New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

FHCE 3200 Exam 1 Study Guide!

by: Morgan Notetaker

FHCE 3200 Exam 1 Study Guide! FHCE 3200

Marketplace > University of Georgia > FHCE 3200 > FHCE 3200 Exam 1 Study Guide
Morgan Notetaker
GPA 3.6

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

This is the study guide for exam 1. It's a condensed version of all of the lecture notes and textbook notes.
Intro to Personal Finance
Matthew Goren
Study Guide
Intro to Personal Finance, Intro to Personal Finance Planning, fhce
50 ?




Popular in Intro to Personal Finance

Popular in Department

This 10 page Study Guide was uploaded by Morgan Notetaker on Saturday August 27, 2016. The Study Guide belongs to FHCE 3200 at University of Georgia taught by Matthew Goren in Fall 2016. Since its upload, it has received 190 views.


Reviews for FHCE 3200 Exam 1 Study Guide!


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 08/27/16
FHCE 3200 Exam 1 Study Guide ______________________________________________________________________ __________ Module 1: Introduction to Financial Literacy  Financial Literacy – How well you understand and use personal finance­related  information o Perceived Competence vs. Measured Competence  Perceived competence­How well someone can access,  understand, and apply financial information  Measured competence­Ability to access, understand, and apply  financial information when measured on a scale  Most think they can do something better than they really can  Financial Capabilities­ capacity based on knowledge, skills, and  access to financial resources  Self­Regulation­ Make yourself do things you don’t want to do  Self­Efficacy­ Believe that you can do it  Self­Control­ Actually pushing yourself to do it  Experience, education, interest, altruism, being involved in  financial decisions  Lens­ how you view the financial world; perspective  Influenced by risk tolerance, knowledge, current environment,  recent events, fate vs. control belief  Financial Illiteracy has very bad consequences  Baby­boomers approaching retirement and half of them don’t have enough money  Average American is worth ­$4,000  Only 1/3 Americans have sufficient emergency funds  Trend away from mandatory policies, guaranteed income,  pensions, little confidence in Social Security  Complex financial decisions being shifted from institutions  to individual  Finances getting more complicated in general  Path to financial independence: keep financial records, spend less than what’s earned, maintain risk management, save on regular  basis  Financial Risk Tolerance­ Willingness to engage in risky behavior that entails  possibility of loss o Learn about financial topics  Gain confidence  Gain experience  Gain  understanding  Increase risk tolerance  More education also increases net worth, wealth, ad financial  literacy  Financially literate are more likely to get advice from financial  advisor  Fate and luck lens results in making uninformed financial  decisions  Risk Perception­ How much risk you think there is  Those unfamiliar with financial market view it as more risky than it  is  Media only shows financial scandals, which people think represent the financial market  Don’t rely on risk perception—do research  Risk Preference­ How much risk you prefer to take  Can’t get higher return without higher risk  Risk Capacity­How much risk you should be taking  Those who grew up poor don’t increase their risk tolerance when  their risk capacity grows  Higher risk = higher return  Importance of risk tolerance  Investments in different assets require different levels of risk  Stocks, corporate bonds, US government bonds, savings   ^ Most risky to least risky assets  Riskier assets yield higher return  Ability to take risk determines how much wealth we will  accumulate  Human Capital­Your ability to work, learn, earn, and make wise  decisions about how to save and invest money  Net Worth = Total Assets – Total Debt  Total Net Worth = Net Worth + Human Capital  Increases with education, training, experience, continuing  education, skill development, goo health, closer location to  employer  Social Capital­ How well you function with other people  Informal Network­ Family and friends  Formal Network­ People you wouldn’t normally associate with  Decision Making  Procrastination­ Result of how you view the present relative to  the future; overly discount future rewards  Two­Mind Framework: Fast vs. Slow  Fast: emotional, intuitive, heuristics  Slow: rational, calculating, patient  Behavioral Economics­ How people make choices and why people  make bad decisions  Heuristics­ Mind’s shortcuts based on past experiences  Status Quo Bias­ Preference for how things are  Loss Aversion­ Fear of losing money  Focus on short term losses and not long term gains  Potential gains must be twice that of losses for people to be  indifferent  Optimism Bias­ Thinking you’ll never experience painful losses  Most people think they’re above average in most daily activities  Leads to risky investments  Confirmatory Bias­ Think something confirms that you’re right  even though it was a fluke  Many businesses use behavioral economics to increase profits  from customers  Insurance companies raise premiums, credit card teaser rates,  etc.  