on creating a productive environment and relationship

What is an outcome goal?

Focusing on why client has sought counseling help

What are some points to remember when helping clients create good solutions/strategies for accomplishing goals?

1. Related to the problem/goal

2. Specifies what the client will do

3. Simple

4. Utilizes client strengths

What should be included in an action plan?

1. What time, effort, & resources will be required

2. How much effort can be expected

3. What will plan produce for client

4. What is possibility of failure and how critical would it be

Why might a counselor ask a client for exceptions to their problems?

To help them see alternative possibilities for the problem and help them understand how they can contribute to making these exceptions occur

What are some possible resources a client may have?

Financial counselor

Self help groups

Self help literature


Why would a counselor want to shift responsibility to the client?

It is one of the implicit goals of counseling and produces a client who is self-sufficient

What are some good reasons to use visualization with a client?

Helps them project into the future, abstractly experiment with alternatives, and learn control over their emotional responses to specific events

What are the principles when using reinforcing strategies?

1. Reinforce performance, not client

2. Reinforce specifically for the behavior

3. Reinforce inter-personally based on relationship

4. Reinforce as close time-wise to behavior

5. Reinforce in strength proportionally to behavior

What is the role of a gatekeeper in communication patterns with more than 2 people?

To control the communication focus (like teaching a class or group)

In a conflict situation, which position is most effective for a counselor to be in?

Participant observer because counselor can refocus discussion on commonality

When should termination and closure of counseling occur?

When clients reach a point where they are responsible for their own behavior and THEY WANT TO TERMINATE

Which table shapes are more effective in creating an atmosphere of equality for counseling?




What are the business cycle phases?







What is the Gross Domestic Product?

How much economic activity (all goods & services) has occurred within country borders during a given time period. Nation's broadest measure of economic health.

What is the Index of Leading Economic Indicators?

Composite index reported monthly by the conference board that suggests the future direction of the US economy

What is inflation?

A steady and sustained rise in general price levels across economic sectors (a monthly basket of goods)

What is the Consumer Price Index?

A broad measure of changes in the prices of all goods & services purchased for consumption by urban households

What is Purchasing Power?

Measure of goods and services that one's income will by

What is Opportunity Cost ?

The value of the next best alternative that must be forgone

What is Tax-Exempt Income?

Income that is totally and permanently free of taxes

What is Tax-Sheltered/Tax-Deferred Income?

Income exempt from income taxes in the current year but will be subject to taxation in a later tax year

What is Time Value of Money?

Method by which one can compare cash flow 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)

What is Compounding?

The addition of interest to principal; the effect of compounding depends on the frequency with which interest is compounded and the periodic interest rate applied

What is a Cafeteria Plan?

Employees choose from menu of taxable and tax reducing benefits from employer

What is a Flexible Spending Account (FSA)?

Employer sponsored account that allows employee-paid expenses for medical or dependent care to be paid with employees' pre-tax dollars rather than after tax income

What is a Heath Savings Account (HSA)?

Special savings account intended for people who have a high deductible health care plan. Contributions are tax-deductible and grow tax-free to be used for medical expenses.

What is a Tax-Sheltered Retirement Plan?

Employer-sponsored defined-contribution retirement plans including 401(k) plans and similar 403(b) and 457 plans

What is a fiduciary standard?

States that a financial advisor must always act in the best interest of the client regardless of how it might affect the advisor

What are some organizations that check the background of financial professionals?

AFCPE - Assoc. for Financial Counseling & Planning Education

NAPFA - National Assoc. of Personal Financial Advisors

CFP Board - Certified Financial Planners board

What are different ways financial planners are compensated?

1. Commission-only

2. Fee-based: up front fee and commission on products sold

3. Fee-offset: annual or hourly fee that is reduced by commission on products sold

4. Fee-only

What are some types of investment professionals and their roles?

Certified Financial Planner (CFP): increase wealth

Personal Finance Specialist (PFS): CPA with personal finance credential

Registered Investment Advisor (RIA)

What is the value of various employee benefits?

Retirement plan: tax sheltered, possible matching which increases return immediately

Heath care: HSA or FSA - tax advantages to paying for health care

Insurance: cheap or free life or disability insurance

What are some suggestions you could give to client who just lost their job?

Research assistance programs, unemployment compensation, update resume, references, interview skills, network!

What are some various items to consider with a job offer?


Paid time off

Health coverage

Retirement plan

Cost of living

Other perks

What should goals be based on?

Client's values

What are financial strategies?

Pre-established action plans implemented in specific situations

What is the purpose and components of a net worth statement (balance sheet)

Serves as status report and includes what you own, what you owe, and what the net result would be if all debts were paid off.

What are monetary assets?

Assets that can be used as cash (liquid assets, cash equivalents)

What are tangible assets?

Personal property used to maintain your everyday lifestyle

What are investment assets?

Tangible and intangible items acquired for the monetary benefits

When is a person insolvent?

When they owe more than they own (negative net worth)

What is the purpose and components of a cash flow statement (income and expense sheet)?

To show money coming in, money going out, and verify if someone lives within their income.

Components include income, expenses, surplus or deficit

What are fixed expenses?

