Ch 5 & 6 Vocab + Review
Tuesday, March 3, 2026 4:45 PM
Ch 5
Financial Services for Financial Planning
- Managing Daily Money Needs
○ Mistakes many people make when managing cash needs
1. Overspending cash & credit on impulse
2. Having insufficient liquid assets to pay bills (aka no savings)
3. Using savings/borrowing money for current living expenses
4. Failing to put funds in an interest savings account or investment program
Types of Financial Services
1. Savings
2. Cash Availability & Payment Services
3. Borrowing
4. Investing & other Financial Services
5. A trust
Assets Management Account
- Also known as a “cash management” or “wealth management” account, provide
financial service programs for a single fee, investment brokers & other financial
institutions offer theses accounts
- They are also used to buy & selling investments and have the following benefits:
• Keeping track of finances in a single location
• Fewer monthly & quarterly statements
• Lower fee’s when working w/ one financial institution
• Fewer form for tax reporting of dividends & interest
• Easy communication of financial info to family members
Online & Mobile Banking
- Online Banking
• Via a website or app, financial institutions allow access to various services &
access to information
• ATM machine fee’s can happen, try to avoid them
• Video Teller Machines (VTMs)
• A Debit Card
Banking Apps & Digital Wallets
- Wireless transactions such as tap to pay are reducing debit & credit card use for
contactless purchases
- Most have a feature to “lock” your card to limit spending & block unauthorized
transactions
- When facing difficulties w/ the app be sure to:
• Use correct username & password
• Check emails & social media accounts
• Update apps & software
• Contact Customer Service for bank/app issue’s
• Log onto a desktop computer, go the the bank, or use the ATM to do business
when the app is not in operation
- Digital/Mobile wallets/money are increasing in use w/ the ability to store a variety
of cards, tickets & even transit passes
• Common modern day digital wallets are Apple Pay, google pay, pay pal,
Samsung pay, Venmo & Zelle
Prepaid Debit Cards
- , are issued by financial service providers like banks, credit card companies, retailers
& other non bank companies
- Loading/adding funds to a prepaid card can be done by cash, check, direct deposit,
online transfer, smartphone check photo and/or a credit card cash advance
• Extensive fee’s have been associated w/ these types of cards
• Charges/fee’s may include activation, monthly use, transaction online, cash
withdrawal, balance inquiry, added funds & inactivity
- Prepaid cards can lower debt since debit cards control spending & buying on credit
Financial-Service Providers
- Deposit Institutions
• Commercial Banks
§ Offer a full range of financial services like a checking, savings, lending etc,
they are organized as corporate investors that contribute needed capitol &
they include national, regional, community & online only banks
• Credit Unions
§ A user owned, non profit, cooperative institution having a bond w/ their
community. Today credit union memberships are more flexible than
before, w/ reports of over 100 million members, lower fees, loan rates &
higher overall customer satisfaction
• Thrifts
§ Savings & Loan associations aka S&L’s also offer a variety of services
comparable to a bank
§ Mutual Savings Banks are owned by depositors who specialize in
mortgages & savings
Other Financial Institutions
- Life Insurance Companies
- Investment Companies
• AKA a mutual fund that offer a Money Market Fund Service
- Brokerage Firms
• Have investment advisors & financial planners that serve as agents between the
buyer & seller of a stock, bond and/or other investment
- Finance Companies
• Give loans to consumers & small businesses
• Credit Card Companies
• Specialize in short term lending via Visa, Mastercard & Discover
- Mortgage Companies
• Provides loans to purchase a home
- Other Financial Service Providers
• Retailers, internet banks, Financial Technology, (P2P) Peer to Peer lending
networks, online only banks via ATM/APP
Comparing Financial Services
- Trade offs for using financial services include
1. Higher returns for long term savings w/ low liquidity
2. Convenience fee’s
3. “No fee” checking account will require a minimum balance
4. Financial service subscription fee’s
The “Unbanked” & high-cost alternative financial services
- Pawnshops
- Check-Cashing Outlets
○ Most banks won’t cash a check w/o a banking account, people will go to CCO
outlets that charge 1-20% of the value of the check
- Pay Day Loans
○ AKA a cash advance, their annual rates can start at 780%, more borrows are
trapped into these debts
- Rent to Own (RTO) Centers
○ Stores that lease products to consumers who can own the item if they
complete a certain number of payments towards the item borrowed for
purchase, RTO purchases have an annual rate of over 300%
- Car Title Loans
○ When people are short on cash, the use their cars as leverage for loans for 30
days, these loans tend to have often exceed a 200% interest rate & failure to
pay these can lead to having your car repossessed
Savings Plans
- A savings account
○ Require a low minimum balance or none at all & withdraw money as needed
§ Credit Unions refer to these as Share Accounts
- High yield savings account
○ Offered by in person banks & online, pays more than a regular savings account
Certificates of Deposit
- A savings plan that requires a certain amount deposited for a certain amount of
time to earn a specific rate in return aka time deposits
○ In credit unions this type of account is known as a share certificate
- Most CD's have a penalty for early withdrawal between 20-25% but interest rates
might be lower
Types of CD’s
- Rising Rate/Bump-up
- Liquid
- Zero Coupon
- Indexed CD’s
- Callable CD’s
- Promotional CD’s
Managing CD’s
- If interest drops, you might have a shorter maturity but if you believe interest will
rise you won’t need money temporarily, in this case considered a longer CD time
period
- Buying CD’s from online can be beneficial, rates at a local bank maybe higher
Money Market Account & Funds
- Money Market Account
○ A savings account that requires a minimum balance & has earnings based on
market interest rates
○ Both money markets & money market funds have enough earnings based on
interest rates, have minimum balance restrictions, allow checks & transfers
Savings Bonds
- U.S. bonds are low risk emergency funds you can quickly access
