FHCE 3200 EXAM 1 fully solved & updated

Net worth - answer-Assets (own) - Liabilities (owe) = Net Worth Personal finance plan - answer-Reasons to develop a __________: - Achieve your financial goals - Achieve financial independence - Invest intelligently - Minimize your payments to Uncle Sam - Cover your assets The Personal Financial Planning Process - answer-Step 1: Awareness and Setting Financial Goals Step 2: Creating and Activating Plans Step 3: Evaluating and Revising Plans: Moving forward Step 1: Awareness and Define Your Financial Goals - answer-- Specifically define and write down your financial goals to reflect your financial and life situation - Attach a cost to each goal - Set a date for when the money is needed to accomplish the goal Goals - answer-"The cornerstone of a financial plan" Goals - answer-- Based on values, attitudes, and resources available - Impacted by decision making and entice you to keep the plan in effect - Provide tangibly for the question, "why?" 1 year - answer-Short-term goals can be accomplished within a ______ period 1-10 - answer-Intermediate-term goals take _____ years to accomplish 10+ - answer-Long-term take ____ years to achieve Step 2: Create and Activate Plans - answer-Answers: what MUST I do to achieve my goals? - Cut expenses? - Increase income? - Start saving? - Start investing? - Career choice? Step 3: Revise Your Plan - answer-- Review your progress - Match your plan to your goals - Be prepared to start over if your plan no longer meets your needs (i.e. you suffer a job loss, you win the lottery) Flexibility - answer-The ability for your plan to change as your situations or goals change Minimization of taxes - answer-Your ability to pay as little as possible to Uncle Sam Liquidity - answer-Your ability to convert non-cash assets into cash with relative ease and speed Protection - answer-Your ability to meet the unexpected large expenses without destroying your plans Financial life cycle pattern changes - answer-Many plans change due to unanticipated events, but generally they change due to ______________ Education - answer-Possibly the best single investment you will ever make Earnings - answer-________ determine standard of living Education - answer-The key factor in determining income level 70% - answer-_____ of wealthy householders finished college Personal balance sheet - answer-A statement of your financial position on a given date - "The financial polaroid or snap shot" of the PRESENT - Lists your assets and your liabilities Assets - answer-What you own: - Monetary - Investments - Retirement Plans - Real Estate - Automobiles and other vehicles - Personal property Monetary assets - answer-Cash or other assets that can be easily liquidated - i.e. cash, checking accounts, savings accounts Investment assets - answer-Assets that are invested for the future - i.e. stocks, bonds, mutual funds, cash value life insurance Retirement plans - answer-Investments by you or your employer to save for retirement - i.e. pensions, IRAs, 401(k), 403(b), Keogh, or SEP-IRA plans Tangible assets - answer-A physical asset; something you can use, feel, and touch Real estate - answer-Tangible asset such as land or a dwelling - Represents most of your savings, and normally appreciates in value - i.e. primary residence, vacation home, rental property Automobiles and Other Vehicles - answer-Tangible assets that must be inspected and licensed - Reported as fair market value but normally depreciate in vale - i.e. cars, trucks, motorcycles, and recreational vehicles Personal property - answer-Tangible assets that represent your lifestyle - Reported as fair market value, but normally depreciate in value - i.e. boats, furniture, electronics, clothing, jewelry Current liabilities - answer-Liabilities that must be paid-off within the next year - i.e. credit cards and utility bills Long-term liabilities - answer-Liabilities that extend beyond one year - i.e. home mortgage and auto loans Net worth - answer-Assets (own) - Liabilities (owe) = Net Worth Insolvent - answer-The condition in which you owe more money than your assets are worth Personal Income Statement - answer-Tells where your money comes from and where it has gone - "The financial motion picture" of the PAST Cash Basis: statement based entirely on actual cash flows Taxes and living expenses - answer-The two major expenditure categories Fixed expenses - answer-Expenses you don't directly control - i.e. mortgage, rent, cable TV Variable expenses - answer-Expenses you can control - Where you should make budget cuts Spending plan - answer-Research has shown that folks are more willing to create and use a "budget" if we call it a "___________" Taxes, food, housing, medical care - answer-On average, money goes toward 4 things: ___________ Education and entertainment - answer-The more money earned, the more spent on _______ and ________ Budget - answer-A forward looking plan for controlling cash inflows and cash outflow - Based on your goals and financial obligations, a budget limits spending in different categories Developing a Cash Budget - answer-- Examine last year's total income and adjust for the current year - Estimate your tax liability - Identify all fixed expenditures - Identify all variable expenditures - Look for ways to reduce your variable expenses - Consider the effect of credit payments on future income Developing a Budget - answer-Use worksheet to track income and expenses for one month. These numbers now become your "base" for the next month. Strive to be below these base numbers - i.e. if you want a retirement plan, then you must decrease consumption and increase investing Implementing a Cash Budget - answer-- Try the budget for a month - Adjust the plan or your expenses as necessary to maintain the plan - Try the envelope system - At the end of month 2, compare the two month's income/expenses - Make changes as necessary Goals of a budget - answer-Spend less, earn more, downsize goals Money for savings - answer-= take home pay - living expenses Attitude - answer-Research has shown that the number one reason "spending plans" fail is ________ - If you think of it as a penny-pinching sacrifice instead of a means for achieving your financial goals and dreams, how long are you likely to stick with it? Fair market value - answer-The actual value of an asset, or the price for which it can reasonably be expected to sell in the open market London Company - answer-In 1607, Jamestown was founded in Virginia by colonists of the ___________ Taxes: An American History - answer-On the surface, the Americans held to the view of actual representation, meaning that in order to be taxed by parliament, the Americans rightly should have actual legislators seated and voting in London The British, supported the concept of virtual representation, which was based on the belief that a Member of Parliament virtually represented every person in the empire and there was no need for a specific representative from VA or Massachusetts The Boston Tea Party - answer-On the evening of December 16, 1773, a group of men calling themselves the "Sons of Liberty" went to the Boston Harbor. The men were dressed as Mohawk Indians. They boarded three British ships, the Beaver, the Eleanor, and the Dartmouth, and dumped forty-five tons of tea into the Boston Harbor American Revolution - answer-July 4, 1776 the US signs the Declaration of Independence seeking our freedom from England and unfair taxation practices Second Continental Congress - answer-Authorized the DOI 16th Amendment - answer-1n 1913, the ___________ gave Congress the right to impose the first income tax 4 months - answer-The average American works more than _______ just to pay his/hers taxes Income tax - answer-Progressive tax meaning that the more you earn the more you pay Tax brackets - answer-Income ranges for