Financial Literacy Review

Financial Literacy Review

• Credit: Borrowed money that usually requires repayment with interest.
• Debt: Money owed to a lender or creditor.
• Loan: A sum of money borrowed with the expectation of repayment, typically with interest.
• Good Debt: Borrowing for something beneficial, like education or a home (assets).
• Bad Debt: Borrowing for non-essential items that lose value (e.g., shopping sprees).
• Consumer Debt: Personal debt related to purchases like shopping or vacations
• Total Debt: The combined amount of all debts owed.
• Debt Ratio: The proportion of debt to income.
• Secured Loan: Debt backed by an asset (e.g., car).
• Unsecured Loan: Debt not backed by an asset (e.g., credit card).
• Collateral: An asset offered as security for a loan; lost if the loan isn't repaid
• Co-signer: A person who agrees to repay a loan if the borrower defaults.
• Variable-rate loan: An interest rate that changes over time.
• Fixed-rate loan: An interest rate that remains constant.
• Consumer Loan: Borrowing for personal items like cars or trips.
• Revolving Credit: Credit that can be repeatedly used up to a borrowing limit (e.g., credit cards).
• Mortgage: A loan specifically to purchase a property.
• Amortization Period: The time it takes to pay off a loan.
• Credit Report: A record of borrowing history.
• Credit Score: A numerical representation of creditworthiness.
• Consumer Proposal: An agreement with creditors to repay less than the total debt owed.
• **Bankruptcy:**A legal procedure to relieve a person of debt due to an inability to pay.

Questions: Good vs. Bad Debt

• Good Debt: Used for valuable assets like education.
• Bad Debt: For non-essential items that lose value quickly.

Questions: Credit Benefits and Pitfalls

• Benefits: Helps build credit history, useful in emergencies.
• Pitfalls: Could result in higher debt due to interest payments.

Questions: Credit Agencies in Canada

• Equifax and TransUnion are the main credit reporting agencies.

Questions: 5 C's of Credit

• Character: Borrower's reputation and trustworthiness.
• Capacity: Borrower's ability to repay.
• Capital: The borrower's financial resources.
• Collateral: Assets pledged as security for the loan.
• Conditions: External factors impacting the ability to repay.

Questions: Big Down Payment Benefits

• Benefits: Smaller loan amounts, lower interest rates.

Questions: Credit Score Use

• Purpose: To evaluate creditworthiness for loan applications and approvals.

Questions: Co-signer Risks

• Risk: Co-signer is responsible for the debt if the primary borrower defaults.

Questions: Credit Cards

• Good Use: Wise use and responsible debt management.
• Bad Use: Overspending and inability to repay the debt.

Questions: Credit Card Interest Rate

• Typical Range: Approximately 18% to 20%.

Questions: Fixed vs. Variable Mortgages

• Fixed: Interest rate remains constant.
• Variable: Interest rate fluctuates.

Questions: Mortgage Duration

• 25-Year Mortgage: Smaller monthly payments, but higher interest over the loan term.

Questions: Mortgage Pre-Approval

• Process: Evaluates borrowing capacity for a house purchase.

Questions: CMHC Insurance

• Need: Required if a down payment is less than 20%.

Questions: High vs. Low Credit Scores

• High Score: Easier access to loans, favorable terms.
• Low Score: More difficult to obtain loans and less favorable terms.

Questions: Credit Score Range

• Score Range: From 300 (bad) to 900 (excellent).

Questions: How to Boost Credit Scores

• Practices: On-time payments, low credit utilization.
• Tools: Checking credit reports.

Questions: How to Hurt Credit Scores

• Problems: Late payments, high credit utilization.

Questions: Bad Reports on Credit

• Issues: Late payments, collections, bankruptcy.

Scholarship vs. Bursary

• Scholarship: Academic or merit-based.
• Bursary: Need-based financial aid.

Questions: Government Student Loans

• Benefits: Low interest rates, flexible payment plans.

Questions: Why Banks Charge More Interest

• Reasoning: Higher risk of default.

Questions: Steps to Repay Debt

• Methods: Knowing total debt, budgeting, prioritization, repayment strategy, seeking advice, etc.

Test your understanding of key financial concepts such as credit, debt, loans, and more. This quiz covers important terms and definitions that are essential for managing personal finances effectively. Whether you are a beginner or looking to refresh your knowledge, this quiz will enhance your financial literacy.