○ E.E. Bonds
§ Amounts greater than $25, originally in paper form ranging $25-$5,000 w/
a maturity values of $50-$5,000
○ E.E. Bond Tax advantages
§ Interest earned is exempt from state & local taxes
I Bonds
- I bonds has an interest rate based on two components:
1. A fixed rate for the life of the bond
2. An inflation rate that is calculated 2x a yr
Savings Bonds
- Are registered 3 different ways
○ As single owner
○ Two owners; One is co signer and/or primary owner
○ W/ a beneficiary who takes ownership of the bond when the original owner
dies
Evaluating Savings Plans
- Rate of Return
- Compounding
- Truth in Savings
1. Fees on deposit accounts
2. State the interest rate
3. The Annual Percentage Yield (APY)
i. (TIS - Truth in Savings) defines APY as the percentage rate expressing the
total amount of interest received on a $100 deposit based on an annual
rate & compounding for 1 yr
4. TIS requires the following
i. Disclosure of fees & APY earned on a statement
ii. Established rules for advertising deposit accounts
iii. Restricts the method of calculating the balance & how interest is paid
5. Other terms & conditions
Inflation
- The rate of return you can earn on savings should be compared to the inflation rate,
when inflation is over 10% people w/ money in savings accounts earn 5-6% loss in
buying power
Tax Considerations
- Can reduce interest earned on savings, are not usually withheld from taxable savings
& investment income
Liquidity
- Allows you to withdrawal money on short notice w/o a loss of principal or fee’s
- Some savings plans have fees for early withdrawals or other restrictions
- W/ certain types of savings certificates & accounts early withdrawal can be
penalized by loss of interest and/or lower interest rate
Safety
- Federal Deposit Insurance Corporation (FDIC)
- The National Credit Union Administration (NCUA) is for credit unions
- The FDIC insures amounts of up to $250,000 per depositor per insured financial
institution, coverage for higher amounts can be obtained by using different types of
ownerships categories
- Both the FDIC & NCUA provide deposit insurances for retirement up to $250,000
Restrictions & Fee’s
- Some banks may charge a monthly fee for low-balance accounts
- Inactivity fess if your account has not been active for over 6 mo’s
- After withdrawing a certain amount you pay a fee; this doesn’t include atm fee’s
○ This rule was wavered to allow easier means to save money after the pandemic
Payment Methods
- Digital Payment Methods
- Debit Card Transactions
- Online Payments
- Mobile transfers
- Stored Value (Prepaid) Cards
- Smart Cards & Digital Wallets
§ Digital wallets like Apple Pay & Google Pay have certain versions of debit &
credit to allow contactless pay
Types of Checking Accounts
- Checking accounts are also being referred to as:
○ debit account, digital banking, spending account & transaction account
- Traditional Checking Accounts
○ Regular Checking
○ Interest Earning Checking
○ Activity Accounts
○ Special Features Checking Accounts
§ Targeted Group Accounts
§ Rewards Checking Accounts
§ Premier Checking Account
Check-less checking accounts
- No paper checks all transactions are done via debit or online & no overdraft fees
Evaluating Checking Accounts
- Restrictions
○ A required minimum balance to earn interest or avoid a service charge
- Fee’s & Charges
○ The cost of items like printing checks, overdrafts fee’s & stop-payment orders
have multiplied over time
- Interest
○ Both compounded & accumulated charges will affect the checking account
earnings
- Other Charges
○ Over draft protection
§ An automatic loan for payments that exceed the available balance
Managing your bank account
- Opening a checking account
○ Decide on the owner of the account
○ An Individual account is when only one person can use it & write checks
• Both a joint & individual accounts require a signature card to authorize
who can write checks from the account
- Making deposits
○ A deposit ticket is used to list cash & check amounts being deposited, they
require an endorsement (your signature) on the back to authorize the transfer
of funds into your account, there are four types of endorsements:
• Blank
□ Requires only your signature when you deposit cash or a check in
person, once signed anyone can cash it out
• Restrictive
□ Has the words “For Deposit Only” on the check followed by your
signature & account number
• Special
□ Allows you to transfer checks when the check says “pay to the order
of” followed by their name/business & your signature
• Remote deposit capture
□ Deposits a check via photo w/ your signature on the check
Writing Checks
1. Record the date
2. Write the name of the person/organization receiving payment
3. Record the amount in figures (dollar amount)
4. Write the check amount in words
5. Sign the check
6. State the reason for payment
- Stop payments order
○ Are used to stop payment if the check has been lost or stolen
Reconciling your checking account
○ How to correct/reconcile your balance (aka balance your check book)
1. Compare all checks written, payments & withdrawals to your records to
ones that are stated as paid on your bank statement
2. Determine/verify if any deposits have added or not sometimes there is a
delay
3. Subtract fees & charges reported from bank’s statements
4. Add any interest to your check book/account
- Mistakes that can lead to problems in your account are:
○ Not being aware of spending habits
○ Verifying if the correct amount is in your account
○ Being unaware of any unauthorized use of your credit
○ Being unaware of bank fee’s & if your being over charged
○ Overlooking mistakes your bank may have made
Other payment methods
- Certified Check
○ A personal check w/ guaranteed payment
- Cashiers Check
○ A check from a financial institution that is purchased by paying for the check
amount & a fee
- Travelers checks
○ Before ATM’S these allowed people to make payments from other banks away
from home
Ch 6
What is Consumer Credit?
- Credit
○ An arrangement to receive cash, goods or services now and pay later
- Consumer Credit
○ Refers to credit used for personal needs (excluding a home mortgage) vs how a
business would use it
○ Based on trust in people’s ability & willingness to pay bills when they are due
The importance of consumer credit in our economy
- Credit was originally a privilege of the affluent, no direct finance charges were
imposed & the credit was added to the price of goods.