which the same marginal tax rate applies - 10% - 35% Average tax rate - answer-Average amount of every dollar you earned that was paid for federal income taxes Effective marginal tax rate - answer-Average amount of every dollar you earned that paid for all local, state, and federal income taxes Withholdings - answer-Tax payment from each paycheck, determined on the basis on income and W-4 form Paying your Income Taxes - answer-- Withholdings - Quarterly estimated payments - Payments with the tax return (April 15th) - Withholdings from stock, retirement funds, and price or gambling winnings Social Security (OASDI) - answer-Old age, Survivors and Disability Insurance (OASDI) tax A mandatory insurance program administered by the federal government that provides support in the event of death disability, health problems, or retirement - Tax rate of 6.20% of gross salary with a cap of $127,200 -- as of 2017, there is *NO* social security taken out after this maximum Federal Insurance Contributions Act (FICA) - answer-A U.S. law that creates a payroll tax requiring a deduction from the paychecks of employees as well as a contribution from employers to fund the Social Security and Medicare programs Medicare - answer-A health care insurance program for elderly and disabled - Tax rate of 1.45% of gross salary, with no annual cap State and Local Income Taxes - answer-- Most states impose an income tax; however, some, like Texas, do not - Local income taxes are uncommon; but some larger cities, for example, New York City, impose such a tax Excise "sin taxes" and state sales taxes - answer-Imposed when goods are purchased Real estate and property taxes - answer-Imposed annually or semi-annually on assets owned Gift and estate taxes - answer-Imposed when assets are transferred from one owner to another Filing Status Classifications - answer-- Single - Married filing jointly - Married filing separately - Head of Household Sources of Taxable (Gross) Income - answer-- Wages, salaries, and tips - Capital gains, dividends, and interest - Alimony - Pension funds and IRA distributions - Business and form income - Rental and royalty income - Social security and unemployment benefits Sources of Tax-Exempt Income - answer-- Roth IRA earnings - State and local municipal bond interest - Gifts and inheritances - Child support payments - Federal income tax refunds - Veterans' and welfare benefits Itemized Deductions - answer-This is where your home owner interest expense is deducted Standard Deductions - answer-Typically not for home owners 1040EZ Tax Form - answer-- Taxable income less than $50,000 - Can't itemize or claim dependents 1040A Tax Form - answer-- Taxable income less than $50,000 - Allows for more sources of income 1040 "Long form" - answer-- Allows the use of schedules only form that - Allows you to itemize deductions Tax Avoidance - answer-Legal money management strategies to reduce one's tax liability such a retirement plans or IRAs Tax Evasion - answer-Illegal strategy because one is not paying taxes at all or not reporting all income IRS hotline - answer-1.800.829.1040 or 1.800.829.4059 (TDD) Other ways to receive help in paying taxes: - Self-help tax publications - Computer programs - Tax specialists Banks - answer-Roles of banks in the economy: 1. Facilitate borrowing and lending 2. Facilitate payments 3. Risk management - Issue financial assets that allow firms to share risks - Provide guarantees and lines of credit Financial Intermediaries - answer-"Banks" include: - Commercial banks - Credit Unions - Savings and loan associations (S&L's) -- also sometimes called "thrifts" or "thrift institutions" Falling - answer-There are a large number of banking firms in the US but the number is _______ due to mergers between banks - Thousands of US banks are very small, each having only a single office - Many banks today have multiple branches or offices Bank holding company - answer-A firm that owns one or more banking firms History of US Banking - answer-The modern commercial banking industry began when the Bank of North America was chartered in Philadelphia in 1782 1782: Bank of North America is charted 1791: Bank of the US is charted 1811: Bank of the US charter is allowed to lapse 1816: Second bank of the US is chartered 1832: Andrew Jackson vetoes rechartering of Second Bank of the US; charter lapses in 1836 1863: National Bank Act of 1863 establishes national banks and Office of the Controller of the Currency 1913: Federal Reserve Act of 1913 creates Federal Reserve System 1933: Bank Act of 1933 creates the FDIC and separates banking and securities industries Savings - answer-Savings provides a safety net and are also helpful for putting together money for future needs such as a down payment on a house Emergency fund - answer-3 to 6 months of salary set aside; these funds should by kept in a liquid interest-bearing account such as a money market fund, short-term certificates of deposits, or a savings account CDs - answer-A type of *time deposit* that is usually a safe way to store money from seven days to several years - Banks and brokerage firms offer CDs with a maturity of at least 7 days, with penalties on early withdrawals Smart cards - answer-- Also called chip cards or stored value cards - Offered by banks or credit card companies and may be worth $20 or $50 -- can be used for placing phone calls or buying sodas or snacks from vending machines Credit - answer-Receiving cash, goods, or services with an obligation to pay later Closed credit - answer-Credit that you must repay in fixed payments - i.e. car loans, mortgages Open credit - answer-Credit that you can use and repay at your pace so long as you pay the required minimum monthly payment - i.e. credit cards, store credit cards Factors that Determine Creditworthiness - answer-- Annual income - Length of time at current residence - Length of time at current job - Number of bank accounts - Number of credit cards - Credit history College students - answer-Easy targets for credit card companies because they want your business - Should confirm the credit offer is legit; the FDIC has information on this FDIC (1933) - answer-"Federal Deposit Insurance Corporation" - Protects your money in banks up to $250,000 per ownership category - Banks pay a fee to offer this protection Costs associated with credit cards - answer-- The balance owed - Interest rate/finance charge - Cash advance costs - The annual fee - Additional or penalty fees Revolving credit - answer-If you carry a balance from month to month on your credit card than you have a *revolving account* Balance owed = Revolving balance Compound interest - answer-_________ is calculated on revolving balances Annual percentage rate (APR) - answer-Interest rate paid over the life of the loan Teaser rates - answer-Introductory rates used to attract new customers, some as low as 0.0% Monthly - answer-Most credit cards compound interest on a ________ basis (APR/12) Cash Advance - answer-Interest begins immediately and may be at a higher rate than for purchases - Usually there is a "cash advance fee" of 2-4% of the amount advanced - Some cards require payment of the purchase balance before payment of the cash advance balance 20-25 days - answer-A "grace period" is normally _________, excluding cash advances - Doesn't apply if you carry a balance - Not all credit cards offer a grace period $0-100 - answer-Fees range from ________ (American Express charges $300 for their platinum card) - Cash advance fee - Late fee (averaged $35) - Over-the-limit fee (average $35) The 2010 Credit Card Act - answer-Limited most fees to $25 The Credit Bureau - answer-Collects and reports information from creditors, public court records, and the consumer Credit scoring - answer-Determines if you qualify for credit and the interest rate offered AKA your "credit