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189 Cards in this Set
- Front
- Back
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Credit
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Funds provided by a creditor to a borrower will repay with interest or fees in the future.
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installment credit
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credit provided for specific purchases with interest charged on the amount borrowed. it is repaid n a regular basis, generally with blended payments
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revolving open-end credit
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Credit provided up to a specified maximum amount based o nincome, debt level and credit history; interest is charged each month on the outstanding
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Advantages of Credit
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avoid deferring large purchases
eliminates the need for carrying cash useful where cash is not availale |
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Disadvantages of credit cards
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High Cost<br />Difficulty making payments<br />Temped to make impluse purchases
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Credit Bureau
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reports provided by credit bureaus that document a person's credit history
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Credit Report Provides
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Personal Information
Consumer Statement Summary of your accounts Account history Bank information - closed derogatory reasons Public Info - bankruptcy, judgments secured loans Names of Creditors and accont inquiries List of creditor contacts |
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Credit Score
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10% search for new credit
10%Types of Credit established 15% length of credit relationship 30% Amount of outstanding credit 35% payment history |
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Retail/Proprietary Credit Cards
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Credit Card that is honoured only by a specific retail establisment
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Prestige cards
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credit cards,such as gold cards or platinum cards, issued by a financial intitution to individuals who have an exceptinal credit standing
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Finance charge
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the interest and fees you must pa as a result of using credit
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Consumer proposal
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an offer made by a debtor to his or her creditors to modify payments
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Insolvent
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a person who owes at least $1000 and is unable to pay his debts as they come due
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trustee in bankruptcy
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a person licensed to administer consumer proposals and bankrupticies and manage assets held in trust
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identity theft
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occurs when an individual uses personal, identifying information unique to ou such as a SIN without your permission
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Identity Theft Tactics
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Shoulder Surfing
Dumpster Diving Skimming Pretexting Phishing Pharming |
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Shoulder surfing
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occurs in public places where you can be readily seen or heard by someone standing close by
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Dumpster diving
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occurs when identity thief goes through your trash for discarded items that reveal personal information that can be used for fraudulent purposes
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Skimming
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identity thieves seal your credit or debit card number by copying the information contained in the magnetic strip on the card
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Pretext
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individuals access personal information under false pretenses
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Phishing
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pretexting happens on line - access personal information under false pretenses
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Pharming
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similar to phishing, but targeted at larger audiences, it directs users to bogus websites to collect their personal information
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Protecting against Identity Theft
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lock your mailbox
Carry minimum ID Protect personal info - shredder Review glove box Know when bills arrive Do not give out SIN Do not give info to just anyone Check credit report Change pswrds regularly Web - unbroken key or padlock Clear cache know encryption level Firewall Suspicious of e-mail requests for info File downloades for piggybacks |
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Loan Contract
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Contract that specifies the terms of a loan as agreed to by the borrower and the lender.
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amortize
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to repay the principal of aloan through a serioes of equal payments. A loan repaid in this manner is said to be amortized
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Maturity of term
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with respect to a loan, the life or duration of the loan.
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Collateral
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Assets of a borrower that back a loan in the event that the borrower defaults. Collateral is a form of security for the lender.
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Secured loan
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A loan that is backed or secured by collateral
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nsecured loan
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A loan that is not backed by collateral
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Payday loan
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short-term loan provided in advance of receiving a paycheque
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Annual percentage rate (APR)
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Measures the finance expenses (including interest and all other expenses)on a loan annually.
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Simple Interest
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Interest on a loan computed as a percentage of the existing loan amount (or principal). Compounding is not taken into account.
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Add-on interest method
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Method calculating payments: it involves calculating <br />the interest that must be paid on the loan amount, adding together the interest and principal, and dividing by the <br />number of payments.
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home equity loan
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a loan in which the equity in a home serves as collateral.
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home equity
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Market value of your home less any outstanding mortgage balance and/or debts held by others that are secured against your property.
