Personal Finance Test

Simple Interest

Standard: 7.RP.3

Use scale factors and unit rates in proportional relationships to solve ratio and percent problems.

I can solve problems with simple interest.

Credit Score

The bank's ability to trust you with money.

Understanding Auto Insurance: Full Coverage

Multiple Choice

Look down.

Is your phone out? If so, make it disappear.

Is your phone out?

• Yes

• No

Multiple Choice

What is the term meaning the bank's ability to trust you to pay back a loan?

• Credit Card

• Credit Agency

• Credit Score

• Credit Limit

Types of Auto Insurance

There are many different types of car insurance products available to consumers.
Five most common types of auto insurance coverages are:
- liability
- collision
- comprehensive
- personal injury protection
- uninsured motorist.

Simple Interest

• I=Prt

• I=Interest, P=Principal, r=Rate as a decimal, T=Time in years

Remember...

Liability ONLY pays for the others person's damages.
Liability DOES NOT pay for ANY OF YOUR DAMAGES! NOT A PENNY!
Hope you have duct tape or...

Why is Credit Score important?

• It determines whether you will be approved for a loan.

• It determines how much credit you will be trusted with.

• Some jobs or landlords will check your credit score before accepting your application.

Collision
Read the information below. Be prepared to answer questions, so I can ensure you comprehended what you read.

• replaces your car or pays for the repairs to your car if you cause an accident.

• if your car is totaled in an accident, collision coverage will pay the value of your car.

• if you are making payments on your car, this is required.

• if your car is older (low value), it may not be worth carrying collision coverage .

• NOT required in Texas, but your financial risk is HIGH without it.

What is a Loan?

• Money borrowed with the expectation to pay back the principal amount plus interest

• Principal- the original amount borrowed

• Interest- a percentage paid to borrow money

Dropdown

Collision insurance will repair

Select answer

if I caused an accident.

Multiple Choice

520 is considered a very good credit score.

• true

• false

Open Ended

What does the term totaled mean?

*if you are not sure, open a new tab to search for information

Multiple Choice

The simple interest formula is I=Prt.  The P represents the principal.  The principal is ___________________.  

• the amount of money borrowed or deposited

• the percent interest for his year

• the amount taxed

• the amount the bank owes you for being a customer at their bank

Comprehensive
Read the information below. Be prepared to answer questions, so I can ensure you comprehended what you read.

• covers the cost if your car is stolen, damaged by weather, or damaged by vandalism.

• if you have a loan on your car, comprehensive coverage is required

• NOT required in Texas, but your financial risk is HIGH without it.

Types of Loans

• Student Loans

  • Pay for college tuition

• Mortgages

  • Purchase a home

• Small Business Loans

  • Start a small business

• Auto Loans

  • Buy a new car

• Payday Loans

  • Money to get you through to payday

Multiple Choice

Your ex-girlfriend (you think) writes "I hate you" with spray paint on the side of your car.

She also takes a hammer to your windows.

Based on what you read, will comprehensive insurance cover this?

• No, it doesn't cover angry people

• Yes, it covers this situation.

Problem #1: Negative Marks on Credit Reports

Perhaps the most common problem are negative marks on your credit report. This can happen if you miss a payment. A missed payment stays on your credit report for 7 – 10 years so it is important to make all your monthly payments on time. If you have a lot of accounts to manage, a good strategy is to set up “auto-pay” which will automatically pay the bill from your checking account. If you find yourself in this situation, the best plan is to make a budget to help you make sure that you have enough money to cover your monthly bills. If you still cannot afford your monthly payments, call the companies you owe and try to work with them on re-working your payment plan. The worst thing you can do is to avoid the companies you owe, even if you want to

Personal Injury Protection

• covers medical expenses for you and for your passengers due to an accident regardless of who is at fault

• only 15 states require PIP

• not required in Texas

Multiple Choice

The rate is given as a percent (%).  Before using it in the simple interest formula, you must first convert it to a______.

• fraction

• decimal

• ratio

• dollar amount

Problem 2: Defaulted Accounts

A defaulted account is when the company decides that you have made no attempt to pay back your loan. This would usually take place after 6 months of inactivity. Defaulted accounts leave bad marks on your credit report and can get you into legal trouble. Companies can take money out of your paycheck or other assets you owe. In the end, you’ll end up owing more than you owed in the first place. To avoid defaulted accounts, contact your collection agencies and come up with a plan to make your monthly payments something that you can afford.