worthiness" Information on Your Credit Report - answer-- Personal Demographics - Employment history - Credit repayment history - Criminal convictions and judgements - Previous two years of inquiries by creditors National Credit Reporting Bureaus - answer-- Equifax Credit Information Services - Experian - TransUnion 48 hours - answer-If you see fraudulent charges on your credit card, your liability for lost/stolen and is limited to only $50 - But, you must notify the creditor within _____ about the fraud 1.888.5OPTOUT - answer-When you have the credit card that you want and what mail offers to cease, call 1.888.5OPTOUT (1.888.567.8688) The Fair Debt Collections Practices Act (FDCPA) - answer-A law that protects you, the debtor, from overzealous debt collectors - However, they do have the right to get you to pay your debt back... you owe them the money! Debt collector guidelines - answer-- They can call you between 8 am and 9 pm - They can call you at work unless you notify them in writing that your boss forbids it - They must identify themselves - They must not lie about the debt - They cannot harass or abuse you - If you want the contact to stop, you must put it in writing and send certified mail Seek Help - answer-- Credit Counseling Services - National Foundation for Credit Counseling - Consolidated Credit Counseling Services They help you deal with your creditors and put you on a do-able repayment plan - the creditor must agree, however Chapter 7 Bankruptcy - answer-Known as the Straight Liquidation Bankruptcy - You petition the court to file for bankruptcy because you can't pay your debt - The court will force you to sell you nonexempt assets to pay off debt - You do not have to make monthly payments Chapter 13 Bankruptcy - answer-Known as the Repayment Bankruptcy - Again you petition the court for debt relief - With this one you agree to make 3-5 years worth of monthly payments to the court who will pay it to your debtors - You are allowed to keep most of your assets Certified financial planner (CFP) - answer-Can work with you to structure your finances Certified divorce counselor - answer-Can help couples splitting up deal with their joint finances Money problems - answer-Number one reason cited for divorce here in America - Money problems is also one of the top reasons cited for suicide Millennials (s) - answer-Generation Y - Would rather buy a car and lease/rent a house - 71% would rather buy than lease a car - 59% would rent a house rather than buy - 61% admit they cannot afford to buy a home - Many still live with parents $200 billion - answer-Millennials make up 1/4 of the US population and have _______ in annual buying power - not influenced by advertising - review blogs before purchase - value authenticity over polish There are 80 million millennials in total Housing and transportation - answer-The two largest expenditures for most consumers - Roughly 50% of your budget 63.6% - answer-The national homeownership rate is ______ Qualified - answer-One of the major ways homeownership was made available to households/consumer units: - New mortgage products and credits guidelines opened the market to populations that previously would NOT have ________ to buy a house Consumer Unit - answer-Members of a household related by "blood, marriage, and adoption" (*this is the definition of a family*) or by other legal arrangements; or single persons living alone or sharing a household with others but who is financially independent; or two persons who live together and share expenses - Used interchangeably with hosusehold Fair Housing Act - answer-Prohibits discrimination on the basis of: - Race or Color - Religion - Sex - National Origin - Family Status Example: Black Jack MO Black Jack MO - answer-Olivia Shelltrack and Fondray Loving don't meet the local definition of "family" - Purchased a home in Black Jack, a suburb of St. Louis, with their three children. Because Loving is not the biological father of Shelltrack's oldest child, the city denied the family an occupancy permit for the home that they purchased. The family faced fines of up to $500 every week for living in their home without an approved occupancy permit - American Civil Liberties Union (ACLU) took on their case and won against the city Redlining - answer-The practice of drawing a line around an area that signifies that the area *will not* receive the same treatment as other areas regarding financing (or insurance and credit) - Target areas include low income or crime ridden areas & if loans are made, they are typically overpriced Housing Affordability Index - answer-The relation of a consumer's housing costs to his/her available resources - Median family income divided by annual income needed to buy average house (with 20% down & conventional mortgage) - National Association of Realtors Less - answer-When the housing affordability index falls below 100, median family income is ____ than what is needed to buy a median priced home More - answer-When index is above 100, median family income is _____ than what is needed to buy a median priced home 80% - answer-Index value of 110 means that a family earning median family income has 110% of income necessary to qualify for an _____ loan Supply and Demand - answer-Demand for housing - Limited supply - Determines housing prices Seller's Market - answer-Increased demand for homes plus a limited supply of available houses likely pushes the price of houses higher Buyer's Market - answer-Limited or no demand for many available houses likely leads to houses selling for very low prices Housing options - answer-Single Family Houses - free-standing dwellings Cooperatives - multi-unit dwellings Condominiums - multi-unit dwellings Planned Unit Developments (PUDs) - planned development with common land Apartments and other housing - multi-unit dwellings ` Single Family Dwelling - answer-A housing unit detached for others, own the land, building, and all improvements Cooperatives - answer-Corporate-owned dwellings in which the residents, as shareholders, own stock representative of the value of their unit - Monthly owner's fee Condominiums - answer-Residents have sole ownership of the living space but joint ownership of the land and common areas - Monthly maintenance fee Planned Unit Developments (PUDs) - answer-Own home and land it sits on as well as shared ownership of the development - Monthly homeowners' fee for maintenance and common expenses Apartments and other housing - answer-- Multi-unit developments - Rental properties Determine what's most affordable - answer-1. Lending standards - your financial history - your ability to pay - the appraised value of the home 2. Maximum mortgage 3. The down payment 4. Prequalifying One-time or Initial Costs - answer-1. Down Payment 2. Opportunity cost of down payment 3. Closing or settlement costs - loan organization fees - loan application fee - appraisal fee - other fees and costs Monthly Mortgage Payments (PITI) - answer-- Principal = what you borrowed - Interest = the cost of borrowing - Taxes = support of government - Insurance = protection of your dwelling and contents Escrow account - answer-Taxes and insurance are held in an _________: an account that they can draw your funds from to pay your taxes and insurance when they come due) Down Payment - answer-Initial cash payment toward purchase of house - A shift in assets from one form to another (not a cost per se) Down Payment = Price of house * % down Penalty - answer-A person can withdraw funds from their 401K or IRA retirement accounts without ________ to use for a down payment Lender guideline #1 (front-end ratio) - answer-Monthly housing expenses 28% of gross monthly income, including: - mortgage principal & interest (PI) - property taxes (T) - insurance on house (I) 28% - answer-House payment should be no more than ____ of your monthly