Expenses that recur at fixed intervals

What are variable expenses?

Expenses over which you have substantial control

What can be learned from a liquidity ratio?

If someone has enough liquidity to pay for emergencies

What can be learned from a debt-to-income ratio?

If someones total debt burden is too high

What are some ways to cut spending?

Don't eat out

Reduce luxury purchases

Reduce housing costs

Stick to shopping list

What should be done before budgeting?

Set specific financial goals

What is disposable income?

Take home pay after taxes, withholdings, etc.

What is discretionary income?

Money left over after necessities such as housing and food are paid for

What are the purposes of a revolving savings account (fund)?

To save now and regularly to cover future irregular expenses or cover income fluctuations

What are progressive taxes?

Taxes that increase as taxpayer's taxable income increases

What are regressive taxes?

Taxes that stay the same for all income levels resulting in lower income people paying proportionately more in taxes

What is a marginal tax bracket and why is it important?

One of 7 income-range segments at which income is taxed at increasing rates and is important because it can tell you the proportion of any extra income you must pay taxes on

What are adjustments?

Allowable subtractions from gross income like 401(k) contributions, moving expenses, Health Savings Account contributions, alimony. They allow you to reduce your taxable income

Why are adjustments also called above-the-line deductions?

Because they may be subtracted even if itemized deductions are not claimed and a standard deduction is used instead.

What is the difference between itemizing deductions and taking the standard deduction?

With itemized deductions, the taxpayer lists each deduction item by item. With a standard deduction, the taxpayer takes $6,200 for single or $12,400 for married

Can an individual itemize their deductions and take a standard deduction at the same time?


List some examples of deductions

1. Medical/dental expenses

2. Taxes paid

3. Interest paid

4. Gifts to charity

5. Casualty and theft losses

6. Job expenses and most other misc. deductions

What is an exemption?

Legally permitted amount deducted from Adjusted Gross Income based on number of people that taxpayer's income supports

Why are tax credits so valuable?

They reduce your tax liability dollar for dollar compared to a tax deduction that simply reduces the amount of your taxable income

What is the difference between a nonrefundable and refundable tax credit?

Nonrefundable credit may reduce your tax liability to zero but not less whereas a refundable credit may reduce your liability to below zero resulting in a tax refund

List some tax credits and if they are refundable or nonrefundable

1. Earned Income Credit: refundable

2. Lifetime Learning Credit: nonrefundable

3. American Opportunity Credit: partially refundable (school)

What are 2 ways people pay income taxes?

Payroll withholding via employer

Estimated taxes paid quarterly in advance

What is the difference between tax evasion and tax avoidance?

Tax evasion is deliberately and willingly hiding income or falsely claiming deductions whereas tax avoidance is simply reducing tax liability through legal techniques

Which 2 federal organizations administer insurance for financial institutions?

Federal Deposit Insurance Corporation (FDIC)

National Credit Union Share Insurance Fund (NCUSIF)

What is the maximum amount covered by federal deposit insurance at any one institution?


What are some ways to avoid overdraft fees?

1. Automatic funds transfer - from savings to checking

2. Automatic overdraft loan - loan from bank

3. Opt-in overdraft/bounce protection - loan up to a certain amount

What is the safest form of check endorsement?

A restrictive endorsement - "For deposit only" include name of financial institution and account number

What is a money market account?

Bank account with higher interest rate than checking/savings accounts but used the same otherwise. Money is invested in the "money market"

What is a money market mutual fund?

Money market account in a mutual fund rather than a depository institution

What is a certificate of deposit?

Fixed-time deposit with insured interest rate

What is APY?

Annual Percentage Yield: percentage based on the total interest that would be received on a $100 deposit for 365 day period

What are some components of electronic banking?


Online banking

Smartphone app

How can someone use electronic banking safely?

Fix any account errors

Don't store passwords on phone

Destroy data on phone when trading in

Use complicated passwords

What are some ways parents can encourage good money management in children?

Allowance as a teaching tool

Encourage work

Set limits

Teach good choices

Help them learn to wait

Talk about family finances with them

Be a role model

What ways can a counselor help couples talk about financial matters?

Focus on commonalities

Learn to manage financial disagreements

Use positive "I" statements

Be honest

What are some positive uses of credit?



Making reservations

Own expensive products sooner


Get an education

What are some negative uses of credit?

Reduces financial flexibility and buying power

Interest is costly

Tempting to spend more money


What is APR?

Annual Percentage Rate: cost of credit on a yearly basis as a percentage rate

What is a debt limit?

Overall maximum you believe you should owe based on your ability to meet repayment obligations

Describe criteria for obtaining credit

1. Apply for credit

2. Lender obtains credit report

3. Lender obtains credit score

4. Lender decides whether to accept app and terms

How can you minimize risk of identity theft?

Security freeze on your credit

Strong passwords

Shred sensitive documents

Don't carry SSN card on you

What is a security freeze?

A freeze on your account with the 3 credit bureaus that prevents a credit application without your written permission

What is a usury law?

Establishes the maximum loan amounts, interest rates, and credit related fees for different types of loans from various sources

What market does consumer finance companies focus on?

