Home > Flashcards > Print Preview

The flashcards below were created by user JerrahAnn on FreezingBlue Flashcards. What would you like to do?

  1. Liquid Assets
    Assets held in the form of cash or "near cash"
  2. Investments
    Assets that earn a return rather than provide a service
  3. Real Property
    Immovable property; long lives and high costs; mostly appreciate in value
  4. Personal Property
    Moveable; mostly depreciate in value
  5. Fair Market Value
    Price at which we can reasonably expected to sell asset
  6. Types of Liquid Assets
    • Checking Account
    • Savings Account
    • NOW Account
    • MMDA
    • MMMF
    • CD if <1 year
  7. Types of Investments
    • Stocks and Bonds
    • Closed-end Funds
    • Mutual Funds
    • Retirement Funds
    • IRA
    • 401K
    • CD if >1 year
    • Real Estate
  8. Types of Real Property
    • Single family houses, condominiums, cooperatives
    • Vacation homes
    • Land and buildings on property
  9. Types of Personal Property
    • automobiles
    • recreation equipment
    • household items
    • jewelryartwork
  10. Number of Live Births
    Number of births that occur in a population
  11. Crude Birth Rate
    Number of births per 1000 population
  12. General Fertility Rate
    • Number of births per 1000 women aged 18-44
    • Best statistic to use
  13. Replacement Level
    • Level of fertility at which women in the same cohort have exactly enough daughters (on average) to “replace” themselves in the population
    • § A total fertility rate of 2.1 is considered replacement level
  14. Cause of Long-Term Trend
    • Decrease in the economic benefits of having children
    • Increase in the costs of having and raising children
    • Decrease in the costs of avoiding having children
  15. Increases in costs of having children
    • Direct costs have risen
    • o Inflation
    • o Rising standard of child quality
    • Opportunity costs of parents (especially mothers) have risen
  16. Decrease in the Economic Benefits of having children
    • Decrease in children’s productive efforts
    • Substitution of government for children’s role as providers of old age assistance
  17. Decrease in the cost of avoiding children
    • Widespread availability of cheap, effective, birth control
    • Legalization of abortion
    • Secularization of society and weakening impact of religious views
    • Social acceptance of couples being “childless”---“voluntarily childfree”
  18. Recent Fertility Rate
    • Preliminary data for 2008
    • o General Fertility Rate= 68.7
  19. Objective Benefits of having children
    • Productive work of children (farm work and household production)
    • Children as social insurance during parent’s old age
    • Now augmented by social security, Medicare, pensions, insurances, etc.
    • Tax exemption
    • Tax credit
    • Tax benefits of children (for families who pay income taxes)
    • Transfer income from government (for eligible low-income families)
  20. Tax Exemption
    Reduces taxes by taxpayer’s tax bracket
  21. Tax Credit
    Reduces taxes dollar for dollar
  22. Cash Subsidies
    TANF= Welfare
  23. In-Kind Subsidies
    • Food stamps, housing subsidies, Medicaid, head start, etc.
    • Added benefit with children
  24. Objective Costs of having children
    • Direct cost of raising children until 18
    • o Food at home, clothing, medical care, insurance, transportation
    • Costs of children’s college education (past 18)
    • Opportunity costs of children
  25. Opportunity Costs of Having Children
    • o Foregone earnings of mother and/or father
    • o Foregone rate of return on savings/investment
  26. Subjective Benefits of having children
    • Adult status and social identity
    • “Immortality”
    • Morality, subordination of self-interest
    • Emotional security, affiliation
    • Feelings of accomplishment and competence
    • Stimulation and novelty
    • Feelings of power and influence
    • Social comparison and competition (“keeping up with the Joneses”)
  27. Subjective Costs of having children
    • Worry, worry, worry
    • Physiological/psychological demands of child care
    • Foregone consumption and leisure of parents
    • o Life-style changes
  28. Factors that could increase cost to parents
    • Out-of-state tuition for public university
    • Private college or university
    • The 5-year plan
    • Graduate school or advanced training
  29. Factors that could decrease cost to parents
    • Assume child will pay part
    • Assume child will live at home
    • Assume child will go to two-year college or technical institute
    • Assume scholarship will be attainable
    • o Pell grants; employer programs, religions, civic, community programs, military
    • Assume educational/student loans
  30. Assets
    What you own
  31. Liabilities
    What you owe
  32. Current (Short-Term) Liabilities
    • Owned and due within 1 year
    • § Bills outstanding (power bill, water bill…)
    • Revolving credit (credit cards)
  33. Long-Term Liabilities