○ Baby Boomers (1946-1964)
§ Added to the growth of consumer credit & 60% of outstanding debt
○ Gen X (1965-1979)
§ Used credit as a life line, between Gen X & Baby Boomers, credit cards
were used as a survival tool which added to the U.S. consumer debt total
□ *$4.18 trillion as of 2020
Uses & Misuses of credit
- Using credit allows consumers to be more efficient/productive & maybe lead to
more satisfying lives, the following reasons are:
○ A medical Emergency
○ The purchase of a car
○ A sale maybe cheaper on credit
○ Borrowing for an education
- Reasons that are not valid:
○ Everyday living expenses
○ To finance a high end purchase
Advantages of Credit
- Credit allows you to enjoy goods & services now and pay them later on a payment
plan based on future earnings
○ Make purchases when funds are low
○ One monthly payment to the credit
○ Credit is safer when traveling w/o having to carry large amounts of cash
○ Credit can be used to verify identification & provide a purchase history
○ You may see a “float” (pending transaction)
Disadvantages of Credit
- Temptations to overspend can lead to
- Serious misuse of a credit card can lead to
- Credit Costs Money
Two Types of Credit
- Closed-End Credit
○ When you payback a one time loan in a specific period of time in equal
amounts
- Three most common types of closed end credit installments
○ Sales
○ Cash
○ Lump sum
- Open-End Credit (Revolving Credit)
○ Loans made on a continuous basis & billed periodically
§ A balance to be repaid in weekly or monthly payments over a set amount
of time
○ A line of credit
§ The max dollar amount of credit available
○ Interest
§ A charge for the use of credit
○ Revolving Credit
§ A pre arranged loan for a specific amount written by special check
Credit Cards
- 7 out of 10 households carry more than 1 credit card
- 2 out of 3 have one retail credit card
- 56% have more than one visa
- 47% have a Mastercard
- About 25,000 financial institutions participate in credit cards mostly w/ visa
international & MasterCard
○ Co-Branding
§ The link between a credit card & a business offering “points” when buying
a service or product, usually offered by hotels, airlines & major retailers
- Smart Cards
○ AKA smart-chip enabled combine a credit card, drivers license, health care ID
w/ medical history, insurance, frequent flyer miles & phone cards
- Debit Cards
○ AKA bank cards, electronically subtract from your account at the moment you
purchased a good/service
Stored Values
- A.k.a. gift cards, resemble a typical debit card using magnetic technology to store
information and funds
- Unlike traditional debit cards, Store value cards are pre paid providing you with
immediate money
Travel and Entertainment (T&E) cards
- Unlike credit, the balance must be paid in full not in installments or a minimum
Smart phones
- Aka mobile commerce, has increased in digital use such as apps for payment & tap
to pay
Home Equity Loans
- Are based on the difference between current market value of your home & the
amount you owe on your mortgage
○ Depending on the value of your home you can borrow up to 80% of its appraisal
value
- Home Equity Loan
○ Set up similar to a revolving line of credit
§ Revolving Credit - An arrangement where the borrower is given a specified
amount for a certain period of time
○ These types of loans are strongly recommended for:
§ Education, home improvements and/or medical bills ONLY
§ If you miss a payment you can loose your home & will have to pay the
home loan in full
Protecting yourself against debit/credit card fraud
- Credit Fraud, How to protect yourself
○ Store credit cards somewhere secure
○ Shred & trash anything w/ your account number
○ Don’t give your credit card number over the phone or online UNLESS you made
contact
○ Don’t write your credit number outside of an envelope or any type of packaging
○ Remember to have your receipts (digital or physical)
○ Verify a merchant returns your card to you
○ If credit billing is incorrect, the card is lost or stolen be sure to notify your card
holder institution/bank immediately
Protecting your credit info on the internet
- Use a secure browser
- Keep records of your online transactions
- Review your monthly bank & credit statements in case of any errors
- Read/ask about policies that use your personal data
- Keep all person data online private & don’t disclose personal info
- Give payment info only to businesses you know & trust
- Never share you password online
- Never open/download files or hyperlinks from unknown
websites/companies/people it will give them access to all info on your device
Measuring Your Credit Capacity
- Can you afford a loan?
○ Add all your monthly expenses & subtract it from your take home pay, if the
difference doesn’t cover the monthly payments or leave you w/ a surplus of
funds for other expenses you can’t afford a loan
- General Rules of Credit Capacity
○ Debt to income ratio
§ Calculated by dividing your monthly debts to your net income
□ This doesn’t include a house payment
§ Don’t spend more than 15-20% of your income on credit payments
○ Debt to Equity Ratio
§ Calculated by diving your total liabilities to your net worth
Co-Signing a Loan
- Co signing
○ You are responsible for someone else’s debt in the event that they can’t pay
○ As a cosigner, you are being asked to take a risk that a professional lender will
not take
○ The amount you owe if they decide to sue, If this happens, they may take your
wages & property
- Co Signers often pay
○ 3 out of 4 co signers are asked to pay either the whole or a portion of the loan
up front
- If you do co sign
○ Make sure you can afford the loan, if you cant you will be sued for damages
○ Even if your not asked to pay, it might keep you from getting any credit lines in
the future
○ Secure the loan & understand the consequences BEFORE handing over any type
of insurance (a car or furniture) if the money doesn’t go through (defaults) you
can lose the property you are requesting
○ Be aware of state laws that might give you additional rights
○ Request copies of any over due payments be sent to you to ensure payment
and to protect your credit
Building & Maintaining your Credit Rating
- The quality of your credit rating is up to you & reflects your capacity to borrow &
repay money
○ Credit Bureaus
§ AKA Consumer Report Agencies (CRA) collect info about consumers
○ 3 Major Credit Bureaus
§ Experian Information Solutions
§ TransUnion Credit Information Company
§ Equifax Services
○ Each maintenance millions of credit files based on info received from lenders
once a month
§ Firms sell data to creditors to evaluate applications
- The Consumer Financial Protection Bureau receives over approx. 36,000 complaints
per year
○ Incorrect credit reports
○ Mixed reports for those w/ similar or the same last name
○ As of 2015 & stricter federal laws, Experian, Equifax & TransUnion reduced
errors on reports
○ In 2017, Play girls began removing taxes and civil judgment debts (payment of
damages) from credit reports If the information was incorrect
- Who provides data to credit bureau?