household gross income - over 30% means you are house poor (unaffordable burden) 50% - answer-Half the working poor spend at least _____ of their income on *RENT*, a "critical" burden Lender guideline #2 (backend ratio) - answer-Housing expenses plus other debts 36% of gross monthly income, including: - PITI - all other debt payments 36% - answer-House + Debt Payments should be no more than _______ of your monthly household gross income Defect-disclosure form - answer-Describes the condition of the home purchase, including termites - Do this is house is still under warranty and has not been inspected Mortgage - answer-A "stream of cash flows" - Flows out of your household - Flows into the mortgage servicer - Mortgage originators consist of banks, mortgage bankers, and mortgage brokers - The mortgage broker connects the family with the lender. The broker collects commission. The family is then able to buy the house that they want Tax Deductible Interest - answer-A home mortgage interest deduction allows taxpayers who own their homes to reduce their taxable income by the amount of interest paid on the loan which is secured by their principal residence (or, sometimes, a second home) Property Tax Deduction - answer-Individuals can deduct a portion of the cost of proper taxes assessed on the properties they own - The portion depends upon the individual's tax rate Home Equity Line of Credit (HELOC) - answer-Definition: Equity = [current market value of a home] minus [outstanding mortgage balance] - Primary advantage of an equity loan is the tax benefit (interest paid is usually tax deductible) 30-year fixed rate mortgage - answer-The term of the loan is long, you'll pay more money in interest over the life of the loan than you would on a shorter-term mortgage, and you'll build equity more slowly - One of the most popular mortgages Fixed Rate Mortgage - answer-A mortgage loan where the interest rate on the loan remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or "float" - 15 year - 30 year Adjustable Rate Mortgage - answer-A mortgage with an interest rate that is linked to an economic index - The interest rate, and your payments, are periodically adjusted up or down as the index changes - Starts very low, then increases dramatically in a couple of years - Low interest rate now becomes high interest rate; meaning your low mortgage payment now becomes UNAFFORDABLE MORTGAGE PAYMENT Reverse Mortgage - answer-Pay the home's owner (usually an elderly person) cash in monthly advances or through a line of credit - Convert home equity (the portion you own outright) into cash with no repayment required for as long as the homeowner lives in the home - But, no one lives forever so the homeowner's heirs then must repay the debt on the home, perhaps losing the home altogether The Run Up to the 2006 Housing Collapse - answer-The mortgage and credit crisis was caused, in part, by the inability of a large number of home owners to pay their mortgages as their low introductory-rate mortgages (ARMs) increased to much higher interest rates Housing Boom: Leads Banks to Offer Additional Risky Mortgage Products - answer-- 100% financing (meaning no down payment), interest only mortgages (where the person is just paying down the interest and not the principle that was borrowed), adjustable rate mortgages - Predatory lending practices Predatory lending practices - answer-Higher interest rate loans for credit challenged buyers Types of Predatory Lending - answer-- Lender charges an excessive interest rate on a loan made to a person with excellent credit - "Loan targeting" loans target a specific population or group of people -- typically low income neighborhoods - Lender continually encourages you to refinance, thus incurring additional fees--that are paid to the lender Subprime/Predatory Mortgage Loans - answer-Loans given to households with poor credit history - They almost always have a higher than average interest rate $625 billion - answer-Subprime market grew from $210 billion in 2001 to __________ in 2005 - This means banks were offering billions of dollars in loans to folks who likely would not be able to pay the mortgage off 20% - answer-- 2005 was the peak of the subprime boom - At this time, 1 in 5 mortgages were subprime - ______ of mortgages were likely to go bad NINJA Mortgages - answer-No income, No job, No assets Economic activity impact - answer-- Mortgage rates are very susceptible to economic activity, just like treasuries and other bonds - For this reason, job reports, Consumer Price Index, GDP, Home Sales, Consumer Confidence, and other data on the economic calendar can move mortgage rates significantly Lower, good - answer-As a rule of thumb, bad economic news brings with it _______ mortgage rates, and ______ economic news forces rates higher At the consumer level, what happens if mortgage isn't paid? - answer-The whole neighborhood is impacted because when this home goes into foreclosure and gets sold by the bank at a lower price, the value of all the houses in the neighborhood drop as well Default - answer-Essentially means a debtor has not paid a debt which he or she is required to have paid Covenant - answer-With most debt, a _______ is included in the debt contract which states that the total amount owed becomes immediately payable on the first instance of a default of payment Court house - answer-After the notice of default, there is a misstatement period when the bank is not yet in foreclosure and has not yet put up for auction by the bank - If the defaulted loan isn't taken care of in a given amount, the bank resumes responsibility of the home and is put up for auction In Athens, auctions happen on the front steps of the __________ downtown Foreclosure - answer-If you can't pay your mortgage, the creditor will respond with a _________ - A legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan - answer-Foreclosures shot up by 81% between _______ and increased by 225% since 2006, according to RealtyTrac, a real estate organization specializing in home foreclosures and bank repossessions 90 - answer-Homeowners who were delinquent on their payments by ___ days and ultimately went into foreclosures were the cause of the housing disaster Race/Ethnicity Foreclosure Crisis - answer-Black and Hispanic Neighborhoods were targeted for loans, even though many households could not afford a new home in a safer neighborhood Auctioning Houses - answer-When put in an auction, the bank usually sells the home at a price that is much lower than what it is worth - The amount that they receive in this process gets put towards the borrower's loan, but the borrower still has to account for the difference that they owe towards the loan Decrease - answer-The process of auctioning off foreclosed houses creates an increase in supply of homes in the market, which will ________ the home prices 10-20% - answer-Living in an area with multiple foreclosures can result in a ______ decrease in property values The National Housing Act of 1934 - answer-- Enacted June 28, 1934 - AKA the Capehart Act - Part of the New Deal passed during the Great Depression in order to make housing and home mortgages more affordable - Created the Federal Housing Administration (FHA) Federal Housing Administration (FHA) - answer-The goals of this organization are to improve housing standards and conditions, provide an adequate home financing system through insurance of mortgage loans, and to stabilize the mortgage market Federal Savings and Loan Deposit Insurance - answer-The FSILC was created as part of the National Housing Act of 1934 to insure deposits in savings and loans a year after the FDIC was created to insure deposits in commercial banks - In the 1980s, its responsibilities were transferred to the FDIC Federal Deposit Insurance Corporation (FDIC) - answer-A US government