Subprime lending markets (FICO scores of 620 or less)

What is a debt-consolidation loan?

One new loan used to pay off many other debts

What is a credit repair company?

Usually a scam as they charge for services a consumer could do for themselves for free

What is a credit counseling agency?

A legitimate financial education company

What is a debt management plan?

A plan where the consumer pays a company and that company pays their creditors

What is a payday lender?


They take a personal check and agree not to cash it for a week or more and charge 20% or more to do so

What is a rent-to-own program?

Consumer "rents" item for a period of time and only owns it after final payment. If a payment is missed, item is often seized.

What is a pawnshop?

They offer small secured loans via collateral in the item offered. If loan isn't paid back by deadline, the shop can sell the item

Equal Credit Opportunity Act

Prohibits discrimination in any part of a credit transaction based on race, color, national origin, sex, marital status, religion, age, or public assistance status

Electronic Funds Transfer Act

Establishes rights and liabilities of consumers and responsibilities of all participants in electronic funds transfer activities. Limits consumer's loss with fraud or theft of card and institution must provide liability notice to consumer

Truth in Lending Act

Regulates what a lender must tell consumer about a loan including open-end credit lines, close-end credit lines, oral disclosures, and mortgages.

Fair and Accurate Credit Transaction Act

Allows consumers to get a free credit report annually from each of the 3 credit bureaus and provides protection from ID theft, accuracy of consumer report, limits medical info in financial systems, and provides financial literacy programs

Fair Credit Billing Act

Protects consumers from unfair credit billing practices and provides guidance for how consumers dispute errors, provides grace period & time to pay bill, and allows consumers to sue credit company

Fair Credit Reporting Act

Regulates credit bureaus and the use of credit reports and protects consumer's credit report from inaccurate info, limits who can obtain a person's credit report, and guides background checks

Fair Debt Collections Practice Act

Governs the conduct of debt collectors and prevents man abusive collection tactics. Limits hours collectors can call, prohibits harassment, profanity, calling at work, contact after cease letter, threatening arrest, and seeking unjustified amount

Credit Accountability Responsibility and Disclosures (CARD) Act

Bans some, but not all of the worst abuses by credit card companies. Provides 21 days from mailing for bill to be paid, prohibits retro-rate increases, payment must got to highest interest rate first, eliminates fee harvester cards, and eliminates excessive marketing to young people

What main items are included on a credit report?

Personal info, history of payment, inquiries, judgements, liens, wage garnishments, and bankruptcy

How can someone get a copy of their credit report? for free or for a fee

How can errors be corrected on a credit report?

Call, write, or submit a dispute online with the credit bureau that is displaying the error

How can an individual create a positive credit report?

Start small with a credit card, small starter loan, or utility and make payments on time, every time

What's the difference between a hard credit inquiry and a soft credit inquiry?

A hard inquiry is one that you requested to gain credit or gave permission for someone to view; affects your credit score

A soft inquiry is unsolicited and does not affect your credit score

What is a credit score?

A 3 digit number determined by algorithm based on components of one's credit report

What is the range of FICO scores and what is considered a very good score?

Rang is 300-850 and 750 or above is considered very good

List the FICO credit scoring factors and how much of the score they are responsible for

Payment history - 35%

Amounts owed - 30%

Length of credit history - 15%

Recent credit - 10%

Types of credit used - 10%

What is the name of the credit score provided by the credit bureaus?

Vantage Score

How can someone obtain their credit score?

FICO website

Creditor if they rejected you for credit

Credit bureaus

Some credit card companies

How long does it take for negative information to be removed from a credit report?

7 years for most items; 10 years for bankruptcy; 15 years for unpaid tax liens

What is the purpose of sending a statement to the credit bureaus to be included with a person's credit report?

To explain damaging items on your credit report for future creditors

How helpful are credit repair agencies?

Not very helpful as they usually only offer services that a consumer can do for themselves

Who can access an individual's credit report?

Creditors, employers, government, landlords, and insurance companies

What is included in the "potentially negative items" section of a credit report and why?

Items that creditors may view less favorably like missed payments, judgements, liens, foreclosures and this is used to determine risk and credit worthiness

What types of accounts are included in the "accounts in good standing" section of a credit report?

Accounts that will be viewed favorably by creditors; no missed payments, accounts not maxed out, etc.

What are the names of the hard inquiries section and soft inquires section on a credit report?

Requests viewed by others and requests viewed only by you

What is included in the personal information section of a credit report?

Name, SSN, employers, phone #'s, addresses

What are some ways to reduce debt?

Use savings, borrow from friends/family, sell assets, increase income

What are some things to avoid when getting funds to reduce debt?

Use credit cards to borrow money, borrow against home, bounce checks, use overdraft as credit, use a payday lender, use pawnshops, and use title lending shops

What is the purpose of a cease letter?

To stop collectors from contacting you regarding a debt

List some behaviors the Fair Debt Collections Practices Act (FDCPA) prohibits

Harassment, use of obscene words/insults, communication with 3rd parties, and communication at unusual or inconvenient times/places

What is a garnishment?

