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| the study of personal and family resources important in achieving financial success; involves spending, saving, protecting, and investing resources |
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| knowledge of facts, concepts, principles, and technological tools fundamental to being smart about money |
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-you are accountable for your future financial well-being
-you strive to make wise personal financial decisions |
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| the achievement of financial aspirations that are desired, planned, or attempted, as defined by the person who seeks it |
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| the comfortable feeling that your financial resources will be adequate to fulfill any needs you have as well as most of your wants |
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| being satisfied with your money matters, which involves practicing good financial behaviors |
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| income not spent on current consumption |
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| assets purchased with the goal of providing additional future income from the asset itself |
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| 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 |
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| increasing production (business spending) and consumption (consumer spending) and hence increasing national income |
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-expansion
-peak
-contraction
-downturn
-trough
-recovery |
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| a time period when credit use shrinks instead of expanding as during normal economic times |
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| recurring period of decline in total output, income, employment, and trade; 6 mo. to 1 yr.; marked by widespread contractions in many sectors of the economy |
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| any economic statistic (eg. unemployment rate, GDP, inflation rate) that suggests how well the economy is doing now and how well it might be doing in the future |
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| moves in the same direction as the economy |
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| gross domestic product (GDP) |
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| broadest measure of economic health; reports how much economic activity (all goods and services) has occurred within the US borders during a given period |
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moves in the opposite direction from the economy
eg. unemployment rate, price of gold |
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| leading economic indicators |
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| statistics that change before the economy changes (eg. stock market, number of new building permits, consumer confidence index) |
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| consumer confidence index |
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| gauges how willing consumers are to spend |
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| index of leading economic indicators (LEI) |
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| composite index reported monthly by the Conference Board that suggests the future direction of the US economy |
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| 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 |
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| consumer price index (CPI) |
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| a broad measure of changes in the prices of all goods and services purchased for consumption by urban households |
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| income measured in constant prices relative to some base time period; reflects the actual buying power of the money you have as measured in constant dollars |
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| income that has not been adjusted for inflation and decreasing purchasing power |
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| measure of the goods and service that one's income will buy |
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divide 70 by the current inflation rate to determine how long it will take for the value of a dollar to decline by 1/2
Example: If the current inflation rate is 2.1%, then 70 / 2.1 = 33.3, so it will take about 33 years for the value of $1 today to reduce to $0.50. |
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| 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 |
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| Federal Reserve Board ("The Fed") |
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Definition
| an agency of the federal government; promotes maximum employment and price stability |
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| the short-term rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight |
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| the price of borrowing money |
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| the value of the next best alternative that must be forgon |
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| giving up one thing for another |
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| the extra satisfaction derived from gaining one more incremental unit of a product or service |
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| the additional (hence "marginal") cost of one more incremental unit of some item |
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| the tax rate at which your last dollar earned is taxed |
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| income that is totally and permanently free of taxes |
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| tax-sheltered/tax-deferred income |
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| income exempt from income taxes in the current year but will be subject to taxation in a later tax year |
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| time value of money (TVM) |
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| a method to compare cash flows across time (the present value of a future cash flow or the future value of a current cash flow); also the cost of money that is borrowed or lent and is commonly referred to as interest |
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| the original amount invested |
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| earning interest on interest |
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| the addition of interest to principal |
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| the value of an asset in the future |
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| a stream of payments to be received in the future |
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| divide 72 by the interest rate of a lump sum to determine the number of years it will take to double the principal amount using compound interest |
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| compensation for employment that does not take the form of wages, salaries, commissions, or other cash payments |
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| cafeteria plan (flexible benefits plan) |
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Definition
| employees choose their benefits from a "menu" of taxable and tax-reducing benefits |
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| flexible spending account (FSA) |
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Definition
| an employer-sponsored account that allows employee-paid expenses for medical or dependent care to be paid with an employee's pretax dollars rather than after-tax income |
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| money income that has not been taxed by the government |
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| an employee benefit designed to pay all or part of the employee's medical expenses |
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| high-deductible health plan (HDHP) |
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Definition
| 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 |
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| an initial portion of any loss that must be paid before collecting insurance benefits |
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| health savings accounts (HSAs) |
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Definition
| special saving accounts intended for people who have a high-deductible health care plan (with annual deductibles of at least $1000 for individuals and $2000 for families) |
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| tax-sheltered retirement plan |
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Definition
| employer-sponsored, defined-contribution retirement plans including 401(k) plans and similar 403(b) and 457 plans |
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| an investment professional who evaluates the personal finances of an individual or family and recommends strategies to set and achieve long-term financial goals |
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| investment policy statement |
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Definition
| a written document that spells out the relationship between an investor and his or her financial advisor; guides how the advisor will invest the person's money; should detail the person's investment philosophy, financial situation, the risks he or she is willing to take, and what tasks the advisor will perform |
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| A financial advisor must always act in the best interest of the client regardless of how it might affect the advisor. |
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