Use these to our advantage  Pre­commit to decisions, automate good decisions, set clear goals  Time Perspective­ people view the world in either past, present, or future perspective  Goal Time Horizon­ time between creating a goal and achieving  it  Short term time horizons: very cautious financial decisions  Long term time horizon: more time to make up any potential  losses  Past Perspective: make decisions based on past memories (good  or bad)  Present Perspective  Hedonistic orientation­ do things for the experience and  excitement  Fatalistic Orientation­ live in the present because you cant  visualize a meaningful future  Spend more today and save less for future  Future Orientation  Goal oriented  Transcendental: sacrifice things today for promise of better future  Spend less today and save more for future  Marshmallow Test: Kids can eat one marshmallow now or eat  two if they wait  2/3 eat it right away  Same kids who waited were more content and happy later in life  If changed construal (told to sit on hands) most of them waited for  two marshmallows  Lesson: we are not bound by our personalities  Future Discounting  Will you take $1 today or $2 tomorrow? Most choose $1  Will you take $100 in one year or $101 in a year and one day?  Most choose $101  Pushing time away allows us to be more rational  60­70% of people make impulsive decisions in general; prefer  gratification today rather than in future  Longer period of time means we have larger sample size so our guesses are more likely to be right  More certainty = less risk  Most won’t lose money in stock market when time horizon is 20+ years  Time Value of Money (TVM)- Takes into account the rate of return when comparing investments; takes into account compounding interest  Rule of 72:  To find out how long it will take to double your  investment: N=72/i       i= interest rate, N= number of years t  Future Value (FV)= PV * (1+r)  Ex. You start with $100 (PV). You earn 10% yearly (r) for two  years (t). What will your balance be at the end of the two years  (FV)?  FV= PV*(1+r) = 100*(1.10) =$121  Money can be invested  We earn rate of return on the investment  You gain interest on your investment, and that interest gets interest  Money can be borrowed  We pay lenders interest on compounding basis  Money can be lent  Governments borrow money (bonds)  Corporations borrow money (stock)  Banks borrow money from savings accounts  Annual Percentage Rate (APR)­ Annual sum of the interest rates  applied to the account; does not consider effect of compound  growth  APR= Periodic Interest Rate x Number of Periods in the Year  Ex. Bank pays you .2% interest monthly.  APR= .2% x 12 months= 2.4%.  Annual Percentage Yield (APY)- annual sum of interest applied to the account; accounts for compound growth; how much your investment actually increases (number of periods in year)  APY= [1+ periodic interest rate) ]-1  Ex. Bank pays you .2% interest monthly.  APY= [(1+.002) ]-1= 2.68%  “Number of periods in a year” is 12 if monthly, 2 if semi-annually, etc.  APY > APR if there is more than one compounding period in a year  Use APY as the “r” in the Rule of 72  EX. Amy wants to go on a cruise. The ticket costs $600 (pv), and the trip is in one month. She borrows money to buy the ticket with an APR of 18%. The APY is 19.56% (r). She plans to pay $50 a month toward the debt (pmt). How long will it take Amy to pay off the debt (N)?  PV= 600, N=?, r= 19.56/12, pmt=-50, FV=0  N= 13.46 months (1.12 years)  If Amy saved up $50 each month and earned an APY of 2% interest, how much money would Amy have after a year?  N=1x12, r= 2%/12, PV= 0, FV=?  FV= $605.53  Ex. APR is 2.4%. Monthly interest rate is 2.4%/ 12= . 2%  Take your principal ($1000) and divide by .2% every month  First month is $2. Next month you multiply $1002 by .2% to get $2.004, and so one  When you’re on the investment side, financial institutes quote the APY to make return sound better  When you’re on the debt side, they use APR to make interest seem lower  S.M.A.R.T. Goals  Specific, Measurable, Achievable, Realistic, Time­bound  Set goals to develop focus towards achieving objective  Locke’s Goal Theory­ the more challenging a goal is, the higher  your performance will be  External Factors for commitment: share goals with others, tie to  financial reward  Internal Factors: personal reasons for reaching goal, clearly  identify a future that is important to you  Balance Sheet­ Lists assets and liabilities; Net Worth statement  Inflows and outflows at specific moment in time; changes daily  Assets­ things you own  Liquid: how quickly they can be converted to cash; help when you  need money now  Investable: riskier assets with potential for more return  Personal: things you pay money for that you use on daily basis  Collectibles: precious metals, jewelry, art, etc.  