When income or other pay is taken to fullfill a debt

How long does a lien (judgement lien) usually stay on real estate?

Varies by state but usually many years

What are some alternatives to eviction?

Get out of the lease

Negotiate with landlord


Military orders

What are some protections individuals have in regard to utility terminations?

Right to a hearing

Limits to times or days shutoff can happen

Right to deferred payment plan

How many car payments can be missed before a repossession takes place?

1 or 2 payments

What are self-help repossessions?

Repos that do not require court permission

What are some ways to prevent a car from being repossessed?

Keep current on payments

Keep insurance current

Negotiate a work-out agreement

Sell the car

File for bankruptcy

When does a deficiency balance occur?

When a car is repossessed, sold at auction, and the amount sold for is less than you owe.

What are some ways to pay tax debt?

Credit card

Payment plan

Negotiate "offer-in-compromise" pay plan

Request hardship determination (currently not collectible status)

What are some signs of over-indebtedness?

Not knowing how much you owe

Running out of money

Paying minimum amount due

Exceeding debt limits

Using cash advances to pay other cards

What are the steps for getting out of debt?

1. Assess what you owe

2. Focus budget on debt reduction

3. Contact creditors

4. Take on no new debt

5. Refinance

What are the different types of student loans?

Federal: Direct or FFEL, Stafford based on need, Plus for parents, consolidation


Perkins: from the college for exceptional need

How can someone qualify for student loan cancellation?

Serious problems with the school

Permanent and total disability


Public Student Loan Forgiveness

Certain professions (like teachers)

What is a student loan deferment?

A delay in paying on a loan and the government covers the interest payments

What is a student loan forbearance?

A delay in paying on a loan and the government does not cover the interest payments

Can a student loan ever be discharged in bankruptcy?

Yes if proven to be an undue hardship

What are the pros and cons of student loan consolidation?

Pro: better interest rate, lower payment, get out of default

Con: can't consolidate while in school, interest rate not a wonderful deal

What are the consequences of defaulting on a federal student loan?

No new student loans

Affects credit report negatively

Aggressive debt collection

Collection fees

Wage garnishment


Federal benefit offsets

How might private lenders try to collect on defaulted student loans?


How can bankruptcy help and individual?

It can eliminate or restructure all or most of their debt and free up income to pay down remaining debt

It can stop foreclosure

It can prevent repossession on property

It can stop wage garnishment

What can a bankruptcy NOT do for an individual?

Can't eliminate responsibility to pay secured debt

Can't eliminate special types of debts singled out by government

Can't protect all cosigners on their debts

Can't eliminate debts incurred after bankruptcy filed

What is an automatic stay?

When bankruptcy is filed it stops the start or continuation of repossessions, wage garnishments, attachments, utility shutoffs, foreclosures, evictions, and debt collection harrassment

What is discharged debt?

The elimination of the obligation to repay debt

How long does bankruptcy stay on a person's credit report?

10 years

How often can someone file a Chapter 7 bankruptcy?

Every 8 years

How often can someone file a Chapter 13 bankruptcy?

Every 2 years

How long does someone have to wait to file a Chapter 7 bankruptcy after filing a Chapter 13?

6 years

How long does someone have to wait to file a Chapter 13 bankruptcy after filing a Chapter 7

4 years

What is a Chapter 7 bankruptcy?

A discharge of unsecured debt and liquidation of non-exempt property

What is a means test and what is it's purpose?

It is a way for creditors to see what assets a person has to pay debts and determine if bankruptcy is applicable. It only applies to those making over the state median income

What is a Chapter 13 bankruptcy

Restructuring of debt where one pays some or all of their debt back over several years and can keep their property

Which debts can be discharged in Chapter 7 bankruptcy?

Unsecured debts can be discharged after liquidation of non-exempt assets

Which debts can be discharged in Chapter 13 bankruptcy?

Unsecured debts can be discharged except those that will be repaid over time

What options are available if a person fails to complete a Chapter 13 repayment plan?

Hardship discharge


Conversion to Chapter 7


What resources may an individual use when filing for bankruptcy?

Bankruptcy lawyer

Reputable non-profit bankruptcy organization

What is installment credit (closed-ended) credit?

Set amount of money borrowed and paid back over time

What is revolving credit (open-ended) credit?

A credit limit is set and any amount up to the limit may be borrowed at any time and there is a minimum payment due each month if a balance is carried

What is a cash advance?

Cash loan obtained from a credit card or line of credit

What is a personal line of credit?

It's similar to a credit card but user has easier access to cash

What is service credit?

Credit granted by public utilities, physicians, dentists, etc. Usually no interest but penalty fees and interest may be assessed if payment is late

What happens if card holder does not pay the minimum payment?

Late payment fee and may be declared in default

What must a card holder do to close an account?

1. Pay off balance

2. Obtain phone # of lender

3. Contact lender

4. Send written request

5. Obtain credit report to verify

What is an annual fee?

Fee charged once per year just to have the card whether it is used or not

What is a transaction fee?

Fee charged for every time a certain transaction occurs

What is a balance transfer fee?

Fee charged when a balance is transferred from another credit card

What are the components of a credit card statement?