○ Information is obtained from banks, finance companies, merchants, credit card
company & other creditors
- What is in your Credit Files?
○ Your name, address, social security & date of birth
○ Employer, position & income
§ As well as former employers
○ Your spouse & their info as stated above
○ If you own or rent
○ If checks were returned for insufficient funds
○ Credit history & type of credit
○ Amounts of money borrowed
○ Purchases
○ Payments made, amounts due & outstanding balances
- Fair Credit Reporting
○ The 1971 law that regulates the use of credit reports, requires unnecessary info
be deleted & gives consumers they’re files & their rights to have data corrected
○ Prescreens are companies who are allowed to view your credit report & show it
to you
§ Experian, Equifax etc
- Who can obtain a credit report?
○ Possible future employers w/ permission from the courts
○ Someone verifying your eligibility for a benefit under the govt
- The Limits on Adverse Data
○ Most info in your credit report is only 7yrs, bankruptcy make go as far back
10yrs
○ Unpaid tax liens are reported for 15yrs
○ After the 7-15yr credit reporting companies can’t disclose your info unless you
are being investigated for:
§ A credit application over $75,000
§ Life Insurance policy over $150,000
- Incorrect Info on your credit file
○ Someone w/ a similar name
○ Check your credit for incorrect charges
○ You can request a free report within 60 days of being denied credit, insurance
or rentals of any kind
○ Review your credit report every 3-6months
- What are some Legal remedies?
○ Any consumer reporting agencies that fail to comply w/ the law or commits
acts of negligence can be sued by the consumer, if found guilty the consumer
will be awarded damages, court costs, attorneys fee’s & punitive damages
○ This must be present within 2yrs of discovery, anyone under false pretenses will
be fined $5,000, imprisoned for one year or both
Applying for Credit
- A scenario from the past
○ The Equal Credit Opportunity Act (ECOA)
§ States that race, color, age, sex, marital status & other factors may not be
used to discriminate against
What creditors look for: The 5 C’s of Credit Management
- Character
- Capacity
- Capitol
- Collateral
- Conditions
Age
- Creditors may not turn you down if
○ Your credit decreases because of age
○ Ignore your application based on retirement income
○ Closed your credit account/require you reapply due to age or retirement
○ Deny you credit/close your account because of life insurance or other credit
related insurance that is NOT available
Housing Loans
- The EOAC covers the application for your mortgage or home improvement loan
FICO & Vantages
- Info in your credit report is used to calculate your FICO credit score be aware of
these numbers:
○ Low/risky borrower - 300-400
○ Average - 450-500
○ Good - 600-750
○ Great - 760-850
- Pending the number of your FICO/credit score, it will show the banks and lenders
how trust worthy you are w/ money
○ High numbers represent lower likelihood of risks
○ Does not count debt collection that has been paid off
○ 30 million additional consumers with short histories are eligible for credit
reports
○ Ignores negative credit history affected by natural disasters
Nerd Wallet Free Credit Score Check
What if your application is denied?
- The EAOC gives you the right to know the specific reasons for denial
- Contact the credit bureau to find out what was reported
- They can’t charge you a fee if you ask for your report within 60 days of being
notified
- The credit bureau may investigate if you find incomplete information
How can I improve my credit score?
- Pay bills on time
- Lower balances
Avoiding & Correcting Credit Mistakes
- The Fair Credit Billing Act
○ Billing errors are:
§ Purchases that were not approved or done by you
§ Incorrect pricing
§ Accepting a purchase not on time or against an agreement
§ Failure to pay for an item/service etc
§ Incorrect mailing address
- In Case of Billing Error
1. Call your billing creditor
2. Give them your name, account number & address
3. Pay all parts of the bill that are not in the dispute
- The creditor has 30 days to acknowledge your letter, in 90 days either the mistakes
will be corrected or you will be shown the error w/ an explanation
- You will be reported as delinquent until payment/correction is made
Defective Goods or Services
- The Fair Credit Billing Act protects you, allowing you too withhold payment on any
damaged goods or services until the issue is resolved
Identity Crisis: What to do if your identity is stolen
1. Contact the Fraud Dept of each major bureaus
- Equifax
- Experian
- Trans Union
2. Contact your creditors for any account that have been tempered with or opened
fraudulently
3. File a police report
To prevent your identity from being stolen:
• Tear/shred any
- reciepts w/ your name on it
- Copies of credit card applications
- Insurance forms
- Bank checks/statements
- Expired credit cards
- Credit mail offers
• Close banks accounts immediately
• Social Security Admin
- Will give you a new number if you are still facing difficulties w/ identity theft
• File a complaint w/ the Federal Trade Commission
Complaining about Consumer Credit
- Complaints about banks
• If you have a complaint about something you can submit a complaint to the
Federal Reserve System
Protection under Consumer Credit Laws
- The Truth in lending & consumer leasing act
• If a creditor fails to disclose info, give’s inaccurate info or doesn’t comply w/ the
rules regarding credit cards
- Equal Credit Opportunity Act
• If you can prove discrimination for any reason prohibited by the ECOA
Fair Credit Billing Act
- When a creditor fails to comply w/ rules applied to correcting billing errors which
forfeits the amount owed to the items in question & finance charges on it
- You may also sue for actual damages plus 2x the amount of any finance charges
Consumer Credit Reporting Reform Act of 1997
- Places the burden of proof for accurate credit info on the reporting agency rather
than you
Credit Card Accountability, Responsibility & Disclosure Act of 2009
- Places new restrictions on credit card lending & eliminates some fees
Your Rights under Consumer Credit Laws
- If you believe you have been refused credit due to discrimination, you can:
1. Complain to the creditor
2. File a complaint w/ the govt, they will not handle private cases, when denied credit
you must give your name & address of the agency to contact
3. If all else fails sue the creditors, you have the right to a federal court case
