Finance Chapter 4 Review Flashcards
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Questions and Answers

What is the most aggressively marketed product?

Debt

How much do Visa, Mastercard, Discover, and American Express spend over a year on marketing?

4

There were no credit cards prior to which year?

1958

What is the term for money owed to another person or company?

<p>Debt</p> Signup and view all the answers

Myth: You need a student _________ to go to college.

<p>loan</p> Signup and view all the answers

What is the truth about going to college?

<p>Debt-Free</p> Signup and view all the answers

What should you choose when selecting a school?

<p>Afford</p> Signup and view all the answers

What is credit that automatically renews whenever a payment is made to reduce the debt?

<p>Revolving credit</p> Signup and view all the answers

What is something owned that is offered as security on a debt?

<p>Collateral</p> Signup and view all the answers

What is a legal claim against an asset until the debt is repaid?

<p>Lien</p> Signup and view all the answers

What type of asset increases in value over time?

<p>Appreciating Asset</p> Signup and view all the answers

What is the difference between the amount owed on a home and what it could be sold for?

<p>Equity</p> Signup and view all the answers

What is the failure to repay a loan on time called?

<p>Default</p> Signup and view all the answers

What type of loan is paid back in monthly installments?

<p>Installment Credit</p> Signup and view all the answers

What type of asset loses value over time?

<p>Depreciating Asset</p> Signup and view all the answers

What term describes a lender who employs deceptive or unfair practices?

<p>Predatory Lending</p> Signup and view all the answers

Myth: I need to have a -------- score.

<p>FICO</p> Signup and view all the answers

Truth: A credit score is an 'I ----- debt' score.

<p>Love</p> Signup and view all the answers

A FICO score is not an indicator that you are ------- with money.

<p>Winning</p> Signup and view all the answers

What is your most powerful wealth-building tool?

<p>Income</p> Signup and view all the answers

You ----- rent an apartment without a FICO score.

<p>can</p> Signup and view all the answers

Without a FICO score, an extra ------ may be required.

<p>deposit</p> Signup and view all the answers

What is a statistical number that represents a consumer's creditworthiness?

<p>Credit Score</p> Signup and view all the answers

What is a company that collects credit rating information?

<p>Credit Bureau</p> Signup and view all the answers

Myth: I need a ------- card to rent a car and make purchases online.

<p>Credit</p> Signup and view all the answers

Truth: You can do both of these things with a ------ card.

<p>debit</p> Signup and view all the answers

What type of fee do most credit cards charge?

<p>Annual</p> Signup and view all the answers

What is the average credit card debt for college students?

<p>1,400</p> Signup and view all the answers

Myth: Car --------- are a way of life.

<p>payments</p> Signup and view all the answers

Truth: Avoid car ---- now and always.

<p>Debt</p> Signup and view all the answers

What is the average new car payment in America?

<p>554</p> Signup and view all the answers

What is the original amount of a loan referred to as?

<p>Principal</p> Signup and view all the answers

What is the additional cost a lender charges for borrowing their money?

<p>Interest</p> Signup and view all the answers

What is the amount of time you will be making payments on a loan?

<p>Term</p> Signup and view all the answers

What is the loss of value of an asset over time called?

<p>Depreciation</p> Signup and view all the answers

What is it called when the value of an asset falls below what is owed on it?

<p>Negative Equity</p> Signup and view all the answers

Take ---- off the table.

<p>Debt</p> Signup and view all the answers

Pay off all debt using the

<p>Debt snowball</p> Signup and view all the answers

Paying off debt is not a math problem—it is a -------- problem.

<p>behavior</p> Signup and view all the answers

This is not a theory. It is a ------ process.

<p>Proven</p> Signup and view all the answers

Study Notes

Debt and Credit Overview

  • Debt is the most aggressively marketed financial product in history.
  • Major credit card companies such as Visa, Mastercard, Discover, and American Express spend over 4 billion dollars annually on marketing.
  • The first credit cards were introduced in 1958.

Key Definitions

  • Debt: The amount of money owed to another person or company.
  • Revolving Credit: A type of credit that automatically renews as payments are made, reducing the outstanding debt.
  • Collateral: Valuable assets offered as security for a loan, which can be forfeited if the debt is unpaid.
  • Lien: A legal claim against an asset until the associated debt is repaid.

Asset Types

  • Appreciating Asset: An asset that increases in value over time.
  • Equity: The increase in home value over time, representing the difference between the amount owed and the potential sale price.
  • Depreciating Asset: An asset that decreases in value over time, like a car.

Credit and Lending Myths

  • Myth: A student loan is necessary for college attendance.
    • Truth: College can be attended debt-free by choosing affordable institutions.
  • Myth: A high FICO score is needed for financial success.
    • Truth: A credit score reflects one's debt status, not overall financial health.

Financial Tools and Responsibilities

  • Your income is identified as the most powerful tool for building wealth.
  • A FICO score is not required to rent an apartment, though additional deposits may be needed without it.
  • Credit Score: A numerical representation of a consumer's creditworthiness, typically managed by a Credit Bureau.

Credit Card Insights

  • Many people believe a credit card is necessary for online purchases and car rentals.
    • Truth: Debit cards can also be utilized for these transactions.
  • The average college student's credit card debt stands at approximately $1,400.
  • Annual fees are commonly charged by credit card companies.

Debt Management Strategies

  • The average car payment in America is around $554 per month.
  • Principal: The initial sum of a loan before interest is added.
  • Interest: The extra cost charged by lenders for borrowing funds.
  • Term: The duration, in months, over which loan payments are made.

Behavioral Approaches to Debt

  • Paying off debt is primarily a behavioral challenge, not just a mathematical issue.
  • Use the "debt snowball" method to systematically eliminate debts.
  • Adopting a zero-debt lifestyle is encouraged as a sustainable financial practice.

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Description

Test your knowledge of key concepts in finance with these Chapter 4 review flashcards. This quiz covers important terms and facts related to debt and credit cards. Challenge yourself and enhance your understanding of financial products and marketing strategies.

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