List these under their fair market value  Liabilities­ things you owe  Short term/ Current­ due within a year  Long Term Debt: mortgage, student loans, auto loans  Net worth = Total assets – Total Liabilities  Used to determine your credit worthiness  Some companies starting to use human capital as well Current Assets  Current Ratio =  Should be greater Current Liabilities than 1.0 Total Liabilities  Debt Ratio = TotalAssets  Should be greater than 40%  Income Statement  Where is money coming in and going out?  Income sources: salary, business income, investments  Expenses  Fixed vs. Variable  Essential vs. Discretionary  Variable discretionary expenses are what makes a high quality of  life (birthdays, vacations)  Budget­ Financial tool used to regulate how quickly and in which ways  your money is used  Tracks your income, savings, and expenses  Steps: Monitor income and expenses over time, estimate how  much your income and expenses will be, compare actual to  estimated income and expenses, monitor and calibrate estimates  FHCE 3200 Exam 1 Study Guide Cont. ______________________________________________________________________ __________ Module 2: Income • Savings Rate Ratio – Percent of monthly income that is used for savings • Savings Rate - ▯▯▯▯▯▯▯= how much of your income you are saving ▯▯▯▯▯▯ • Target Savings Rate – keeps you on track when saving for long -term goals • Start saving in your 20’s to retire at 65… 10% • Start saving in your 30’s to retire at 65… 12% • Start saving in your 40’s to retire at 65… 20% • Because of TVM, if you start saving at a younger age, you don’t need to save as much • Average millionaire saves over 20% of their income • Pro tip: commit to putting half of every future raise toward savings • Increase savings and home pay simultaneously • Income - Expenses = Surplus (Deficit) • Surplus increases net worth; deficit decreases it • Debt-to-Income Ratio- Percent of income required for debt payments • Ratio = ▯▯▯▯▯ ▯▯▯▯▯▯▯▯ ▯▯▯▯ ▯▯▯▯▯▯???? 100 ▯▯▯▯▯ ▯▯▯▯▯▯ • Should not exceed 36% of gross income --- otherwise you’re overleveraged • Too much debt (good or bad) prevents you from saving ; crippling; constrains decisions • Good Debt vs. Bad Debt • Good: does not decrease credit score, builds human capital, increases potential for higher income § Mortgage, modest amount of student loans • Bad: Doesn’t increase quality of life or human capital § Credit card debt, payday loans, high interest rate loans…pizza • Ask yourself: Will the debt be worth it? Will I be able to pay it off? • Income Portion of Budget • Spending plan- estimates of how much money you will bring in, how much you’ll spend, how much you’ll save • Wage- what employer pays employee to complete a task; usually hourly rate § Minimum wage is $7.25; $2.15 for customarily tipped employees § Fair Labor Standards Act workers must be paid 1.5x regular wage if they work overtime (>40 hours a week) • Exemptions: Doctors, lawyers, teachers, outside sales reps, people covered under a collective bargaining agreement • Salary- payment for a set period of time • Commission- payment based on the sale of a product or service • Most Americans paid hourly • Commission often earns more • Self Employment- you work in your own business or work as a subcontractor to another business • Independent contractor- one who contracts with other businesses or individuals to perform a specific task § Self-employed when employer doesn’t withhold FICA taxes and you’re responsible for paying all Medicare, etc. taxes • Starting own business: § Many are boot-strapped (self-funded) § Funding from investor s § US Small Business Administration (SBA) - Federal agency that provides resources to small business owners § “How-to” guides, one-on-one counseling, loan programs • Sole Proprietorship - type of business entity § You make all decisions § Unlimited liability - if your business has financial difficulties and can’t pay its obligations, your personal assets will be taken by creditors to pay it off § Capital from own savings or money you borrow; can’t issue stock § Very easy to set up • Partnership- type of business entity § Share decisions with partners § Profits and losses shared between partners § Very easy to set up § Unlimited liability § Each partner has unlimited liability for entire partnership § Capital from collective assets and borrowing; can’t issue stock § Tax for each partner’s s hare is included in their own tax returns • Corporation- type of business entity § Separate legal entity; separate from the owners § Limited liability; limited to amount you invested in the company § Easier to raise capital: easier to get loans and can issue stock § More complex governance and taxation § Owners are stockholders § Can delay when you get income and, therefore, pay taxes § Separate taxation between corporation and owners • Limited Liability Company (LLC) combines partnership