- If you win you can recover your actual damages & punitive damages of up to
$10,000
Tuesday, March 3, 2026 4:45 PM
Ch 5
Financial Services for Financial Planning
- Managing Daily Money Needs
○ Mistakes many people make when managing cash needs
1. Overspending cash & credit on impulse
2. Having insufficient liquid assets to pay bills (aka no savings)
3. Using savings/borrowing money for current living expenses
4. Failing to put funds in an interest savings account or investment program
Types of Financial Services
1. Savings
2. Cash Availability & Payment Services
3. Borrowing
4. Investing & other Financial Services
5. A trust
Assets Management Account
- Also known as a “cash management” or “wealth management” account, provide
financial service programs for a single fee, investment brokers & other financial
institutions offer theses accounts
- They are also used to buy & selling investments and have the following benefits:
• Keeping track of finances in a single location
• Fewer monthly & quarterly statements
• Lower fee’s when working w/ one financial institution
• Fewer form for tax reporting of dividends & interest
• Easy communication of financial info to family members
Online & Mobile Banking
- Online Banking
• Via a website or app, financial institutions allow access to various services &
access to information
• ATM machine fee’s can happen, try to avoid them
• Video Teller Machines (VTMs)
• A Debit Card
Banking Apps & Digital Wallets
- Wireless transactions such as tap to pay are reducing debit & credit card use for
contactless purchases
- Most have a feature to “lock” your card to limit spending & block unauthorized
transactions
- When facing difficulties w/ the app be sure to:
• Use correct username & password
• Check emails & social media accounts
• Update apps & software
• Contact Customer Service for bank/app issue’s
• Log onto a desktop computer, go the the bank, or use the ATM to do business
when the app is not in operation
- Digital/Mobile wallets/money are increasing in use w/ the ability to store a variety
of cards, tickets & even transit passes
• Common modern day digital wallets are Apple Pay, google pay, pay pal,
Samsung pay, Venmo & Zelle
Prepaid Debit Cards
- , are issued by financial service providers like banks, credit card companies, retailers
& other non bank companies
- Loading/adding funds to a prepaid card can be done by cash, check, direct deposit,
online transfer, smartphone check photo and/or a credit card cash advance
• Extensive fee’s have been associated w/ these types of cards
• Charges/fee’s may include activation, monthly use, transaction online, cash
withdrawal, balance inquiry, added funds & inactivity
- Prepaid cards can lower debt since debit cards control spending & buying on credit
Financial-Service Providers
- Deposit Institutions
• Commercial Banks
§ Offer a full range of financial services like a checking, savings, lending etc,
they are organized as corporate investors that contribute needed capitol &
they include national, regional, community & online only banks
• Credit Unions
§ A user owned, non profit, cooperative institution having a bond w/ their
community. Today credit union memberships are more flexible than
before, w/ reports of over 100 million members, lower fees, loan rates &
higher overall customer satisfaction
• Thrifts
§ Savings & Loan associations aka S&L’s also offer a variety of services
comparable to a bank
§ Mutual Savings Banks are owned by depositors who specialize in
mortgages & savings
Other Financial Institutions
- Life Insurance Companies
- Investment Companies
• AKA a mutual fund that offer a Money Market Fund Service
- Brokerage Firms
• Have investment advisors & financial planners that serve as agents between the
buyer & seller of a stock, bond and/or other investment
- Finance Companies
• Give loans to consumers & small businesses
• Credit Card Companies
• Specialize in short term lending via Visa, Mastercard & Discover
- Mortgage Companies
• Provides loans to purchase a home
- Other Financial Service Providers
• Retailers, internet banks, Financial Technology, (P2P) Peer to Peer lending
networks, online only banks via ATM/APP
Comparing Financial Services
- Trade offs for using financial services include
1. Higher returns for long term savings w/ low liquidity
2. Convenience fee’s
3. “No fee” checking account will require a minimum balance
4. Financial service subscription fee’s
The “Unbanked” & high-cost alternative financial services
- Pawnshops
- Check-Cashing Outlets
○ Most banks won’t cash a check w/o a banking account, people will go to CCO
outlets that charge 1-20% of the value of the check
- Pay Day Loans
○ AKA a cash advance, their annual rates can start at 780%, more borrows are
trapped into these debts
- Rent to Own (RTO) Centers
○ Stores that lease products to consumers who can own the item if they
complete a certain number of payments towards the item borrowed for
purchase, RTO purchases have an annual rate of over 300%
- Car Title Loans
○ When people are short on cash, the use their cars as leverage for loans for 30
days, these loans tend to have often exceed a 200% interest rate & failure to
pay these can lead to having your car repossessed
Savings Plans
- A savings account
○ Require a low minimum balance or none at all & withdraw money as needed
§ Credit Unions refer to these as Share Accounts
- High yield savings account
○ Offered by in person banks & online, pays more than a regular savings account
Certificates of Deposit
- A savings plan that requires a certain amount deposited for a certain amount of
time to earn a specific rate in return aka time deposits
○ In credit unions this type of account is known as a share certificate
- Most CD's have a penalty for early withdrawal between 20-25% but interest rates
might be lower
Types of CD’s
- Rising Rate/Bump-up
- Liquid
- Zero Coupon
- Indexed CD’s
- Callable CD’s
- Promotional CD’s
Managing CD’s
- If interest drops, you might have a shorter maturity but if you believe interest will
rise you won’t need money temporarily, in this case considered a longer CD time
period
- Buying CD’s from online can be beneficial, rates at a local bank maybe higher
Money Market Account & Funds
- Money Market Account
○ A savings account that requires a minimum balance & has earnings based on
market interest rates
○ Both money markets & money market funds have enough earnings based on
interest rates, have minimum balance restrictions, allow checks & transfers