corporation operation as an independent agency created by the US banking act of 1933 - *Purpose was to calm consumers, encourage buying/investion* - Current level of protection: $250,000 for each deposit ownership category in each insured bank US Federal Housing Authority (USHA) - answer-Created during 1937 within the US Department of the Interior by the Housing Act of 1937 as part of Roosevelt's New Deal - It was designed to lend money to the states or communities for low-cost housing construction Federal National Mortgage Association (FNMA) - answer-AKA Fannie Mae - Was founded in 1938 - It is a government sponsored enterprise and became a publicity traded company in 1968 - Purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage backed securities (MBS), allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market The Federal Home Loan Mortgage Corporation (FHLMC) - answer-AKA Freddie Mac - A public government-sponsored enterprise created in 1970 to expand the secondary market for mortgages - Along with other GSEs, Freddie Mac buys mortgages on the secondary market, pools them, and sells them as a mortgage backed security to investors on the open market Fannie Mae and Freddie Mac - answer-- They do not lend directly to home-purchasers. Instead, Fannie and Freddie are in the business of loan "securitization" - They buy loans from smaller local banks; thus the smaller, local banks can/did lend more money to consumers! - Fannie and Freddie then bundled the mortgages and resold the loans to investors as a MBSs 75% - answer-Before the Housing Market Collapse of 2006, Fannie and Freddie held about ______ of America's Mortgages Securitization - answer-The process of taking an illiquid asset (such as your mortgage or student loan payment), or group of assets, and through financial engineering, transforming them into a security Mortgage backed security - answer-After a mortgage is bought by Frannie and Freddie, it is usually put in a group with other mortgages into a __________ (MBS) MBS - answer-Mortgage-backed Securities are a type of investment that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property - Mortgage loans are purchased from banks, mortgage companies, and then assembled into pools by a governmental, quasi-governmental, or private entity - The entity then issues securities (typically bonds) that represent claims on the principal and interest payments made by borrowers on the loans in the pool, a process known as securitization Bonds - answer-The most basic types of MBS are pass-through participation certificates (________), which entitle the holder to a share of all principal and interest payments made by the mortgage holder - These are basically IOUs. In that, you money to Freddie and Fannie by buying these mortgages... they, in turn, will pay you back for these loans with interest! Bonds - answer-A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate - Investors who bought MBSs loaned money to Freddie and Fannie (debtors) to buy up more mortgages Debtor - answer-Bonds must be repaid by the ________, (F&F) The Housing Crisis - answer-- Investors (and other banks and investment firms) continued to buy these mortgage based securities because they continued to make a great amount of money - However, real estate prices began to fall, and the homeowners began to default their mortgages - This "safe" investment was turning out to be one that was of great risk and therefore, costing investors billions of dollars - The ratings of mortgage backed securities began to decline, to AA or even lower. This was a clear indicator of how these securities were thought of as a risky investment. - The downgraded mortgage bonds were suddenly worth much less. No investors wanted to take on this risk. - And F & F couldn't pay back the face value/interest they owed on these MBSs. - Major banks who had huge investments/debts tied to the housing market suffered from huge losses. - Lehman Brothers went out of business. - Merrill Lynch had to sell itself to the Bank of America for a fraction of its former value. - Countrywide Financial Corporation, the biggest US mortgage lender, eventually gets taken over by Bank of America. - The Federal Reserve began guaranteeing loans to banks to prevent an all-over financial failure. - Mortgage defaults led to subsequently to the collapse and government rescue of Fannie Mae and Freddie Mac. Susan Wharton Gates - answer-- Worked for Freddie Mac from 1990 until she resigned in 2009 - Provided a long litany of past sins that led to the housing crisis, including "expansive Federal Reserve monetary policies, loosely regulated subprime mortgage brokers, unregulated and rapacious Wall Street investors seeking high-yielding assets, conflicted credit rating agencies that failed to accurately assess the risk of subprime securities, millions of suckered, naive or conniving borrows, and widespread regulatory lapses" - And the problem, she told a recent housing conference, is that many of these same policies and attitudes remain place today. Americans who think the housing market is back may be ignoring that fact Rent - answer-Payment for the use of a specific property or unit Flexibility - answer-The primary advantage of renting Lease - answer-A legal contract between the tenant and the landlord, specifying the responsibilities and rights of both parties - Identifies the rent amount, security deposit amount and specifications, payment for utility bills, late payment penalties, length of lease, execution terms, etc Landlord - answer-Owner of the rental property - May perform management duties or hire a property manager Property manager - answer-May charge a fee to the landlord to perform the management tasks Tenant - answer-The person who rents the property and are generally: - People who choose not to own a home - People who cannot afford to own a home Rental Lease - answer-No 3-day grace period -- when you sign it it goes into effect (generally) Subleasing - answer-Allows the renter to lease the property to another person Security Deposit Refund in Georgia - answer-Landlord must return security deposit to tenant within 30 days of termination of the lease - Tenant is entitled to inspect premises within 5 business days after termination of occupancy - Tenant must sign one-out inspection list of specify in wiring any items to dispute Familial status - answer-A landlord can limit the number of occupants as long as the landlord is not discriminating on the basis of ________ - Violation of Fair Housing Law Occupancy - answer-Georgia law does not regulate __________; however, city and county ordinances may impose occupancy limits Tangible consumer durable - answer-A good that provides benefits that extend beyond one year - i.e. an automobile Automobile expenses - answer-Expenses for auto include: - Insurance (vehicle model, driving record) - Licensing (annual periodic expense) - Maintenance and operating expenses (SUVs drink more gas than Hyundais) - Financing charges if applicable Gross capitalized cost - answer-A fair vehicle value Leasing - answer-Steps: 1. Sign a lease 2. Negotiate a fair vehicle value 3. Negotiate your trade in price (Kelly Blue book) 4. Negotiate a low finance charge 5. Choose a vehicle with slow depreciation Close-end lease (AKA walk-away lease) - answer-- Normally offer a purchase option - Require the dealer to be responsible for resale - Account for about 80% of all leases Open-end lease - answer-- Compare the fair market value to the lease's residual value of the vehicle - Are to be *avoided* because you pay the difference Single Payment lease - answer-Allows the consumer to obtain a discount on the rental if certain standards are met When is leasing a good option? - answer-- If you are financially stable - If you drive less than 15,000 miles annually - If you take good care of your vehicles - If you use your vehicles for business travel - If you do not modify your vehicles - If the vehicle you are considering doesn't depreciate too quickly Monthly Lease Payment - answer-Depends on the following factors: - agreed-upon price - up-front fees - down payment or trade allowances - residual value - finance charge - length of the lease Amount you pay for Lease - answer-- No easy formula - Lease payments are generally less than purchasing payments - Many have large down payments Purchasing a Vehicle - answer-1. Narrow down your selection - Comparison shop: price, product features, and quality 2. Be informed: check library and Web sources New cars - answer-1. Great warranties available now: - Hyundai: 10 year, 100,000 mile warranty - Chrysler, Dodge, Jeep: 7 year, 70,000 miles 2. 