Statement date

Payment due date

Transaction and posting dates

Grace period

Minimum payment due

Finance charges

What is a grace period?

Time between posting date of transaction and the due date where any new purchases made during billing cycle will avoid finance charges as long as previous month's balance is paid in full

What is the most commonly used method of calculating the average daily balance on a credit card billing statement?

Average daily balance including new purchases with a grace period

What is an unsecured loan?

A loan based solely on credit worthiness and signature

What is a secured loan?

A loan that requires collateral or a co-signer

What is an acceleration clause?

After a specific number of payments are unpaid the loan is considered in default and ALL remaining installments are immediately due

What is amortization?

A loan repayment method in which part of the payment goes to pay interest and part goes to repay principal. Extra payments toward principal shorten life of loan and decrease total amount of interest paid

What is a prepayment penalty?

A charge assessed to borrower for paying off a loan early.

What are some things to think about when shopping for a new credit card?

Avoid accepting too many offers

Beware of subprime cards

Look at the interest rate

Look at fees

Look for grace period

Watch out for bait and switch

What are 4 terms to understand in regard to interest rates?

APR - interest rate express in annual figure

Variable rate- interest rate that can change

Teaser rate- interest rate that starts low and increases after a set period of time

Penalty rate- higher interest rate based on missed payments

What can someone do to dispute an item on a card billing statement?

Send a letter to the company within 60 days

What are the protections under the CARD act?

1. Protection against rate increases for existing balances

2. Protection for rate increases applying to new transactions

3. Exceptions: variable, teasers, 60 days late

4. Minimum payment protections

5. Limits on penalty fees

6. Protections for how your payment is allocated

7. Prohibits unreasonable due date practices

8. Protections for consumers under 21

Where are some places to do pre-shopping research?

Manufacturers, sellers, service providers, friends, consumer information in print and online

How can you tell if a loan is affordable?

Determine the cost-per-use

See if payment will fit in to budget

(If not, must cut expenses, increase income, or get cheaper item)

What does it mean to be "upside down" on a loan?

When you owe more on the property than the property is worth if sold today. Often happens with cars when the loan is for 5 or more years and the car depreciates in that time

What needs to be considered when leasing a vehicle?

Actual cost of the vehicle is negotiable

Know the fees associated

Avoid balloon loans

Be cautious about gap insurance

What is gap insurance?

Insurance that covers the difference between the loan and the value of the vehicle if totaled

What is an implied warranty?

Product is warranted to be suitable for sale and to work effectively even if a written warranty doesn't exist

What is a full warranty?

3 stringent requirements:

1. Product must be fixed at no cost to the buyer within a reasonable time after complaint

2. Owner will not have to undertake an unreasonable task to return product for repair

3. Replaced, repaired or refunded money

What is a limited warranty?

Less protection that full warranty (ex: only parts covered but not labor). Also, some of a product may be covered under full warranty while some may be under limited

What is an extended warranty (service contract)?

Agreement to repair or replace covered product beyond manufacturers warranty for specific time and purchased separately form product itself

What parts of a vehicle purchase can be negotiated?


Interest rate

Trade-in price

What is the cooling-off rule and when does it apply?

A Federal Trade Commission rule that gives consumers 3 days to cancel a contract of $25 or more after signing for a sale anywhere other than a seller's normal place of business

What are the levels of contact for a product/service complaint?

1. Local business

2. Manufacturer

3. Self-regulatory organization

4. Consumer action agencies

5. Small claims or civil court

What is a lemon law?

State law that provides guidelines for arbitrators to use to order a dealer's buyback of a "lemon" as defined under the law. Commonly a car that has been in the shop 4 or more times for the same problem

Compare the cost of renting vs. buying upfront and long term.

Renting is usually better upfront based on initial cash flow. Long term, buying is better when accounting for home appreciation and tax advantages

What is included in closing costs?

Fees and charges other than the down payment and typically vary from 2% to 7% of loan amount

What is a title?

The legal right of ownership interest to real property

What is title insurance?

Insurance that protects the lender's interest if the title search is later found faulty

What are the components of PITI?





What goes into an escrow account?

Property taxes and insurance and are to be paid at the end of the year when they are due

What is private mortgage insurance?

Insurance to insure the difference between amount of down payment required by lender's loan to value ratio (80%) and the actual, lower down payment. Usually required for less than 20% down payment

What limit is recommended for a front-end ratio?


What is a front-end ratio?

PITI/gross monthly income

What is a back-end ratio?

Monthly debt/gross monthly income

AKA debt-to-income ratio

What is the recommended and required limit for back-end ratio?

Recommended: 36% or less

Limit: 43%

What is the purpose of earnest money?

Used to hold the property until a purchase contract can be negotiated (good faith money to show the seller that you are serious)

What is a contingency clause and what might be included in one?

Specifies that certain conditions must be satisfied before a contract is binding. Ex: earnest money must be refunded if home fails inspection

What is included on a good faith statement?


Application and processing fees

Closing costs

Any other charges

What is included on a uniform settlement statement?

List of all costs and fees to be paid at closing

What is an amortization schedule?