Savings Bonds
- U.S. bonds are low risk emergency funds you can quickly access
○ E.E. Bonds
§ Amounts greater than $25, originally in paper form ranging $25-$5,000 w/
a maturity values of $50-$5,000
○ E.E. Bond Tax advantages
§ Interest earned is exempt from state & local taxes
I Bonds
- I bonds has an interest rate based on two components:
1. A fixed rate for the life of the bond
2. An inflation rate that is calculated 2x a yr
Savings Bonds
- Are registered 3 different ways
○ As single owner
○ Two owners; One is co signer and/or primary owner
○ W/ a beneficiary who takes ownership of the bond when the original owner
dies
Evaluating Savings Plans
- Rate of Return
- Compounding
- Truth in Savings
1. Fees on deposit accounts
2. State the interest rate
3. The Annual Percentage Yield (APY)
i. (TIS - Truth in Savings) defines APY as the percentage rate expressing the
total amount of interest received on a $100 deposit based on an annual
rate & compounding for 1 yr
4. TIS requires the following
i. Disclosure of fees & APY earned on a statement
ii. Established rules for advertising deposit accounts
iii. Restricts the method of calculating the balance & how interest is paid
5. Other terms & conditions
Inflation
- The rate of return you can earn on savings should be compared to the inflation rate,
when inflation is over 10% people w/ money in savings accounts earn 5-6% loss in
buying power
Tax Considerations
- Can reduce interest earned on savings, are not usually withheld from taxable savings
& investment income
Liquidity
- Allows you to withdrawal money on short notice w/o a loss of principal or fee’s
- Some savings plans have fees for early withdrawals or other restrictions
- W/ certain types of savings certificates & accounts early withdrawal can be
penalized by loss of interest and/or lower interest rate
Safety
- Federal Deposit Insurance Corporation (FDIC)
- The National Credit Union Administration (NCUA) is for credit unions
- The FDIC insures amounts of up to $250,000 per depositor per insured financial
institution, coverage for higher amounts can be obtained by using different types of
ownerships categories
- Both the FDIC & NCUA provide deposit insurances for retirement up to $250,000
Restrictions & Fee’s
- Some banks may charge a monthly fee for low-balance accounts
- Inactivity fess if your account has not been active for over 6 mo’s
- After withdrawing a certain amount you pay a fee; this doesn’t include atm fee’s
○ This rule was wavered to allow easier means to save money after the pandemic
Payment Methods
- Digital Payment Methods
- Debit Card Transactions
- Online Payments
- Mobile transfers
- Stored Value (Prepaid) Cards
- Smart Cards & Digital Wallets
§ Digital wallets like Apple Pay & Google Pay have certain versions of debit &
credit to allow contactless pay
Types of Checking Accounts
- Checking accounts are also being referred to as:
○ debit account, digital banking, spending account & transaction account
- Traditional Checking Accounts
○ Regular Checking
○ Interest Earning Checking
○ Activity Accounts
○ Special Features Checking Accounts
§ Targeted Group Accounts
§ Rewards Checking Accounts
§ Premier Checking Account
Check-less checking accounts
- No paper checks all transactions are done via debit or online & no overdraft fees
Evaluating Checking Accounts
- Restrictions
○ A required minimum balance to earn interest or avoid a service charge
- Fee’s & Charges
○ The cost of items like printing checks, overdrafts fee’s & stop-payment orders
have multiplied over time
- Interest
○ Both compounded & accumulated charges will affect the checking account
earnings
- Other Charges
○ Over draft protection
§ An automatic loan for payments that exceed the available balance
Managing your bank account
- Opening a checking account
○ Decide on the owner of the account
○ An Individual account is when only one person can use it & write checks
• Both a joint & individual accounts require a signature card to authorize
who can write checks from the account
- Making deposits
○ A deposit ticket is used to list cash & check amounts being deposited, they
require an endorsement (your signature) on the back to authorize the transfer
of funds into your account, there are four types of endorsements:
• Blank
□ Requires only your signature when you deposit cash or a check in
person, once signed anyone can cash it out
• Restrictive
□ Has the words “For Deposit Only” on the check followed by your
signature & account number
• Special
□ Allows you to transfer checks when the check says “pay to the order
of” followed by their name/business & your signature
• Remote deposit capture
□ Deposits a check via photo w/ your signature on the check
Writing Checks
1. Record the date
2. Write the name of the person/organization receiving payment
3. Record the amount in figures (dollar amount)
4. Write the check amount in words
5. Sign the check
6. State the reason for payment
- Stop payments order
○ Are used to stop payment if the check has been lost or stolen
Reconciling your checking account
○ How to correct/reconcile your balance (aka balance your check book)
1. Compare all checks written, payments & withdrawals to your records to
ones that are stated as paid on your bank statement
2. Determine/verify if any deposits have added or not sometimes there is a
delay
3. Subtract fees & charges reported from bank’s statements
4. Add any interest to your check book/account
- Mistakes that can lead to problems in your account are:
○ Not being aware of spending habits
○ Verifying if the correct amount is in your account
○ Being unaware of any unauthorized use of your credit
○ Being unaware of bank fee’s & if your being over charged
○ Overlooking mistakes your bank may have made
Other payment methods
- Certified Check
○ A personal check w/ guaranteed payment
- Cashiers Check
○ A check from a financial institution that is purchased by paying for the check
amount & a fee
- Travelers checks
○ Before ATM’S these allowed people to make payments from other banks away
from home
Ch 6
What is Consumer Credit?
- Credit
○ An arrangement to receive cash, goods or services now and pay later
- Consumer Credit
○ Refers to credit used for personal needs (excluding a home mortgage) vs how a
business would use it
○ Based on trust in people’s ability & willingness to pay bills when they are due
The importance of consumer credit in our economy
- Credit was originally a privilege of the affluent, no direct finance charges were
imposed & the credit was added to the price of goods.