and corporation • Liability protection with Limited Liability Partnership (LLP), Limited Liability Corporation (LLC), and Corporations of C and S elections • Self-Employed Statistics • Averages out to $44,000 annually • Very misleading because many get nothing/ lose money • 10% of the working populati on is self-employed • 2/3 of the millionaire population is self -employed • Half of small business start -ups still exist after 5 years; 1/3 after 10 years • Unearned Income- money you received that wasn’t from employment • Gifts, government benefits, capital gains, unemployment insurances, Social Security, lottery winnings, inheritance, proceeds from EE and I Savings bonds • Interest and Dividends are unearned income • Interest- earnings you get from lending your money • Lenders loan money to borrowers • Borrower pays the lender for using the money in form of interest • Ex. Putting money in bank account is lending the bank your savings • Dividends- distributions of earnings companies make to their shareholders in return for shareholders’ investment • Investor- person who puts their money at risk through the ownership of assets and businesses • They become shareholders of a company when they buy into it (stock) • Profitable companies reward the shareholders’ risk of investing in them by paying out dividends • Capital Asset- almost everything you own or use for personal or investment purposes • Includes home, stocks, bonds, mutual funds, etc. • Basis – the price you paid for a capital asset • When you buy and then resell an asset, you gat a capital gain, capital loss, or a break-even (zeros out) § Capital gain = Sales Price – Basis – Selling Cost § Don’t have to sell an asset to get benefit of it —just need to own property and investments where active marketplace exists § If market exists, you can theoretically cash out any time • Government Benefits - benefits from government that help you survive difficult times (unemployment, disability, sickness, death of breadwinner) until you can improve your financial situation • Unemployment Benefits - cash payments made to those who have recently lost their jobs due to no fault of their own § Amount and duration depends on how much you earned immediately before losing your job § Benefits last up to 26 weeks § Enough to sustain life but not lifestyle § Look at earned income in the two highest paid quarters and divide by 42 § In GA, it is $44 to $330 per week • Fringe Benefits- benefits provided to employees as part of overall compensation package § Health insurance, retirement savings, sick/ vacation pay § If you lose your job, you lose these • Medicaid- health insurance program for low -income people • Medicare- federally-run health insurance program for those age 65+; does not depend on earnings history § Specifically designed for retirees § Depends on previous income, duration of career, hours of work put in, age at which they decided to cla im benefits § Starts at 65 § Part A: Hospital, nursing home, Hospice care § Part B: Preventive health care, Ambulance, Medical equipment, Mental health § Part C: Allows private health insurance companies to provide Medicare benefits § Part D: Prescription coverage • Supplemental Nutrition Program - provides low-income homes money in order to buy food (food stamps) • Temporary Assistance for Needy Families - supplemental income to very low-income unemployed people (usually with kids) • Earnings History- record of how much taxable income you earned for each year of your life since adulthood § Government benefits often influenced by this § Higher earnings means greater benefits • Social Security- benefits for retired, disabled, or when someone with young kids dies § Specifically designe d for retirees § Depends on previous income, duration of career, hours of work put in, age at which they decided to claim benefits § Influenced by earnings history § Pay-as-you-go system: collect current taxes to pay current benefits § In 1940 there were 159 workers to support 1 retiree; by 2030 only 2 will support 1 beneficiary § Program’s funds will be exhausted by 2034 unless taxes increase, benefits decrease, or demographic trends reverse (i.e. higher birthrates and lower life expectan ces) § 2016 is first time the SS Trust Fund had to pay out more than it took in § **Test Question: Social Security will not be gone—just significantly depleted


Buy Material

Are you sure you want to buy this material for

50 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Jennifer McGill UCSF Med School

"Selling my MCAT study guides and notes has been a great source of side revenue while I'm in school. Some months I'm making over $500! Plus, it makes me happy knowing that I'm helping future med students with their MCAT."

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."


"Their 'Elite Notetakers' are making over $1,200/month in sales by creating high quality content that helps their classmates in a time of need."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.