Financial Literacy Flashcard

Front

What is compound interest?

Back

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

Front

How does a 401(k) retirement plan work?

Back

A 401(k) is a retirement savings plan sponsored by an employer that allows employees to save a portion of their paycheck before taxes are taken out. Employers may match contributions.

Front

What is the significance of employer matching in a 401(k)?

Back

Employer matching means that for every dollar an employee contributes to their 401(k), the employer contributes an additional amount, which can significantly increase retirement savings.

Front

What is diversification in investing?

Back

Diversification is the practice of spreading investments across various financial instruments, industries, and other categories to reduce risk.

Front

What is the rule of 72?

Back

The rule of 72 is a formula used to estimate the number of years required to double the invested money at a fixed annual rate of return by dividing 72 by the annual interest rate.

Front

What is the difference between a traditional IRA and a Roth IRA?

Back

A traditional IRA allows tax-deductible contributions, but taxes are paid upon withdrawal. A Roth IRA allows contributions with after-tax dollars, and withdrawals are tax-free in retirement.

Front

What is the time value of money?

Back

The time value of money is the concept that money available today is worth more than the same amount in the future due to its potential earning capacity.

Front

What is an investment return?

Back

Investment return is the gain or loss made on an investment relative to the amount of money invested, usually expressed as a percentage.

Front

What does it mean to 'buy and hold' in investing?

Back

'Buy and hold' is an investment strategy where an investor buys stocks or other securities and holds them for a long period, regardless of market fluctuations.

Front

What is a stock?

Back

A stock represents a share in the ownership of a company and constitutes a claim on part of the company’s assets and earnings.