Financial Literacy Flashcard

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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.

Tags

CCSS.7.RP.A.3

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How does a 401(k) retirement plan work?

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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.

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

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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.

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What is diversification in investing?

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

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What is the rule of 72?

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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.

Tags

CCSS.7.RP.A.3

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

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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.

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What is the time value of money?

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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.

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What is an investment return?

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

Tags

CCSS.7.RP.A.3

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

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'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.

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What is a stock?

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