Uninsured Motorist Coverage

• ​people will break the law

• 25% of drivers are uninsured

• this coverage will pay for your medical bills and car repairs if an uninsured driver causes an accident

• about half of the states require this

• not required in Texas

Interest

• Price you pay to borrow money

• Must be paid in addition to the principal amount

• Rates may vary based on credit score

Problem 3: Maxed Out Credit Limit

It does not look good if you are using a high percentage of your credit limit. For instance, if you have a credit card with a $1000 limit, immediately spending $1000 will lead to a high credit utilization ratio (in this case you are using 100%). A good credit utilization ratio is less than 30% so a person with a $1000 credit limit should try use $300 or less. If you find yourself in this situation, pay more than just the minimum payments due on your credit card so you can lower your credit utilization ratio quickly. Stop using your credit card until your ratio is under control.

Open Ended

What does uninsured motorist coverage protect you from?

Multiple Choice

If you are calculating the simple interest and you are given the time in months, how can you find the time in years?

• Add 12 to the months

• divide the months by 12

• multiply 12 times the months

• You cannot change it to months.

Multiple Choice

Scenario #1

You currently carry liability insurance only.

You swerve into another lane and dent another person's car and dent your own car.


Who will pay to fix the dent in your car?

• The other person you hit

• Your insurance company

• You, you will pay with your own money.

Problem 4: No Credit History

If you never had a credit card or any kind of loan, you are what banks call “credit invisible” meaning they cannot know if you they can trust you with credit. This is not a huge problem to have at first, but it can lead to problems if you have long term goals like buying a house or taking out loans for college. If you have no credit history, start by applying for a small limit credit card with a bank and consistently make your payments until they raise your credit limit. If you are having a problem getting approved, try becoming an authorized user on credit card under the name of a responsible adult – parent, guardian, or relative. Have your activity reported to a credit agency so you can start building credit history in your name. 

Multiple Choice

Scenario #2

You currently carry liability, comprehensive and collision auto insurance.

You swerve into another lane and dent another person's car and dent your own car.


Who will pay to fix the dent in your car?

• The other person you hit

• Your insurance company

• You, you will pay with your own money.

Variable vs. Fixed rates

• Variable Rate

  • Can change over the course of the loan

  • Adjusts based on a set index

  • May cause your monthly payment to change each month

• Fixed Rate

  • Remains the same throughout the course of the loan

  • Monthly payment remains the same

Multiple Choice

Scenario #3

You currently carry liability, comprehensive and collision auto insurance.

You left an Astros game and your truck was missing. You call the police to report the theft.


Who will pay to replace your vehicle?

• The other person you hit

• Your insurance company

• You, you will pay with your own money to replace your car.

Multiple Select

Which of the following are problems that can hurt your credit?

• Defaulted Accounts

• Being "Credit Invisible"

• Maxing Out Your Credit Limit

• Earning Too Much Money

• Negative Marks on Credit Reports

Multiple Choice

Scenario #4

You currently carry liability insurance only.

You left a Rockets game and your new Mercedes (you paid cash for it) was missing.

You call the police to report the theft.


Who will pay to replace your vehicle?

• The other person you hit

• Your insurance company

• You, you will pay with your own money to replace your car.

Multiple Choice

Convert 18 months to years. 

• 18 Years

• 1.5 Years

• .18 Years

• You cannot change it to years.

Multiple Choice

Scenario #5

You currently carry liability insurance only.

You were distracted while driving and caused a horrible accident. Your car is totaled and you and your passenger are in the hospital in critical condition.


Who will pay to replace your vehicle?

Who will pay for your medical bills?

• The other vehicle in the accident is responsible.

• Your insurance company will replace your car and pay some of your medical bills.

• You must replace your own vehicle.

  You are responsible for your own medical bills.

Multiple Choice

It's a great idea to avoid your bank if you owe them money. They probably won't find you.

• true

• false

Secured vs. Unsecured Loans

• Secured loan

  • Collateral

    • An item of value the lender can take if a loan is not paid back

  • Lower interest rates

• Unsecured loan

  • No collateral

  • Higher interest rates

Open Ended

What does "credit invisibility mean?"

Multiple Choice

The Principal and Interest are always___________.

• fraction

• decimal

• percent

• money

Open Ended

What should you do if you max our your credit limit?

Open Ended

Directions: For each scenario, identify the problem that each person is facing. Then give a brief description of what the person can do to help their credit score improve.

Susan filed for bankruptcy which resulted in a serious negative mark on her credit report. Consequently, it has been difficult for her to obtain credit. What are some financial steps Susan can take to demonstrate that she’s learned from her financial mistakes and is ready to be a responsible borrower?

Multiple Choice

Write the percent as a decimal. 
4.3%

• 4.3

• .43

• .043

• 4300

WHAT IS YOUR DEBT?

Debt: an amount that is owed to
another individual or bank

Calculate your debt: determine to
whom you own money and the
minimum payment due each month,
along with the interest rate

Open Ended

Carrie has decided she’s ready to buy her first home. However, she doesn’t have any established credit and is having trouble receiving approval for a mortgage due to her lack of credit history. What are some strategies Carrie can use to establish a credit history?