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Equity of a Home
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The market value of a home minus the debt owed on the home.
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Second mortgage
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A secured mortgage loan that is subordinate (or secondary) to another loan.
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prime rate
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its best customers.
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Considerations when purchasing a car.
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Personal Preference<br />Price<br />condition<br />Insurance<br />Resale Value<br />Repair Expenses<br />Financing Rate
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Advantages to Leasing a vehicle
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No substantial down payment
Lower monthly payments No need to find a buyer |
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Disadvantes to Leasing
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No equity
Need higher insurance Limited number of Kilometers |
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Student Loans
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a loan provided to finance a portion of a student's expenses while pursuing post-secondary education.
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Managing Risk
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Avoid risk - do no own property avoid the risks
Reduce risk - buy smaller home reduces risk Accept risk - limit exposure financial loss Share risk - buy insurance |
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Premium
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The cost of obtaining insurance.
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Peril
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A hazard of risk you face.
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Underwirter
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employee of an insurance company who determines the risk of specific insurance policies and decide what policies to offer and what premiums to charge.
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Insurance Agent
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represents one or more insurance companies and recommends insurance policies that fit customers needs
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captive/exclusive insurance agent
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works for one particular insurance company
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independant insuance agent
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represents many different insrance companies.
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insurance policy
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contract between an insurance company and the policy owner
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auto insurance policy
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specifies the coveage provided by an insurance company for a particular individual and vehicle.
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third party liability
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the person who has experienced a loss because of theinsured
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bodily injury liability coverage
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protects you against liability associated with injuries you cause to others
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property damage liability coverage
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protects against losses that result when the policy owner damages another person's property with his or her car.
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accident benefits coverage
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insures against the cost of medical care for you and other peassengers in your car
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uninsured motorist coverage
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insures against the cost of bodily injury when an accident is caused by another driver who is not insured
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underinsured motorist coverage
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insures against the additional cost of bodily injury when an accident is caused by a driver who has insufficient coverage
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collision insurance
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insures against costs of damage to your car resulting from an accident in which the driver of your car is at fault
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comprehensive coverage
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insures you against damage to your car that results from something other than a collision, such as a flood, theft, fire, hail, explosions, riots, vandalism and various other perils.
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deductible
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A dollar amount that you are responsible for paying before coverage is provided by your insurer
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Facility Association
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Ensures that drivers unale to obtain insurance with an individual copany are able to obtain the coverage they need to operate their vehicles legally.
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exclusion
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A term appearing in insurance contracts or policies that describes items or circumstances that are specifically excluded from insurance coverage.
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Factors that affect auto insurance premiums(8)
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Use of vehicle<br />Value of Car<br />Repair record of vehicle<br />Where you live<br />Driver training<br />Driving record<br />Age and sex<br />Driving distance
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homeowner insurance
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provides insurance in the event of property damage, theft, or personal and third party liabiity relating to home ownership
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all perils coverage (home)
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protects the home and any other structures on the property against all events except those that are specificaly excluded by the policy.
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named perils coverage
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protects the home and any other structures on the property against only those events named int he poicy
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cash value policy
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pays you the vlue of the damaged property after considering its depreciation
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replacement cost policy
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pays you the actual cost of replacing the damaged property
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home inventory
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contains detailed information about your personal property thata can be used when filing a claim
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personal property floater
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an extension of the homeowner's insurance poicy that allows you to itemize your valuables
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Factors effecting cost of homeowners insurance
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Value of Insured Home
Deductible Location Degree of Protection Discounts (car house life) |
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how to reduce homeowner premiums
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lower deductible
improve protection use one insuree stay with same company shop around |
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tenant's insurance
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Insurance policy that protects your possessions within a house condominiumor apartment that you are renting.
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umbrella personal liability policy
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A supplement to auto and homewoner's insurance that provides additional personal liability coverage.
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health insurance
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group of insurance benefits provided to a living individual as a result of sickness or injury.