    • Debt due 1 year or more from the date of the balance sheet
    • § Installment debt
    • § Mortgage (only principal portion)
    • § Other debt
  34. Net Worth
    • Measure of your financial worth
    • Equity in owned assets
    • What remains after selling all your owned assets and paying off all your liabilities
    • Assets-Liabilities
  35. Balance Sheet Formation and Preperation
    • List your assets at their fair market value as of the date you are preparing the balance sheet
    • List all current and long-term liabilities
    • Calculate net worth
    • Calculate solvency ratio and liquidity ratio
  36. Income
    • Cash In
    • Earned income
    • Non-earned income
    • § Money from investments and savings
    • § Sell a car
  37. Expenditures
    • Cash Out
    • Fixed vs. flexible
    • Certain vs. uncertain
  38. Fixed, Certain
    • A necessity, amount known
    • House
    • Car
  39. Fixed, Uncertain
    • A necessity, amount unknown
    • Power Bill
  40. Flexible, Certain
    • Not a necessity, amount known
    • Cable bill
    • Haircut
  41. Flexible, Uncertain
    • Not a necessity, amount unknown
    • Going to movies
    • Out to eat
  42. Preparing the Income and Expenditure Sheet
    • Record your income from all sources for the chosen period
    • Establish meaningful expense categories
    • Subtract total expenses from total income to get cash surplus (a positive number) or deficit (a negative number)
    • Calculate the Savings Ratio and Debt Service Ratio
  43. Solvency Ratio
    • Shows how much of a decline in the market value of their assets a family can have before becoming insolvent
    • Insolvent= when ratio is less than zero
    • Net worth/total assets
    • The higher, the better
    • Desirable solvency ratio= >.50
  44. Liquidity Ratio
    • Shows how much of their one-year liabilities they could pay with their liquid assets
    • Debt= unpaid bills, all of your revolving credit card bills
    • Car loans= how much you paid in one year
    • Liquid assets/total current debt
    • The higher, the better
    • Desirable liquidity ratio= >.50
  45. Saving Ratio
    • Shows the family’s level of preparation for the future
    • Savings ratio= cash surplus or deficit (plus amount saved)/annual net income
    • Total net income= income after taxes
    • Social Security
    • The higher, the better
    • Desirable savings ratio= >.05
    • Negative ratio is possible
  46. Debt Service Ratio
    • Shows the burden that the family’s debt is relative to their income (their ability to repay that debt)
    • Debt service ratio= monthly loan payments/monthly gross income or loan payments/gross income
    • Car loans, credit card obligations paid in the past year
    • The lower, the better
    • Desirable debt service ratio= <.35
  47. Budget
    • Estimate income
    • Estimate expenditures
    • See if budget balances
    • o If not, make adjustments
    • Finalize budget
    • Implement budget and keep records
  48. Chapter 7 Bankruptcy
    • Straight Bankruptcy
    • A person’s assets are given to a trustee to be sold- distributed to creditors
  49. Chapter 13 Bankruptcy
    • Wage Earner Plan
    • Develop plan to pay off (over 3-5 years)
  50. Bankruptcy
    • Chapter 7
    • Chapter 13
    • 10 years you’ll have bankruptcy on your report
  51. Types of Credit
    • Consumer Debt
    • Mortgage Debt
  52. Consumer Debt
    • Charge Accounts
    • Installment loans (fixed terms)
    • Singly payment loans (30-day, 90-day note)
  53. Mortgage Debt
    • First mortgage
    • § What you use for house
    • Second mortgage
    • § The loan on the residence
    • § Equity installment loan
    • Equity credit line
    • § Based on amount of equity in house
    • § Use as you need
  54. Objective Benefits of Credit
    • During high inflation periods, it may be cheaper to buy now
    • (Sometimes) tax advantages of buying on credit
    • Example: equity loan or mortgage
    • (Sometimes) price discounts when using credit
    • o Example: credit cards
    • When travelling abroad, better exchange rate
  55. Subjective Benefits of Credit
    • Obtaining expensive goods now while spreading out payments for them over time (immediate gratification)
    • Convenience of purchasing and record-keeping, particularly with credit card
    • Safety and security of not carrying large amounts of cash
  56. Types of Financial Goals
    • Long-Term
    • Intermediate
    • Short-Term
  57. Long-Term Goals
    • 6+ years
    • Future Value Estimates
    • Time Horizon
    • Send kids to college
  58. Intermediate Goals
    • 2-5 years
    • Time Horizon
    • Prioritize
    • Pay off apartment
  59. Short-Term Goals
    • 1 year
    • Time Horizon
    • Prioritize
    • Pay off a small debt within 8 months
    • Increase your retirement contribution by $100
  60. Ideas when setting goals
    • Prioritize
    • Attach time horizon or target date
    • Attach dollar value (future value)

Card Set Information

2010-10-27 04:17:50

Show Answers:

What would you like to do?

Home > Flashcards > Print Preview