Chapter 4 Study Guide

1. What is a bank?– a business that stores and manages money for

individuals and other businesses

2. What are two reasons to put your money in a bank?– keep it safe– to earn interest

3. Briefly describe the following banks:– Retail bank - Banks that offer basic banking services to

individuals – Credit union - non profit banks that offer basic banking

services– Commercial banks - provide services to businesses– Investment banks - help businesses and other

organizations raise money by issuing stocks and bonds.

4. What is a bank account?– a record of the transactions between you and your bank

5. What are the two main types of bank accounts? checking, savings6. Why do people open savings accounts? to save money for future use7. What do personal checks include?

– Name and address in upper left corner– Check number in upper right corner– Bank information– Routing and Account numbers on the bottom

8. What do some people do when they reach their savings goals?they might decide to invest some of their savings

9. What do most people invest their money in?– products such as stocks, bonds, or mutual funds

10. In which types of banks do most people open savings accounts?– Retail banks or credit unions

11. What is the difference between passbook and time savings account?

– passbooks earn less interest but are more flexible, time accounts require you to leave your money for a set amount of time

12. Briefly describe money market accounts.– Money market accounts offer a higher interest rate than a passbook

savings account. There is usually a minimum balance a limit to amount of times you can withdraw money

13. What are equity investments?– you purchase stocks in a company.

14. What are fixed income investments?– you lend money to a business or government agency in exchange for a

bond.

15. What is an IRA?– a personal savings plan that allows you to set aside money for

retirement.

16. What is the government program that pays monthly benefits to workers in the U.S. who pay the FICA tax?– Social Security

17. What is insurance?– an investment that protects you financially against

everyday risks

18. Describe the following types of life insurance:– Term life insurance – provides protection for a specific

dollar value– Permanent Life insurance – lets you save or invest

money in a policy over time

19. What is the purpose of health insurance?– protects you against the high cost of health care

20. What is estate planning?– The process of anticipating and arranging for the disposal of

your assets after your death

21. What does a realtor do?– Helps people buy a house from showing, to making an offer,

and closing

22. What are things that you should consider when deciding whether to rent or buy a home?

– Lifestyle needs, credit history, net worth, current and future income

23. What is a down payment and how much to do people usually put down on a house?

– A percentage of the home prices paid up front, usually 3 – 20%

24. How long do home loans usually last?– 15 or 30 years

25. Briefly describe the five parts a mortgage payment:

– Principal – amount of loan divided into equal payments– Interest – percentage you pay to get the loan– Points – costs paid to the lender in order to get mortgage financing– Taxes – real estate taxes that are assessed by your community– Homeowners insurance – protects against damage to your home or

property

26. What is a premium?

– The amount of money paid by the policy holder

27. Describe the following types of insurance:

– Renter’s insurance – protects your property if you rent a home– Auto insurance – protects your car from theft or damage– Disability Insurance – protects your income if you are too sick or hurt to

work– Dental Insurance – protects you against the cost of dental care