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medicare
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An interlocking system of ten provincial and three territorial health insurance plans provided by the governments, including the federal government
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Canada Health Act
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Establishes the criteria and conditions related to insured health care services that provinces and territories must meet in order to receive money from the federal government for health care.
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insured health care services
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medically necessary hospital, physician, and surgical-dental services provided toinsured persons.
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insured person (health care)
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an eligible resident of a province. Does not include someone who may be covered by other federal or provincial legislation.
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Canada Health and Social Transfer (CHST)
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The largest federal transfer of money to the provinces and territories, providing them with cash payments and tax transfers in spport of health care, post-secondary education, social assistance, and social services, icluding early childhood development.
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The 5 principles of the Canada Health and Social Transfer
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1. Public Administration - operated on non-profit basis
2. Comprehensive - all medically necessary services provided 3. Universality - uniform terms and conditions 4. Portability - covered in other provinces and territories 5. Accessiblity - reasonable access to hosptial & physicians |
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Health Care Insurance Policies
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Id insured person
Location Pre-existing conditions Cancellation options Determinants of Non-reimbursed medical expenses Deductible Coinsurance Coordination of Benefits |
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Disability income insurance
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monthly insurance benefit paid to you in the event that you are unable to work as a result of an injury or an illness
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Own occupation
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disability insurance that pays even if you can return to work if it not your profession
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Regular occupation
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unable to do the duties required by your occupation - benefits are reduced if you return to employment
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any occupation
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disability is only paid if you are unable to work at any occupation
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indeminification
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The concept of putting an insured individual back into the same psoition he was in prior to the event that resulted in insurance benefits being paid.
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waiting period
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period from the time you become disable until benefits begin
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Disability Insurance considerations(5)
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Amount of Coverage<br />Waiting period<br />Benefit Period<br />Non-cancellable provision<br />Renewable provisions
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Critical Illness Insurance
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lump sum paid for critical illness like cancer, heart attack, stroke must survivie 30 days and can spend money for other treatments and care
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Long-term care insurance
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covers expenses associated with long-term health conditions that cause individuals to need help with everyday tasks.
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Life Insurance
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insurance that provides a payment to a specified beneficiary when the insured dies
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face amount
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the amount stated on the face of the plicy that will be paid on the deth of the insured
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beneficiary
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named individual who receives life insurance payments upon the death of the insured
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life insured
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the individual who is covered in the life insurance policy
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policy owner
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the individual who owns all rights and obligatins to the policy
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Role of life insurance
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to maintain financial support for dependants
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term insurance
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life insurance that is provided over a specified time period and does not build cash value.
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Grace period
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the period the insurance company extendes to the policy owner bfore the policy will lapse due tot nonpayment.
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Mortality rate
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the number of deaths in a population or in a subgroup of the population
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underwriting
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the process of evaluating an insurance application based on the applicant;s age, sex, smoking status, driving record, and other health and lifestyle considerations and then issuing insurance policies based on the responses.
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creditor insurance
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term life insurance where the beneficiary of the policy is a creditor - mortgage insurance
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creditor
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an individual or company to whom you owe money
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decreasing term insurance
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A type of creditor insurance, such as mortgage life insurance, where the life insurance face amount decreases each time a regular payment is made ond ebt that is amortized over a period of time.
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group term insurance
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term insurance provided to a designated group of people with a common bond that generally has lower than typical premiums.
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permanent insurance
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life insurance that continues to provide insurance for as long as premiums are paid
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cost of insurance
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the insurance-related expenses incurred by a life insurance company to provide the actual death benefit, sometimes referred to as the pure cost of dying
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cash value
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the portion of the premium in excess ofinsurance related and company expenses that is invested by the insurance company on behalf of the policy owner
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death benefit
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the total amount paid in tax free to the beneficiary upon the death of the policy owner.
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whole life insurance
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a form of permanent life insurance that builds cash value based on a fixed premium that is payale for the life of the insured.