0.0% financing for up to 72 months - Must meet credit qualifications 3. Rebates - To you or to the dealer? Invoice price - answer-Price manufacturer charges the dealer Monroney sticker price on side window - answer-Base price + manufactured installed options, fuel economy and transportation charge Dealer Sticker Price - answer-Dealer installed options, and dealer markup Base price - answer-Cost of car including standard equipment and factory warranty Invoice Price - answer-Generally, the most important price to know when shopping for a new car - The dealer cost may be less than invoice due to rebates, discounts, allowances, incentives - Gives you the leverage you need to pay the price you want for your new vehicle New Auto Purchase - answer-Take advantange of new car sales, negotiate the price - Know the dealer's cost of the vehicle (from invoice) - Understand the various dealer markups or holdbacks! - Be aware of any rebate(s) that may apply New Auto Purchase cont. - answer-Evaluate financing alternatives - determining the length of financing - shop around to find the best interest rate - choose a financing period and rate to give you an affordable monthly payment OR use PVA to figure payment 0.0% financing - answer-- May be tied to huge down payment - May be "on select models only" Rebates - answer-Generally go to the dealer and are usually included in the advertised price - You don't usually get rebates & 0..0% financing 2 to 3 - answer-When getting a used car, the best buy is a vehicle _______ years old Making your purchase - answer-Steps: 1. Negotiate the price - Consumer reports 2. Negotiate your trade in value - Kelly Blue Book 3. Evaluate financing alternatives 4. Complete the purchase Warranty - answer-A promise by the manufacturer or dealer that it will repair or replace defects in your car, or that your car will be of a certain quality, for a specified period of time Express warranty - answer-Specific promises about the quality of the automobile Implied warranty - answer-The automobile will work as expected Secret warranty - answer-AKA "warranty adjustment" - Under these programs, the manufacturer will do free repairs of vehicles with persistent problems, even after the warranty expires, in order to avoid a recall and bad press - To get these, complain LOUDLY and in writing Lemon Laws - answer-- Nearly all state Lemon Law Statutes are based on the Federal Magnuson-Moss Warranty Act - A vehicle that continues to have a defect that substantially impairs its use, value, or safety - Generally, if the car has been repaired 4 or more times for the same defect within the Warranty Period and the Defect has not been fixed, the car qualifies as a Lemon Georgia Lemon Laws - answer-- 1 repair attempt in the braking or steering system or 3 repair attempts or 30 calendar days out of service for other problems - 1 year or 12,000 miles High Balling - answer-A high amount that is offered for your trade in, but this amount is really just added into the price of the new car Low Balling - answer-Very low price quoted, then the add-ons increase the cost significantly - i.e. spray for your leather seats, undercoat for the bottom of the car, GAP insurance The Auto Industry Collapse - answer-The auto industry contributes ~3.6% or $500 billion to total US GDP output - A 30% decline in auto sales translates directly into a 1% decrease in economic output - Therefore, a decline in output results in direct job losses, as well as auto-industry related losses Japanese - answer-In 2006, Consumer Reports reported that all 10 of the cars that it considered to be the 10 best were built by __________ companies - Honda led the way with: Honda Civic and Honda Ridgeline; Acura also scored with the Acura TL sedan - Toyota included: Toyota Prius and the Toyota Highlander Hybrid, the only two exclusively gasoline-electric hybrid cars among the top picks US companies had maintained a steady business with their SUV lines, but sales of domestic SUVs, such as the Ford Explorer, once a stalwart for Ford's total annual sales, fell sharply - During this time, consumers moved toward smaller, foreign-made SUVs 2008 - answer-By ______, a combination of several years of declining automobile sales and scarce availability of credit led to a more widespread crisis in the US auto industry in 2008 and 2009 The Big Three - answer-GM, Ford, Chrysler $50 million - answer-The Big Three spent almost ______ to lobby Congress during the first nine months of 2008 Emergency loans - answer-Follow dramatic drops in automobile sales throughout 2008, each of the big three requested ____________ in order to address impending cash shortages The Big Three - answer-- In December 2008, the Big 3 auto companies asked the government for a $34 billion bailout to avoid bankruptcy. The Big 3 stated that their demise would trigger 3 million layoffs within a year, plunging the economy further into recession - On December 11, the bill failed to pass, losing 52-35 on a Senate Procedural vote - On December 19, George W. Bush approved the bailout plan, for loans of $17.4 billion to GM and Chrysler, stating that under the present economic conditions, "allowing the US auto industry to collapse is not a responsible course of action" - Bush provided $13.4 billion now, with another $4 billion available in February 2009 - General Motors would get $9.4 billion, and Chrysler $4 billion January 2009 - answer-In ___________, the government used $24.9 billion to bail out two of the big 3: $17.4 billion for General Motors and Chrysler - $6 Billion for GMAC - $1.5 billion for Chrysler Ford - answer-Did not receive a bailout - Feared a collapse of GM and Chrysler at the time would have hurt suppliers and, in turn, Ford itself - Ford CEO Alan R. Mulally also asked Congress for a "credit line" of up to $9 billion in case the economy worsened Loans - answer-Although, Ford did not receive money from the $80 billion bailout program, Ford did receive $5.9 billion in government _____ in 2009 to retool its manufacturing plants to produce more fuel-efficient cars GM and Chrysler - answer-- By February 2009, the situation had worsened such that both _____ and _____ were faced with imminent bankruptcy and liquidation - On February 18, 2009, General Motors and Chrysler again approached the US government, in regard to obtaining a second loan of $21.6 billion [$16.6 billion to GM, Chrysler would get $5 billion] - General Motors agreed to shed 47,000 jobs, cost five plants, and axe 12 car models. Chrysler agreed to cut 3,000 jobs, cut one shift from production, and axe three car models Chapter 11 Bankruptcy - answer-With the intent to prevent massive job losses and destabilizing damage to the entire manufacturing sector, the US and Canadian governments provided unprecedented financial bailout support to allow the companies to restructure their debt via filing for ________________ $34 billion in government loans - answer-In return, the companies promised to fast-track development of energy-efficinet vehicles, and consolidate operations - GM and Ford