List that shows all the monthly payments, portions that will go toward interest and principal, and the debt remaining after each payment is made

What 3 factors affect the mortgage payment?

1. Amount borrowed

2. Interest rate

3. Length of loan

How can an ARM affect the monthly mortgage payment?

ARM is a variable interest so the mortgage payment may go up or go down based on interest rates

What is a seller required to disclose to a buyer?

Problems that could affect the property's value or desirability using a state required defect disclosure form

What are some important considerations when selling a home?

List with a broker or For Sale By Owner?

Asking price?

Pre-payment penalty?

Real estate transfer taxes?

Broker commission?

What factors does the ECOA prohibit against?

Race or color

National origin


Marital status



Public assistance status

What are some important concepts to think about when considering refinancing?

Never refinance unsecured debt into secured

Don't swap low interest with high interest

When in doubt, don't

Be wary of variable rates

What is a reverse mortgage?

Lender lends money based on equity in home and no payments are due unless borrower moves or dies. Must be at least 62 years old to qualify

What are the options for receiving proceeds from a reverse mortgage?

1. One lump sum

2. Fixed monthly installments via term or as long as you live in the home

3. Line of credit you can borrow as needed

What are some current government programs to help borrowers keep their homes?







What is loan recasting?

Excuses your current obligation to catch up on missed payments and push your current obligation to the end of the loan term

What is loan modification?

Permanent change of loan terms (lower interest rate, extension of payment period, re-amortization, capitalization of arrears, cancellation of principal, etc.)

What is a pre-sale?

Sale or transfer in lieu of a foreclosure to get a better price on your property

What is a short sale?

Lender agrees to let homeowner sell through a real estate agent and take what is made even if it is "short" of what is owed

What is a deed in lieu of foreclosure?

When a homeowner gives up the deed to the lender in lieu of a foreclosure usually for something in return, like no negative credit report, extended stay in the home, or cash

What are some tax and credit consequences of foreclosure and workout plans?

If debt is forgiven then that can count as income and must be reported to the IRS via form 982

What is reinstating?

Right of homeowner to pay all arrears up to 5 days before foreclosure sale and resume mortgage

What is redeeming?

Right of homeowner to pay off full amount of loan up to and sometimes after foreclosure

What affect does filling for Chapter 7 or Chapter 13 bankruptcy have on foreclosure?

Both will offer an automatic stay temporarily delaying foreclosure and allowing time to regroup. Chapter 13 can provide payment plan to cure default

What protection is provided borrowers with a government-backed home loan?

Assistance and special work out options

What are exposures?

Sources of risk and include items you own and activities in which you engage

What are perils?

Events that can cause a financial loss like fire, wind, theft, illness, vehicle collision, etc.

What are the steps in the risk management process?

1. Identify risk exposures

2. Estimate your risk and potential losses

3. Choose how to handle your risk of loss

4. Implement your risk management program

5. Evaluate and adjust your program

What are some ways to handle the risk of loss?

1. Risk avoidance

2. Risk retention - accept it or port of it like a deductible

3. Loss control - heavy locks, fire alarms

4. Risk transfer - insurance company

5. Reduce risk to acceptable lvls. - buy insurance that fits

What is an insurance premium?

The fee paid monthly, quarterly or annually for insurance

What is a hazard?

Any condition that increases the probability that peril will occur

What is a policy limit?

Specifies the maximum dollar amounts that will be paid under the policy

What is a deductible?

Amount policyholder pays at time of incident before insurance company pays their portion. Inversely proportional to premium amount

What is coinsurance?

Method by which the insured and insurer share proportionally in the payment for a loss

What is a named-peril policy?

Only covers losses covered by perils that the policy specifically mentions

What is an all-risk policy?

Covers losses caused by all perils other than those excluded

What does renter's insurance cover?

Covers the contents of the dwelling instead of the dwelling itself

What is actual cash value coverage?

Only pays out the depreciated value of property

What is contents replacement coverage?

Will pay out the cost to replace property today

What is uninsured and under-insured motorist insurance?

Coverage that covers the insured in an accident when an inadequately covered driver is at fault

What is collision insurance?

Covers insured vehicle from accident with another car, object or rollover

What is comprehensive insurance?

Protects agains losses to insured vehicle caused by perils other than collision or rollover like fire, theft, vandalism, hail, wind, etc.

What is umbrella liability insurance?

Catastrophic liability policy that covers liability losses in excess of those covered by an underlying home-owner's, automobile, or professional liability policy

What is professional liability insurance?

Protects individuals and organizations that provide professional services when they are held liable for their client's losses

What are floater policies?

Provide all-risk protection for accident and theft losses to movable property regardless for where the loss occurs (property owned for business purposes is excluded)

What is the goal of the ACA?

To provide affordable health insurance for all US citizens and reduce the growth in health care spending

What are the protections and benefits of the ACA?

Ban on denial of pre-existing conditions

Prohibits charging men & women differently

Requires free preventative care and checkups

Payout maximums prohibited

Children can remain on parents plan until 26

What is an HMO?

Health Maintenance Organizations: provides a broad range of health care services for a set monthly fee on a prepaid basis

What is a PPO?