○ Baby Boomers (1946-1964)
§ Added to the growth of consumer credit & 60% of outstanding debt
○ Gen X (1965-1979)
§ Used credit as a life line, between Gen X & Baby Boomers, credit cards
were used as a survival tool which added to the U.S. consumer debt total
□ *$4.18 trillion as of 2020
Uses & Misuses of credit
- Using credit allows consumers to be more efficient/productive & maybe lead to
more satisfying lives, the following reasons are:
○ A medical Emergency
○ The purchase of a car
○ A sale maybe cheaper on credit
○ Borrowing for an education
- Reasons that are not valid:
○ Everyday living expenses
○ To finance a high end purchase
Advantages of Credit
- Credit allows you to enjoy goods & services now and pay them later on a payment
plan based on future earnings
○ Make purchases when funds are low
○ One monthly payment to the credit
○ Credit is safer when traveling w/o having to carry large amounts of cash
○ Credit can be used to verify identification & provide a purchase history
○ You may see a “float” (pending transaction)
Disadvantages of Credit
- Temptations to overspend can lead to
- Serious misuse of a credit card can lead to
- Credit Costs Money
Two Types of Credit
- Closed-End Credit
○ When you payback a one time loan in a specific period of time in equal
amounts
- Three most common types of closed end credit installments
○ Sales
○ Cash
○ Lump sum
- Open-End Credit (Revolving Credit)
○ Loans made on a continuous basis & billed periodically
§ A balance to be repaid in weekly or monthly payments over a set amount
of time
○ A line of credit
§ The max dollar amount of credit available
○ Interest
§ A charge for the use of credit
○ Revolving Credit
§ A pre arranged loan for a specific amount written by special check
Credit Cards
- 7 out of 10 households carry more than 1 credit card
- 2 out of 3 have one retail credit card
- 56% have more than one visa
- 47% have a Mastercard
- About 25,000 financial institutions participate in credit cards mostly w/ visa
international & MasterCard
○ Co-Branding
§ The link between a credit card & a business offering “points” when buying
a service or product, usually offered by hotels, airlines & major retailers
- Smart Cards
○ AKA smart-chip enabled combine a credit card, drivers license, health care ID
w/ medical history, insurance, frequent flyer miles & phone cards
- Debit Cards
○ AKA bank cards, electronically subtract from your account at the moment you
purchased a good/service
Stored Values
- A.k.a. gift cards, resemble a typical debit card using magnetic technology to store
information and funds
- Unlike traditional debit cards, Store value cards are pre paid providing you with
immediate money
Travel and Entertainment (T&E) cards
- Unlike credit, the balance must be paid in full not in installments or a minimum
Smart phones
- Aka mobile commerce, has increased in digital use such as apps for payment & tap
to pay
Home Equity Loans
- Are based on the difference between current market value of your home & the
amount you owe on your mortgage
○ Depending on the value of your home you can borrow up to 80% of its appraisal
value
- Home Equity Loan
○ Set up similar to a revolving line of credit
§ Revolving Credit - An arrangement where the borrower is given a specified
amount for a certain period of time
○ These types of loans are strongly recommended for:
§ Education, home improvements and/or medical bills ONLY
§ If you miss a payment you can loose your home & will have to pay the
home loan in full
Protecting yourself against debit/credit card fraud
- Credit Fraud, How to protect yourself
○ Store credit cards somewhere secure
○ Shred & trash anything w/ your account number
○ Don’t give your credit card number over the phone or online UNLESS you made
contact
○ Don’t write your credit number outside of an envelope or any type of packaging
○ Remember to have your receipts (digital or physical)
○ Verify a merchant returns your card to you
○ If credit billing is incorrect, the card is lost or stolen be sure to notify your card
holder institution/bank immediately
Protecting your credit info on the internet
- Use a secure browser
- Keep records of your online transactions
- Review your monthly bank & credit statements in case of any errors
- Read/ask about policies that use your personal data
- Keep all person data online private & don’t disclose personal info
- Give payment info only to businesses you know & trust
- Never share you password online
- Never open/download files or hyperlinks from unknown
websites/companies/people it will give them access to all info on your device
Measuring Your Credit Capacity
- Can you afford a loan?
○ Add all your monthly expenses & subtract it from your take home pay, if the
difference doesn’t cover the monthly payments or leave you w/ a surplus of
funds for other expenses you can’t afford a loan
- General Rules of Credit Capacity
○ Debt to income ratio
§ Calculated by dividing your monthly debts to your net income
□ This doesn’t include a house payment
§ Don’t spend more than 15-20% of your income on credit payments
○ Debt to Equity Ratio
§ Calculated by diving your total liabilities to your net worth
Co-Signing a Loan
- Co signing
○ You are responsible for someone else’s debt in the event that they can’t pay
○ As a cosigner, you are being asked to take a risk that a professional lender will
not take
○ The amount you owe if they decide to sue, If this happens, they may take your
wages & property
- Co Signers often pay
○ 3 out of 4 co signers are asked to pay either the whole or a portion of the loan
up front
- If you do co sign
○ Make sure you can afford the loan, if you cant you will be sued for damages
○ Even if your not asked to pay, it might keep you from getting any credit lines in
the future
○ Secure the loan & understand the consequences BEFORE handing over any type
of insurance (a car or furniture) if the money doesn’t go through (defaults) you
can lose the property you are requesting
○ Be aware of state laws that might give you additional rights
○ Request copies of any over due payments be sent to you to ensure payment
and to protect your credit
Building & Maintaining your Credit Rating
- The quality of your credit rating is up to you & reflects your capacity to borrow &
repay money
○ Credit Bureaus
§ AKA Consumer Report Agencies (CRA) collect info about consumers
○ 3 Major Credit Bureaus
§ Experian Information Solutions
§ TransUnion Credit Information Company
§ Equifax Services
○ Each maintenance millions of credit files based on info received from lenders
once a month
§ Firms sell data to creditors to evaluate applications
- The Consumer Financial Protection Bureau receives over approx. 36,000 complaints
per year
○ Incorrect credit reports
○ Mixed reports for those w/ similar or the same last name
○ As of 2015 & stricter federal laws, Experian, Equifax & TransUnion reduced
errors on reports
○ In 2017, Play girls began removing taxes and civil judgment debts (payment of
damages) from credit reports If the information was incorrect
- Who provides data to credit bureau?