agreed to streamline the number of brands they produced - They also won agreements from the UAW union to delay contributions to a health trust fund for retirees and reduce payments to laid-off workers - The three COs agreed to work for a $1 a year and sell their corporation jets April 30, 2009 - answer-When Chrysler filed for bankruptcy protections June 1, 2009 - answer-When GM filed for bankruptcy protections Chapter 11 bankruptcy - answer--General Motors filed for ___________ after failing to successfully negotiate deals with bond holders - Bond holders were encouraged to turn their bonds into stocks so GM would not have to pay interest on the bond. They refused... Stocks would be worth zero after a bankruptcy - General Motors was largely a nationalized institution by then (the US government owning 60% and the Canadian 12.5%), the remaining private stakes mainly being owned by employees GM and Chrysler - answer-Both companies terminated agreements with hundreds of their dealerships and GM discontinued several of its brands as part of bankruptcy proceedings $1.01 - answer-Ford Motor Company was able to survive without entering bankruptcy partly due to a large line of credit which it obtained from the government in 2009 - However, stock was trading at ______ per share June 10, 2009 - answer-Chrysler emerged owned primarily by the UAW union and by Italian automaker Fiat SPA July 10, 2009 - answer-General Motors emerged from bankruptcy as a new company majority owned by the United States Treasury November 17. 2010 - answer-General Motors Co. GM.UL pulled off the biggest initial public offering in US history on 11/17/2010 raising $20.1 billion after pricing shares at the top of the proposed range in response to huge investor demand - Became a publicly traded company again How did the Auto Industry get to this point? - answer-- Auto Industry Employees paychecks - The US automakers also suffered from considerably higher labor costs then their non-unionized counterparts, including salaries, benefits, healthcare, and pensions 3.1 million - answer-In 2008: - All auto-related industries and aftermarket service businesses employed approximately _______ people in the United States - The UAW-negotatied wage was roughly $28 an hour in 2007 - "Total compensation is the cost of labor to the companies, and for GM it is about $73 per hour and for Toyota about $48" "Jobs Bank" - answer-The Big Three paid more than 12,000 idled employees their full salary and benefits in "jobs bank" program that was established in the 1984 UAW labor contracts to protect workers' salaries and discourage layoffs - The union's intent was to protect jobs via a plan to guarantee pay and benefits for union members whose jobs were extinguished by technological progress or plant restructuring How did the Auto Industry get to this point? - answer-- Auto Industry employees budgets - The volume of cars sold in the US was significantly tied to home equity lines of credit with 24% of sales financed this way in 2006 - When the availability of these loans suddenly dried up in 2008 due to the subprime mortgage crisis, vehicle sales declined dramatically, from 17 million in 2006 to 10.6 million in 2009 October 13, 2014 - answer-Shares of Fiat Chrysler began trading on the NYSE under the ticker symbol FCAU, Fiat Chrysler opened at $9 and quickly moved as high as $9.55 before pulling back a bit - Chrysler hasn't been publicly traded in the US in more than 7 years. At the time it was known as DaimlerChryser. Daimler (DDAIF) agreed to sell Chrysler to private equity firm from Cerberus in 2007 Internet, actually - answer-In terms of demographics, ______ customers tend to be younger than the usual in-store customers, but older online shoppers are often more likely to ________ purchase Pull medium - answer-The Internet is a _________, meaning there is interactivity between the consumer and the Internet Shopbots - answer-Intelligent agent programs that scan the internet and compile the information they are asked to locate in a format convenient for users - When you go online to buy a wedding gift, the bridal registry or department store may supply a list of gifts for $50 and under or for $50 to $100 Online auctions - answer-Since it appeared in 1995, this has been a fast growing phenomenon in the Internet marketplace - The most famous is eBay - "The key to eBay's success is trust among buyers, sellers, and the company that facilitates the auctions" Online purchases - answer-The main choices for paying for _____________ are: - paypal - credit cards - money orders - cashier's checks Trust - answer-In order to buy online in the market space (the internet realm in which buying and selling take place), a consumer must be able to have _______ in the process - Since 2000, companies have faced serious penalties for not being careful with consumer information Computer Decency Act (CDA) - answer-Has added some safeguards to Internet access, but content on the Internet is still difficult to control - Most everyone agrees that children need to be protected from pornography and other inappropriate images and messages 8 to 18 - answer-Consumers ________ years old spend over $30 billion a year mainly in these categories: - food and beverages - toys - clothing, entertainment, and persona; care Biometrics - answer-Using people's individual physical traits to identify them - i.e. finger prints, iris recognition In information technology, in particular, biometrics is used as a form of identity access and identity access management and access control Japan - answer-In _______, the use of biometrics is common on cellphones, at bank automated teller machines (ATMs), and for point-of-purchse credit card purchases Your Electronic Identity - answer-Ever wonder how the Kroger coupons that show up in your mailbox match the usual stuff your purchase? Computer Tracking E-consumerism - answer-Actions of consumers or their agents to protect and promote consumer interest and to seek empowerment in the context of the electronic marketplace Privacy - answer-A state of an individual or group which keeps information about their lives and activities from public consumption - It means to not be bothered by unwanted intrusions such as unsolicited sales calls Identity Theft - answer-Refers to someone using your name or personal information, such as your SS number, driver's license, student ID, credit card number, or other account number, telephone number, or e-mail or street address, without your permission Identify Theft and Privacy Protection - answer-The following agencies are particularly important in the fight to protect personal information - Federal Trade Commission (FTC) - US Department of Justice - Federal Bureau of Investigation (FBI) - Secret Service - US Department of the Treasury Identity Theft and Assumption Deterrence Act of 1998 - answer-Makes it a federal crime if someone "knowingly transfers or uses, without lawful authority, a means of identification of another person with the intent to commit, or to aid or abet, any unlawful activity that constitutes a violation of federal law, or that constitutes a felony under any applicable state or local law" Identity thieves - answer-Skilled _________ have a number of methods to gain access to personal information Online shopping - answer-The fastest growing category of consumer buying Pre-approved credit card offers - answer-They complete the application and have card sent to them at another address Bank statements - answer-They now have your bank account Checks - answer-They create duplicate bogus checks Loan applications - answer-They complete the application and have money sent to a phony address Skimming Scam - answer-Waiter in a restaurant takes your credit or debit cards at the end of the meal - Uses a small hand-held electronic device (called a "skimmer") to