Preferred Provider Organizations: Group of health care providers who contract with a health insurance company to provide services at a discount

What is Medicare?

Federal government's health care program for the elderly

What is Medicaid?

Government health care program for low income people funded jointly by the federal and state governments

What does COBRA provide?

Consolidated Omnibus Budget Reconciliation Act

Allows a former employee to remain a member of a group health plan for as long as 18 months (employer with 20 workers or more)

What does long term care insurance provide?

Provides reimbursement for costs associated with custodial care in a nursing facility or at home

What are activities of daily living?

Bathing, bladder control, dressing oneself, eating without assistance, toileting, and getting in and out of bed

How do activities of daily living apply to long term care insurance?

They are the criterion used to determine eligibility of long term care insurance (usually 2 or 3 need to be met)

What is the benefit period for long term care insurance?

The maximum period of time for which benefits will be paid

What is the waiting period for long term care insurance?

The time period between the onset of the need for care and the date benefits begin

What group of people does long term care insurance usually help the most?

Middle income people because wealthy people can pay for their own care and low income people are covered by Medicaid

What does disability income insurance cover?

It replaces a portion of lost income when illness or injury prevents an employee from working

What is time period does short term disability income insurance cover?

Covers from 2 weeks to 2 years

What time period does long term disability income insurance cover?

Covers from 5 years or more

What is an own occupation disability insurance policy?

Provides benefits if you can no longer perform the occupation you had at the time of disability (more expensive but costs more)

What is an any occupation disability insurance policy?

Provides full benefits only if you can't perform any occupation (income replacement policy)

What is a health care proxy?

Legal document where individuals designate another person to make health care decisions on their behalf if they are rendered incapable of making their wishes known

What is a living will?

Allows a person to document in advance their specific wishes concerning medical treatments in an emergency or during end-of-life health care

What is a durable power of attorney?

Gives designated person virtually absolute power to manage one's financial affairs

What financial needs must be met upon death?

Final expenses for burial/cremation, income replacement for survivors, readjustment period needs, debt repayment needs, college expenses needs, and other special needs

What ways can financial needs upon death be met?

Existing assets, government benefits, and life insurance

What is the multiple-of-earnings approach for determining how much life insurance is needed?

Multiply your annual income by 5, 7, or 10 to determine insurance needs (this is flawed)

What is the needs-based approach for determining how much life insurance is needed?

Considers all the factors that might potentially affect the level of financial need

What is term life insurance?

"Pure protection" You pay a premium for a set term and beneficiaries receive fare value upon death (smallest premium)

What is cash-value life insurance?

Pays face value upon death but also invests portion of premium to allow holder to borrow from fund

Who is an owner/policyholder?

Retains all the rights and privileges granted by the policy including the right to amend the policy an right to designate who receives the proceeds

Who is the insured?

The individual whose life is insured

Who is the beneficiary?

The individual who receives face value upon insured's death

Who is the contingent beneficiary?

The back up beneficiary who will become the beneficiary if the original beneficiary dies before the insured

What does "buy term and invest the rest" mean?

Buy term life insurance at a lower premium than whole life, take the difference and invest it on your own. This is a better financial decision than buying whole or universal life

What is a portfolio?

A collection of multiple investments in different assets chosen to meet your investment goals

What educational websites are helpful for new investors?

wikipedia-asset allocation

What is a capital gain?

Increase in the value of an initial investment only realized if sold

What is a capital loss?

decrease of paper value of an initial investment only realized if sold

What is risk tolerance?

An investor's willingness to weather changes in the value of their investments, that is, to weather investment risk

What are the different investment philosophies?




What is active investing?

Regularly studying the market and economy and buy and sell often and usually for the short term

What is passive investing?

Doesn't monitor investments regularly and often invests in mutual funds as opposed to individual stocks

What are equities?

Essentially the ownership of an asset: stocks, mutual funds shares, real estate, commodity futures

How should investments differ for short, intermediate, and long term goals?

The shorter the term the more conservative the investment should be

What is investment diversification?

Process of reducing risk by spreading investment money among several different investment opportunities

What are some types of investment risk?

Business failure

Market volatility risk

Who might charge commissions?

Salespeople, agents, and companies

What is leveraging?

Using borrowed funds to invest with the goal of earning a rate of return in excess of the after tax cost of borrowing

What is the buy-and-hold investment strategy?

Buying widely diversified mix of stocks and/or mutual funds, reinvest the dividends and hold on almost indefinitely

What is the dollar-cost averaging investment strategy?

Systematic program of investing equal sums of money at regular intervals, regardless of the price of the investment

What is portfolio diversification?

Practice of selecting a collection of different asset classes (stocks, bonds, mutual funds, real estate, cash) that are chosen not only for their potential returns but also for their dissimilar risk-return characteristics

What is asset allocation?

A form of diversification in which the investor decides on the proportions of an investment portfolio that will be devoted to various categories of assets

What is re-balancing?

Process of bringing the different asset classes back into proper relationship following a significant change in one or more of them (goes with strategy of asset allocation)

What steps should be taken at the beginning of investment planning?