○ Information is obtained from banks, finance companies, merchants, credit card
company & other creditors
- What is in your Credit Files?
○ Your name, address, social security & date of birth
○ Employer, position & income
§ As well as former employers
○ Your spouse & their info as stated above
○ If you own or rent
○ If checks were returned for insufficient funds
○ Credit history & type of credit
○ Amounts of money borrowed
○ Purchases
○ Payments made, amounts due & outstanding balances
- Fair Credit Reporting
○ The 1971 law that regulates the use of credit reports, requires unnecessary info
be deleted & gives consumers they’re files & their rights to have data corrected
○ Prescreens are companies who are allowed to view your credit report & show it
to you
§ Experian, Equifax etc
- Who can obtain a credit report?
○ Possible future employers w/ permission from the courts
○ Someone verifying your eligibility for a benefit under the govt
- The Limits on Adverse Data
○ Most info in your credit report is only 7yrs, bankruptcy make go as far back
10yrs
○ Unpaid tax liens are reported for 15yrs
○ After the 7-15yr credit reporting companies can’t disclose your info unless you
are being investigated for:
§ A credit application over $75,000
§ Life Insurance policy over $150,000
- Incorrect Info on your credit file
○ Someone w/ a similar name
○ Check your credit for incorrect charges
○ You can request a free report within 60 days of being denied credit, insurance
or rentals of any kind
○ Review your credit report every 3-6months
- What are some Legal remedies?
○ Any consumer reporting agencies that fail to comply w/ the law or commits
acts of negligence can be sued by the consumer, if found guilty the consumer
will be awarded damages, court costs, attorneys fee’s & punitive damages
○ This must be present within 2yrs of discovery, anyone under false pretenses will
be fined $5,000, imprisoned for one year or both
Applying for Credit
- A scenario from the past
○ The Equal Credit Opportunity Act (ECOA)
§ States that race, color, age, sex, marital status & other factors may not be
used to discriminate against
What creditors look for: The 5 C’s of Credit Management
- Character
- Capacity
- Capitol
- Collateral
- Conditions
Age
- Creditors may not turn you down if
○ Your credit decreases because of age
○ Ignore your application based on retirement income
○ Closed your credit account/require you reapply due to age or retirement
○ Deny you credit/close your account because of life insurance or other credit
related insurance that is NOT available
Housing Loans
- The EOAC covers the application for your mortgage or home improvement loan
FICO & Vantages
- Info in your credit report is used to calculate your FICO credit score be aware of
these numbers:
○ Low/risky borrower - 300-400
○ Average - 450-500
○ Good - 600-750
○ Great - 760-850
- Pending the number of your FICO/credit score, it will show the banks and lenders
how trust worthy you are w/ money
○ High numbers represent lower likelihood of risks
○ Does not count debt collection that has been paid off
○ 30 million additional consumers with short histories are eligible for credit
reports
○ Ignores negative credit history affected by natural disasters
Nerd Wallet Free Credit Score Check
What if your application is denied?
- The EAOC gives you the right to know the specific reasons for denial
- Contact the credit bureau to find out what was reported
- They can’t charge you a fee if you ask for your report within 60 days of being
notified
- The credit bureau may investigate if you find incomplete information
How can I improve my credit score?
- Pay bills on time
- Lower balances
Avoiding & Correcting Credit Mistakes
- The Fair Credit Billing Act
○ Billing errors are:
§ Purchases that were not approved or done by you
§ Incorrect pricing
§ Accepting a purchase not on time or against an agreement
§ Failure to pay for an item/service etc
§ Incorrect mailing address
- In Case of Billing Error
1. Call your billing creditor
2. Give them your name, account number & address
3. Pay all parts of the bill that are not in the dispute
- The creditor has 30 days to acknowledge your letter, in 90 days either the mistakes
will be corrected or you will be shown the error w/ an explanation
- You will be reported as delinquent until payment/correction is made
Defective Goods or Services
- The Fair Credit Billing Act protects you, allowing you too withhold payment on any
damaged goods or services until the issue is resolved
Identity Crisis: What to do if your identity is stolen
1. Contact the Fraud Dept of each major bureaus
- Equifax
- Experian
- Trans Union
2. Contact your creditors for any account that have been tempered with or opened
fraudulently
3. File a police report
To prevent your identity from being stolen:
• Tear/shred any
- reciepts w/ your name on it
- Copies of credit card applications
- Insurance forms
- Bank checks/statements
- Expired credit cards
- Credit mail offers
• Close banks accounts immediately
• Social Security Admin
- Will give you a new number if you are still facing difficulties w/ identity theft
• File a complaint w/ the Federal Trade Commission
Complaining about Consumer Credit
- Complaints about banks
• If you have a complaint about something you can submit a complaint to the
Federal Reserve System
Protection under Consumer Credit Laws
- The Truth in lending & consumer leasing act
• If a creditor fails to disclose info, give’s inaccurate info or doesn’t comply w/ the
rules regarding credit cards
- Equal Credit Opportunity Act
• If you can prove discrimination for any reason prohibited by the ECOA
Fair Credit Billing Act
- When a creditor fails to comply w/ rules applied to correcting billing errors which
forfeits the amount owed to the items in question & finance charges on it
- You may also sue for actual damages plus 2x the amount of any finance charges
Consumer Credit Reporting Reform Act of 1997
- Places the burden of proof for accurate credit info on the reporting agency rather
than you
Credit Card Accountability, Responsibility & Disclosure Act of 2009
- Places new restrictions on credit card lending & eliminates some fees
Your Rights under Consumer Credit Laws
- If you believe you have been refused credit due to discrimination, you can:
1. Complain to the creditor
2. File a complaint w/ the govt, they will not handle private cases, when denied credit
you must give your name & address of the agency to contact
3. If all else fails sue the creditors, you have the right to a federal court case
- If you win you can recover your actual damages & punitive damages of up to
$10,000