swipe your card - Only takes a second - Your card information is stored in the skimmer - Thief makes counterfeit card, or makes purchases over the phone or internet "Phishing" Scam - answer-You get an email that looks like it comes from your bank, credit card company, etc. asking you to "update their records" - Provides a hyperlink to a web page where you enter your persona; information - The link takes you to a thief's website that is disgusted to look like the company's Credit Bureaus - answer-Equifax - Experian - TransUnion - Security freeze - answer-You can protect yourself from scams by using a ____________, meaning that your file cannot be shared with identity thieves - Lift freeze in order to take out new credit - Free to victims of ID theft. If not a victim, $10.00 to place or lift the freeze Go to Self-Background Checks - answer-What is the first step in a self-background check? Googling yourself is a beginning but it is not enough--you should order your credit report This can be obtained by going to , by calling , or by contacting credit-reporting agencies such as Experian, TransUnion, or Equifax 12 - answer-One in _____ dollars flowing in the US economy is connected to the insurance industry Protection - answer-The purpose of insurance is to provide __________ against a financial loss due to factors associated with risk Insurability - answer-For something to be insurance it must meet the following criteria: - A probability of risk can be established (odds) - A financial loss can be determined (dollar amount) - The event will not affect everyone Natural disasters - answer-___________ are often not covered by private insurance companies Policies - answer-Contracts with an insurance provider Exclusions - answer-Items not covered Premiums - answer-Payments consumers make Deductibles - answer-Amount policyholders pay before insurance pays Perils - answer-Events that cause a financial loss Exposures - answer-Sources of risks Types of Insurance - answer-- Automobile Insurance - Credit insurance - Homeowner's insurance and property insurance - Health insurance - Disability income insurance - Life insurance - Long-term care insurance Liability insurance (Auto) - answer-Most states require some liability coverage - Bodily injury liability protection - Property damage liability protection - Personal injury protection Collision insurance - answer-Covers if your vehicle collides with another vehicle, flips over, crashes into object, regardless of who caused the crash. If you car is very old and not worth much, you may not want to pay for collision insurance. Comprehensive insurance (Auto) - answer-Loss from incidents other than collisions, such as fire, theft, hail, flood Liability insurance - answer-*100/300/50* Bodily injury liability protection - pays for damage you cause to some else - The 100 denotes $100,000 for the maximum paid to an individual; 300 denotes $300,000 as the maximum paid per accident Property damage liability protection - pays for damage you cause to someone else's car - The 50 denotes $50.000 as the maximum amount paid for damages to someone else's vehicle Uninsured motorist - answer-Coverage pays for bodily injury for you and your passengers if the driver causing the accident has no liability coverage Rental car insurance - answer-Covers the cost of renting a car while your car is being repaid, within limits of the policy Medical payments - answer-Covers medical expenses for accidental injury up to the policy limit Towing Insurance - answer-Covers the cost of provided road service Credit Insurance - answer-Protects a loan or mortgage in the event that a person cannot make his/her payments. A lender may demand it when you take out a mortgage, but this must be explained to you according to FTC regulations - Credit card insurance pays for charges if you lose or your credit card is stolen or you can't work due to unemployment, illness *Not a good idea -- expensive and they seldom protect you* Homeowner's Insurance - answer-Helps pay to repair or rebuild your home and personal possessions due to theft, fire, storm, etc - Property insurance pays for losses to homes and personal property - Liability insurance pays for losses from negligence resulting in bodily injury or property damage to others for which the policyholder is responsible Renters/Tenant's Insurance - answer-If you are renting, you should compare policies that will your personal possessions. These may not be covered by the insurance your landlord has on the property - Your parent's property while at your place may be covered by their homeowner's insurance 47 million - answer-_____ Americans still do not have health insurance Health insurance - answer-Health insurance is very complicated and controversial. Many other countries have nationalized health insurance - The US has nationalized health insurance for the elderly (Medicare) and the very poor (Medicaid) - Consumers should take advantage of health insurance offers at their workplace. If employer-offered insurance is not available, consumers should carefully compare health insurance plans Disability Income Insurance - answer-Pays benefits to policyholders when they are unable to work - Workman's compensation only covers an employee if he/she becomes disabled from an injury or illness received while on the job Life Insurance - answer-The purpose of life insurance is to replace lost income for anyone who depends on you for financial support - If you have no one dependent on you, you may not need life insurance. *Parents with young children* generally have the most need for life insurance - You do not need life insurance for burial purposes. You can have money saved for this purpose, often earning more than you could with any life insurance policy Term Life Insurance - answer-More economical than other types because it provides protection only - Generally term insurance is recommended because it provides more protection for the money Whole Life Insurance - answer-Provides a savings or investment component, which may not be as beneficial as separate investment account Long-term Care insurance - answer-Provides benefits for nursing home care or in-home care not covered by Medicare - Low-income consumers may qualify for Medicaid and not need to purchase LTC - Consumers with high incomes may do better to have investments to cover costs of long term care - Review policies carefully. If your children are grown, it may be wise to shift money you were spending for life insurance to LTC insurance instead. Responsible - answer-Consumers have the rights to choose and receive good insurance and to complain if there are problems - Consumers are ________ for being wise consumers and shopping for good policies, keeping policies updated, understand their policies, and keeping good insurance records. Fraud and Scams - answer-There are many insurance scams, and consumers need to be very careful. Victims fall prey to promises of large returns on their money or to stories of how they (or their loved ones) will suffer if they don't have insurance State Department of Insurance: Their role in consumer protection - answer-Insurance is regulated at the state level. Each state has an insurance commissioner. The National Association of Insurance Commissions (NAIC) and the states have enacted roles and guidelines which sometimes have served to help consumers. 1/2 - answer-Approximately _______ of Americans own stocks through mutual funds and retirement plans Build and maintain - answer-The purpose of investing is to _______ and ______ wealth - Many consumers have investments through retirement plans. However, consumers should have additional investment accounts Investing - answer-Putting your money into an asset that generates a return - i.e. stocks, bonds, mutual funds, or real estate Speculating - answer-Putting your money into an