Identify financial goals

Explain investment philosophy

Determine amount per month available to invest

What are stocks?

Shares of ownership in a business corporation's assets and earnings

What is common stock?

Most basic form of ownership of a corporation

What is preferred stock?

Type of fixed income ownership security in a corporation that pays dividends

What agencies help protect against investment fraud?

Securities and Exchange Commission (SEC)

Self-regulatory agencies

Brokerage firms

Security Investors Protection Corporation (SIPC)

Financial Services Oversight Council (FSOC)

What are the 2 stock transactions (orders)?

Buy or sell

What are corporate bonds

Interest-bearing certificates of long-term debt issued by a corporation

What are Treasury securities?

Securities issued by the US govt. including bills, notes and bonds

AKA "Treasuries"

What are municipal government bonds?

Long-term debts (bonds) issued by local government (cities, states, etc.) and their agencies

AKA "munis"

What is a mutual fund?

Investment company that pools funds by selling shares to investors and makes diversified investments to achieve financial goals of income, growth, or both

What are the advantages of investing through mutual funds?



Professional management


Low transaction costs

Uncomplicated investment choices

What is automatic dividend reinvestment?

Investor's option to choose to automatically reinvest any interest, dividends, and capital gains payments to purchase additional fund shares

What is an income objective fund?

Fund that invests in securities that pay regular income in dividends or interest

What is a growth objective fund?

Fund that seeks capital appreciation

What is a growth and income objective fund?

Fund that invests in companies that have a high likelihood of both dividend income and price appreciation

What is a load fund?

A fund that always charges a "load" or sales charge upon purchase as commission used to compensate brokers

What is a no-load fund?

A fund that allows investors to purchase shares directly at the net asset value (NAV) without the addition of sales charges

What is considered a low expense ratio?


What is the average expense ratio?

1.26% for a managed stock fund

What is a high-risk investment?

Investment that presents potential for significant fluctuations in return, sometimes over short time periods

What are some tax advantages of investing in real estate?

1. Property depreciation is tax deductible

2. Interest is tax deductible

3. Capital gains are taxed at low rates

4. Exchange of properties can be tax free

5. Taxes can be lower on vacation home rental income

What are some disadvantages of real estate investing?

1. Business risk- housing bubble, low rents

2. Large initial investment

3. Lack of diversity

4. Dealing with tenants

What are collectibles?

Cultural artifacts that have value because of their beauty, age, scarcity, or popularity (antiques, stamps, coins, art, ball cards, ect.)

What is an option?

A contract to buy or sell an asset at some point in the future at a specific price (stock option most common)

What is a futures contract?

The obligation to make or take delivery of a certain amount of a commodity by a set date

What are hedge funds?

Freewheeling, risky investment pools for the extremely wealthy that use unconventional investment strategies such as trading options, commodities, selling short, using leverage and arbitrage, buying and selling currencies, etc.

What is estate planning?

The definite arrangements you make during your lifetime that are consistent with your wishes for the administration and distribution of your estate when you die

What is tax-sheltered retirement accounts?

Account for which all earnings from the invested funds are not subject to income taxes. Also, contributions are tax deductible so you see an immediate "return" on your investment

What is vesting?

Process by which employees accrue non forfeitable rights over their employer's contributions that are made to the employee's qualified retirement plan

What is a defined-contribution plan

A retirement plan designed to provide a lump-sum at retirement

How do matching contributions work?

Can come from an employer and is usually capped at a percentage of income and is deposited into the retirement account

What is the best known defined contribution plan?


What is a defined-benefit retirement plan?

Employer sponsored retirement plan that pays lifetime monthly annuity payments to retirees based on a predetermined formula (pension)

What is a traditional IRA?

Individual Retirement Account that uses pre-tax contributions, tax deferred growth, taxed at withdrawal

What is a Roth IRA?

Individual Retirement Account that uses after tax contributions, tax deferred growth, tax-free withdrawals

What are some retirement accounts for self-employed individuals?

Keogh (key-oh): tax deferred account designed for high-income self employed and small business owners

SEP-IRA (Simplified Employee Pension IRA): account for sole proprietor's self employment income and those with one or more employees who are looking to save only in profitable years

What are some ways to make retirement dollars go further?

Avoid penalties for early withdrawal

Plan out your retirement spending carefully

What are annuities?

Contract made with an insurance company that provides for a series of payments to be received at stated intervals (usually monthly) for a fixed or variable time period

What is probate?

Courts supervised process that allows creditors to present claims against an estate.

How can probate be avoided?

It can be avoided by setting up assets as non-probate property, making a will, and other transfers-by-contract, like joint ownership

What happens to someone's property if they die without a will?

The state ensures that debt, taxes, and expenses are paid. Then probate court divides all property and transfers assets to the legal heirs according to state law.

What is intestate?

When someone dies without a will

What is a trust?

A legal arrangement between you as the creator of the trust and the trustee, or person designated to faithfully and wisely manage any assets in the trust

What is a living trust?

Trust that takes effect while grantor is alive

- revocable living trust

- irrevocable charitable remainder trust (CRT)

- irrevocable living trust

What is a testamentary trust?

Trust that takes effect upon death