UGBA 135 Midterm #1
21st Century Millionare - correct answer - Someone who can financially take care of themselves without
help from any government agency, living the life they want to lead
- After working for 40 years, only 5% of people are financially independent (don't need government
assistance)
- Cornerstone of their wealth = being frugal (not cheap, but value-oriented) --> budget and spend
carefully, live within their means
- People who succeed have goals
Do not outlive your money - correct answer - Longevity is more of an issue than saving for retirement,
- Invest in yourself now! (education, whatever you need to achieve your goals)
Divide between rich and poor - correct answer - 50% of our country is broke (top 1% pays 40% of income
taxes)
- Top 5% pays 60% of income tax
- 47% of households do not pay federal income tax
Burden of saving for retirement - correct answer Shifting from employer to employee!
Companies can no longer afford to pay for the healthcare of their employees, now employees must take
on the burden of saving for retirement, investing and medical care
Good Debt vs Bad Debt - correct answer Good Debt = education, car, mortgage, starting a well thought
out business
Bad debt = borrowing $ to support lifestyle beyond your means, shopping to feel good on a bad day,
borrowing more than you can repay, shopping to kill time, keeping up with your peers
Credit card - correct answer - Unsecured line of credit, bank is lending you money (based on your good
faith and credit history)
- The best time to establish credit is when you don't need it
,- Fees: annual membership fees, ATM withdrawal, transaction fees/minimum charge, foreign exchange
fees, overdraft fees, late payment fees etc.
Debit card - correct answer - Secured line of credit (immediately pay for purchases you made)
- Bank is taking no risk
Charge card - correct answer - Credit card issued by a retailer, often offering discounts
- Often have high interest rates
Prepaid card - correct answer - Not connected to a bank account, offered by banks and non-banks
- High activation fee, inactivity fees, fees to load money onto the card, check balance information, use
ATM etc.
Payday Loan - correct answer - High interest short term cash loan to be repaid by future paychecks
- Attempted to serve the "underserved"
Installment Debt - correct answer - Money borrowed to buy large items such as a car, paying in
installments over time
Deferred Interest plan - correct answer - Plan that allows customers to purchase big-ticket items with
no/low interest rates for a period of time
- If balance is not paid on time, you will be charged interest for the entire life of the plan
Gift cards - correct answer - Stored value cards, usually for use at a specific retailer or merchant
- No expiration dates (restricted to 5 years)
Cashier's check - correct answer - A check purchased by you from a bank, payable by third party.
- perceived as a "good" check because issued by bank
, Certified check - correct answer -A personal check that the bank guarantees or certifies to be good, paid
by funds in your account
Interest - correct answer - The cost of money
- Often expressed as APR of principal
- fixed = does not change
- adjustable = changes as specified in contract
Adjustable rate of interest - correct answer - rate of interest is not fixed, may change at various specified
times
- Commonly used for home loans
Variable rate of interest - correct answer - an interest rate that moves up and down based upon a
benchmark interest rate which is not controlled by the lender
- commonly used by credit card lenders
"go-to" rate - correct answer the interest rate you are charged on unpaid balances in addition to the
variable interest rate to determine the total rate of interest on your account
revolving credit - correct answer credit that is automatically renewed as debts are paid off.
You can reuse your credit line over and over up to its limit
Default rate - correct answer An accelerated interest rate (28-35%) placed on credit card when minimum
payment was not received on time or payment was not honored by bank.
Credit Card Accountability, Responsibility, and Disclosure Act or "Card Act" - correct answer only applies
to consumer credit cards, not businesses:
- no increase in interest rates for the first 12 months
- must be notified 45 days in advance for changes in interest rate
- if you are over 60 days late in paying minimum amount, lender can charge you an accelerated rate
- interest rate increases can only be applied to new charges
21st Century Millionare - correct answer - Someone who can financially take care of themselves without
help from any government agency, living the life they want to lead
- After working for 40 years, only 5% of people are financially independent (don't need government
assistance)
- Cornerstone of their wealth = being frugal (not cheap, but value-oriented) --> budget and spend
carefully, live within their means
- People who succeed have goals
Do not outlive your money - correct answer - Longevity is more of an issue than saving for retirement,
- Invest in yourself now! (education, whatever you need to achieve your goals)
Divide between rich and poor - correct answer - 50% of our country is broke (top 1% pays 40% of income
taxes)
- Top 5% pays 60% of income tax
- 47% of households do not pay federal income tax
Burden of saving for retirement - correct answer Shifting from employer to employee!
Companies can no longer afford to pay for the healthcare of their employees, now employees must take
on the burden of saving for retirement, investing and medical care
Good Debt vs Bad Debt - correct answer Good Debt = education, car, mortgage, starting a well thought
out business
Bad debt = borrowing $ to support lifestyle beyond your means, shopping to feel good on a bad day,
borrowing more than you can repay, shopping to kill time, keeping up with your peers
Credit card - correct answer - Unsecured line of credit, bank is lending you money (based on your good
faith and credit history)
- The best time to establish credit is when you don't need it
,- Fees: annual membership fees, ATM withdrawal, transaction fees/minimum charge, foreign exchange
fees, overdraft fees, late payment fees etc.
Debit card - correct answer - Secured line of credit (immediately pay for purchases you made)
- Bank is taking no risk
Charge card - correct answer - Credit card issued by a retailer, often offering discounts
- Often have high interest rates
Prepaid card - correct answer - Not connected to a bank account, offered by banks and non-banks
- High activation fee, inactivity fees, fees to load money onto the card, check balance information, use
ATM etc.
Payday Loan - correct answer - High interest short term cash loan to be repaid by future paychecks
- Attempted to serve the "underserved"
Installment Debt - correct answer - Money borrowed to buy large items such as a car, paying in
installments over time
Deferred Interest plan - correct answer - Plan that allows customers to purchase big-ticket items with
no/low interest rates for a period of time
- If balance is not paid on time, you will be charged interest for the entire life of the plan
Gift cards - correct answer - Stored value cards, usually for use at a specific retailer or merchant
- No expiration dates (restricted to 5 years)
Cashier's check - correct answer - A check purchased by you from a bank, payable by third party.
- perceived as a "good" check because issued by bank
, Certified check - correct answer -A personal check that the bank guarantees or certifies to be good, paid
by funds in your account
Interest - correct answer - The cost of money
- Often expressed as APR of principal
- fixed = does not change
- adjustable = changes as specified in contract
Adjustable rate of interest - correct answer - rate of interest is not fixed, may change at various specified
times
- Commonly used for home loans
Variable rate of interest - correct answer - an interest rate that moves up and down based upon a
benchmark interest rate which is not controlled by the lender
- commonly used by credit card lenders
"go-to" rate - correct answer the interest rate you are charged on unpaid balances in addition to the
variable interest rate to determine the total rate of interest on your account
revolving credit - correct answer credit that is automatically renewed as debts are paid off.
You can reuse your credit line over and over up to its limit
Default rate - correct answer An accelerated interest rate (28-35%) placed on credit card when minimum
payment was not received on time or payment was not honored by bank.
Credit Card Accountability, Responsibility, and Disclosure Act or "Card Act" - correct answer only applies
to consumer credit cards, not businesses:
- no increase in interest rates for the first 12 months
- must be notified 45 days in advance for changes in interest rate
- if you are over 60 days late in paying minimum amount, lender can charge you an accelerated rate
- interest rate increases can only be applied to new charges