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universal life insurance
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a form of permanent life insurance for which you do not pay a fixed premium and in which you can invest the cash value portion in a variety of investments
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non-forfeiture options
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the options available to a policy owner who would like to discontinue or cancel a policy that has cash value
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paid-up insurance
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a permanent life insurance policy that results from exercising a non-forfeiture option on a policy that has accumulated cash value
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term to 100 insurance
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a form of permanent life insurance designed for the sole purpose of providing a benefit at death
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participating policy
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a life insurance policy that is eligible to receive policy dividends
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policy dividend
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a refund of premiums that occurs when the long-term assumptions the insurance company made with respect to the cost of insurance, company expenses, and investment return share changed.<br />Dividends are paid when cost of insurance is less than expected, investment earnings are higher than expected company expenses are lower than expected.
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2 methods to determine life insurance needs
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Income Method - determines how much life insurance is needed based on the poicy holder's income.<br />Budget Method or Needs Method - A method that determines how much life insurance is needed based on the household's future expected expenses and current financial situation.
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Budget Method
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1. annual living expenses
2. special future expenses 3. debt 4. job marketablility of spouse 5. value of existing savings |
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Primary Market
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A market in which newly issued securities are traded. Available to larger traders like banks, pension funds, insurance company, traders.
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Secondary Market
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A market in which existing securities such as debt securities are traded. Offerings to the public.
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IPO
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Initial public offering - the first offering of a firm's shares to the public.
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day traders
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Investors who buy stocks and then sell them on the same day
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default
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When a company borrows money through the issuance of debt securities and DOES NOT PAY either the interest or the principal.
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Portfolio
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A set of multiple investments in different assets.
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Asset Allocation
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The process of allocating money across financial assets (such as mutual funds, stocks, and bonds) with the objective of achieving a desired return while maintaining risk at a tolerable level.
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NAVPU
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Net Asset Value Per Unit - calculated by dividing the NAV by the number of units in the fund.
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No-load mutual funds
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funds that sell directly to investors and do not charge a fee.
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NAV
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The market value of the securities that a mutual fund has purchased minus any liabilities and fees owed.<br />Market Value - (Liabilities+Fees) = Net Asset Value
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MER
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Management Expense Ratio-The annual expenses incurred by a fund on a percentage basis, calculated as annual expenses of the fund divided by the net asset value of the fund; the result of this calculation is then divided by the number of units outstanding.
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Small-cap
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funds that focus on small firms - generally have more potential for growth than larger firms.
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Laget-cap
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generally invest in large companies with market value of over 8 billion (eg G.E., Microsoft)
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sector funds
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mutual funds that focus on stocks in a specific industry or sector such as technology stocks.
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index funds
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Mutual funds that attempt to mirror the movements of an existing equity index.
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Interest Rate Risk
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Interest Rate and Bond Rate have an inverse relationship; therefore when interest rates go up bond rates go down and when interest rates go down bond rates go up.
The risk that occurs because of changes in the interest rate. This risk affects funds that invest in debt securities and other income-oriented securities. |
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Exchange Rate Risk
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Global Mutual Funds are subject to exchange rate risks just like Canadian Bonds. As the value of the demonating currecny weakens against the Canadian dollar the price of the bond may drop.
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Call (prepayment) risk
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The risk that a callable bond will be recalled before maturity. If recalled the bond holder must sell.
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Discount Bond
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A bond that is traded at a price below its par value.
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Premium Bond
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A bond that is traded at a price above it par value.
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T-bills
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Short-term debt securities issued by the Canadian government and sold at a discount.
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Coupon rate
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Coupon is the interest rate the bond pays. It is called the coupon rate because bonds once came with a book of coupons, which the holder had to clip and send in to receive an interest payment. Bond investors are still referred to sometimes as “coupon clippers.” This interest rate does not vary over the life of the bond, although there are some bonds, which have a variable interest rate tied to an external index.