Open Ended

Jackie has maxed out all of her credit cards. Even though she manages to make her minimum payments each month, her accrued debt level has hurt her credit score. What can Jackie do to improve her credit utilization ratio?

Multiple Choice

What is 7.25% converted to a decimal?

• .725

• 0.725

• 0.0725

• 7.25

Open Ended

Max fell behind on his payments and began ignoring the statements and phone calls from his creditors. Eventually the creditors turned his accounts over to a collection agency. Credit bureaus see collection accounts as a sign that Max isn’t a reliable borrower and his credit score will decrease because of it. What can Max do to rehabilitate his credit after an account has been turned over to a collection agency?

SPENDING PLAN UPDATE

–

DEBT

▪ Mortgage or Rent

▪ Car Payments

▪ Credit Cards

o Bank, department stores, Prepaid Cards, etc.

▪ Loans

o Personal, student, consolidated loans, etc.

▪ Advance payments

▪ Organizations, family, friends

Multiple Choice

Principal = $500
Interest rate =5%
Time = 5 years
What is the interest earned?

• 95

• 105

• 125

• 135

DEBT

and CREDIT

LEARNING OBJECTIVES:

▪

Determine debt-to-income
ratio

▪

Analyze the impact of credit
score on transition

▪

Identify ways to decrease debt
prior to transition

Multiple Choice

You borrowed 43,800 at a SIMPLE interest rate of 4.8%. If you pay it back in 2 years, how much interest is paid pack?

• $464,280

• $85,848

• $4204.8

• $48,004.80

DEBT

-

TO

-

INCOME RATIO

Total MINIMUM monthly payments

$2,050

÷

Gross monthly income (pre-taxes)

$5,308

=

The debt-to-income ratio calculation:

2050 ÷ 5308 = 0.38

0.38 x 100 = 38

DTI: 38%

Multiple Choice

Allison was left an inheritance from her Aunt Lisa. She can not touch the money until she is 21 years old, Allison is now 12 years old and inherited $50,000 that was put into an account with 2% interest. How much interest will Allison have earned at her 21st birthday?

• $900

• $100,000

• $9,000

DEBT

-

TO

-

INCOME (DTI) RATIO

Less than 33%: Debt at
this level is considered
manageable by creditors

34% - 49%: Still manageable,

but is based on personal
financial circumstances;

consider ways to lower DTI

Above 50%: Over half of
income is going to debt

which may limit the

amount of credit

available

Most

mortgages

have a DTI maximum

of

41-43%

Multiple Choice

Javon has a credit card with a $1,583 balance. His interest rate is 8.8%. If he does not pay for 3 years, how much interest does he owe?

• $4,179

• $417.91

• $133,930

• $41,791

CREDIT SCORES

▪ Three-digit number generated by a mathematical

algorithm based on information in your credit
report

▪ FICO – Most common
▪ FICO Range : 300 - 850

What is a Credit

Score?

Multiple Choice

Christian opened a savings account with $3250. His account will earn 5.2% simple interest. How much money will be in his account after 6 years?

• $4,264.00

• $1,104.00

• $1,100.00

• $4,400.00

FICO SCORE COMPONENTS

Multiple Choice

Jenna borrowed $5,000 for 3 years and had to pay $1,350 simple interest at the end of that time. What rate of interest did she pay?

• 6%

• 6%

• 8%

• 9%

What to check

ANALYZING YOUR CREDIT REPORT/SCORE

Review Personal Information

All open accounts are yours

Inquires from credit you applied
for

Account history listed for
your accounts

Negative information

All debts discharged in
bankruptcy are listed that way

WAYS TO
IMPROVE
YOUR
CREDIT
SCORE

Limit Inquiries

Stay within

Credit Limit

Pay Down

Installment Loans

Prompt

Payments

Accounts in

Good Standing

Match credit

to purchase

Ensure Credit

Report is accurate

Set up Auto

Bill Pay

Don’t exceed 10%

Credit card use

Use Auto Pay

options for loans

Don’t add new

accounts to lower

balances

Apply for new

credit wisely

$

SAVINGS AND INVESTMENTS

TYPES OF SAVINGS

Savings

Emergency Savings

Goal Savings

INVESTMENTS

Mutual Funds, Stocks,

IRA, 401k

RETIREMENT PLANS

DEFINED

-

CONTRIBUTION PLAN:

The contribution is defined yet the ultimate benefit to
be paid is not (e.g., 401(k) and 403(b) plans, IRA, Roth IRA

▪Contributions are from the employee and are portable

▪A portion may/may not be matched by employer

▪Each participant has an individual account

▪Benefit at retirement depends on amounts contributed +
investment performance of account

▪Investment risk may rest solely with the employee due
to opportunity to choose from several investment options