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Commercial Paper
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A short-term debt security issued by large firms that is guaranteed by the issuing firm.
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Strip Bond
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Logn-term debt securities issued by the Government of Canada that do not offer coupon payments, but are sold at a very deep discount.
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OAS
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Old Age Security - funded by general tax revenues, residency requirement (lived in Canada for 40 years since turning 18), are 65 years old, partial payments are made based on if you arrived in Canada age 35 work for 30 years OAS 30/40xbase amount.
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OAS CLAW BACK
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reduced by $0.15 for every dollar over 63,511 make in year.
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CPP
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Canada Pension Plan- based on contributions and years contributing to maximum amount. Apply for benefits between 60-70 years. Survivor benefits, death benefit and disability benefits. YBE - years basic exemption (3500) YMPE - years maximum pensionable earnings (43700)
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GIS
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Guaranteed Income Supplement - single, divorced, widowed pensioners who are 65 and sole source of income is OAS will receive 628.36 in benefits reduced by $.50 for each $ of additional income. GIS IS NOT TAXED
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VESTED
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having a claim to the money in an employer-sponsored retirement account that has been reserved for you upon your retirement, even if yo leave the company.
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spousal RRSP
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a type of RRSP where one spouse contributes to the plan and the other spouse is the beneficiary or annuitant.
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RRIF
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Registered Retirement Income Fund - at age 71 gov't requires RRSP's be closed. Normally transfer to RRIF exercise in paper work - % of assets must be taken in income each year and money taken will be taxed at the income tax rate that year.
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life annuity
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a financial contract that provides regular payments for one's lifetime
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intestate
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dying without a will
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notarial will
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formal will that is commonly used in Quebec and is completed in the presence of a notary (lawyer).
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holograph will
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A will that is written solely in the handwriting of the testator and that does not require the signature of any witnesses.
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executor
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personal representative - the person designated in a will to execute your instructions regarding the distribution of your assets.
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trustee
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an individual or organization that is responsible for the management of assets held in trust for one or more of the beneficiaries of a will.(normally disable or under the age of majority)
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guardian
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person appointed to care for minor children
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codicil
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a doucment that specifies amendment to an existing will
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Typical Investments
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Money Market Securities - term deposits, GIC, Canada Saving Bonds - return on investment and liquidity
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Mutual Funds
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a portofolio of investments such as bonds and stocks - managed portfolio - designed to minimize risk
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Exchange traded funds (ETF)
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a portfolio of securities whose value moves in tandum with a particular stock index. Unlike a mutual fund these funds trade on an exchange or stock market.
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Stocks
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are certificates that represent partial ownership of a firm
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Growth Stocks
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shares of a firm with substantial growth opportunities - younger firms with potential for growth and large capital gains because they have not reached full potential
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Value Stocks
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stocks in firms that are currently under valued by the market for reasons other than the performance of the businesses themselves.
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Income Stocks
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stocks that provide investors with periodic income in the form of dividends
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Common Stocks
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a certificate issued by a firm to raise funds that represents partial ownershp in the firm
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Preferred stock
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a certificate issued by a firm to raise funds tht entitles shareholders to first priority to recieve dividends.
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Real estate
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Rent to generate income, capital gains from selling property
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Low Risk/High Reurn a poor description of investments?
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Investors must weigh the trade-off between the potential return of an investment and the risk. If you want an investment that generates a higher reutrn, you have to tolerate the higher degree of uncertainty(risk)associated with that investment.
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How to diversify or reduce risk?
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1)Asset Allocation - the process of allocting money across finanical assets (such as mutual funds, stocks, and bonds) with the objective of achieving a desired return while maintaining risk at a tolerable level.<br />2)Portfolio a set of multilpleinvestments in different assets.
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Advantages and disadvantages of mutual funds.
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Advantages -1) invest in a broadly diversified portfolio
2) minimal initial investment and subsequent investments as small as $25 3) Professional money management by experienced professionals with access to best research. 4) Marketability - ease with which an investor can convert an investment into cash. Disadvantages - 1) Management fees & other costs 2) Investments are handled by the portfolio manager - as investor you have no control. 3) human error by portfolio manager 4) invested in poorly performing invested. 5) Other than money market funds liquidity can be very low |
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Liquidity
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the ease with which the investor can convert the investment into cash without a loss of capital
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Equity Mutual Fund
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influenced by general stock conditions. when the market is weak prices of stocks held by equity funds decrease and the NAVPU(net asset value per unit) decline as well.
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Risk for investing in Hedge Funds
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limited partnerships that manage portfolios of funds for wealthyindividuals and finaniclial institutions. Similar to mutual fund management and ivestors have little or no control. Investor classified as accredited investor of sophisticated invetor to invest in hedge funds. Not regulated by securities commission - risky investments. Short selling - selling securities not currently owned and buying these securities back at a later date. takes advantage of overvalued securities. Stocks on margins with borrowed funds
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Risk for investing in Bond Mutual Fund
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Interest rate risk - the risk that occurs because of changes in the interest rate. This risk affects funds that invest in debt securities and other income-oriented securities.
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4 features that a bond can offer
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call feature - a feature on a bond that allows the issuer to repurchase the bond rom the investor before maturity
convertible bond - a bond that can be converted into a stated number of shares of the issuer's stock at a specified price. extendible bond - a short-term bond that allows the investor to extend the maturity date of the bond put feature - a feature on a bond that allows the investor to redeem the bond at its face value before it matures. |
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Government of Canada Bonds
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Debt securities issued by the Canadian government
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Federal Crown corporation bonds
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Debt securities issued by corporations established by the federal government
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Provincial Bonds
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Debt securities issued by the various provincial governments
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Municipal bonds
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long-term debt securities issued by local government agencies
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Corporate bonds
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Long-term debt securities issued by large firms
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high-yield bonds
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bonds issued by less stable corporations that are subject to a higher degree of default risk
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T-Bills
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short-term debt securities issued by the Canadian government and sold at a discuount
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Are the risks different for a government bond and a corporate bond.
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Risk with Gov't bond depends on the stability of the Government issuing - eg Canada is very stable therefore the bonds are likely to be honoured. Corporate Bonds are riskier as they depend on the size and stability of the corporation to meet its debts.
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What are the types and sources of retirement income in Canada after age 65?
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CPP - if you contributed, OAS - paid on the basis of having lived in Canada for 40 years after turning 18 - is prorated for years less than 40.
GIS - low income pensioners normally widows, singles, widows, sole source of income is OAS will receive max of 628 month. |
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What is the difference between defined-benefit and defined contribution.
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Defined benefit is an employeer sponsored retirement plan that guarantees you a set amount of income based on your salary and years of employment.
Defined contribution - is and employer sponsored retirement plan where the contribution rate, not the benefit amount, is based on aspecific formula. |
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What is the difference between an RRSP and a LIRA.
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Registered retirement saving plan a type of private pension that enables you to save for your retirement on a tax deferred basis.
LIRA - a private pension plan that is created when an individual transfers vested money from an employer sponsored pension plan. |
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Does everybody need a will?
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A will should be updated every 2-3 years.
-birth or adoption -marriage -common-law relatlionship -separation/divorce -receipt of an inhertiance -death of a child -relocation to a new province -changes to provincial legislation - illness/death executor/trustee -illness/death significant beneficiary |
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What are the common parts of a Will?
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1. Testator Identification
2. Appointment of Executor or Excutrix 3. Appointment of Trustee 4. Appointment of Guardian for Minor Children 5. Authorization to pay debts 6. Authorization to make bequests 7. distribution of residue 8. administration of estate 9. Liability 10 Signatures |
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The steps for probating a will?
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1. Files forms with probate court
2. provides a copy of the will 3. a list of assets and debts 4. pays debts and liquidates any assests as required 5. court may appoint a guardian for minor children |
