W!SE Financial Literacy Certification Test Prep 2025-2026 Exams Guide, Exams of Finance

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W!SE Financial Literacy Certification Test Prep 2025-2026 Exams Guide

Earned Income - Income derived from active participation in a trade or business, including wages, salary, tips, commissions and bonuses. Unearned Income - ANSWER-Any income that comes from investments and other sources unrelated to employment se Examples: interest from a savings account, bond inte! alimony, and dividends from stock Exemptions (aka allowance) and how they work - ANSWER If vou are not claimed as a dependent. on another taxpayer's return, then you can claim one personal tax exemption. The exemption reduces your taxable income just like a deduction does, but has fewer restrictions to claiming it. If you are married and file a joint tax return, both you and your spouse cach get an exemption. Exemptions (aka allowance) and how they work PART 2 - ANSWEF-The IRS allows you Lo take additional exemptions for each dependent you claim. Frequently, the source of these exemptions are the children who live with you for more than half the year, are under 19 years old (or under 24 if a fulltime student) and who don't provide more than half of their own financial support during the tax year. Liquidity - what docs it mean? - ANSWER-The abilily to convert an ass cash quickly and wilh minimal impact to the price. - what financial products are liquid? - Examples: Cash, Most stocks, money market instruments and government bonds. Gift cards - how dao tl issued by retailers or banks to be used as an alternative to a non-monetary gift. ‘R-A gift card is a restricted monetary equivalent is Gift cards - how do th ork - fees? - ANSWER-Prepaid cards, gift cards, and gift certificates cannot expire within five years of activation or unless the terms of the expiration are clearly disclosed. The law bans dormancy fees, inactivity fees or service fees on gift cards unless there all foc: has been no aclivily in a 12-month period and the issuer clearly dis before the gift, card is purchased. Gift cards - how do the cards, loyalty ork - fees? (Exclusions) - ANSWER-Prepaid phone cards , re-loadable or rewards cards, cards issued for admission to special nts or venues and certificates issued in paper form only are exempt. is left for spending, investing or saving after taxes and personal necessities (such as food, shelter, and clothing) have been paid. Discretionary income includes money spent on luxury ilems, vacalions and non-essential goods and serv: Money orders - high rate of counterfe: to receive cash government, but here are some other key fictions: - Printing of bills, postage, Federal Reserve notes, and minting of coins - Collection of taxes and enforcement of tax laws (through the IRS) - Management of all government accounts and debt issues - Oversecing U.S. banks - Identifying and targeting the financial support networks of national socurily threats Pay yourself first (savings) - ANSWER-Put moncy into savings cach month as if Ut were a bill. At least 10% of your income should go into savings. It’s recommended you have 6-8 months of expenses saved. CD - ANSWER-Sold by financial institutions, low-risk —- and relatively low-returmn tments suitable for cash you don't need for months or years. If you leave the money alone during the inveslment period (known as Lhe “erm” or “duralion"), the bank will pay you an interest rate slightly higher than what you would have earned in a money market or checking account. All gains are taxable as income. among lhe safest investment a person can make. The interest rate is determined it matur ahead of time, and you're guaranteed to get back what you put in, plus interest onc! Traditional CD- ANSWER-Y: When that term ends, you can withdraw your money or roll it into a new account ea fixed interest rate over a specific period of time. Liquid CD - ANSWER-This kind of account allows you to withdraw part of your deposit without paying a penalty. The interest rate on is usually is a little lower than others, but the rate is still higher than the rate in a money market account. Zero-coupon CD - A. payments so you earn interest on a higher total deposit. The interest rate offered is slightly higher than others, but you'll owe taxes on the re-invested interest. for leaving a personal item, such as jewelry or an electronic device, as collateral. If you pay back the loan, including interest, on time, you get the item back. You may be able to renew the loan by paying the interest. However, if you fail to repay or renew the loan, your item can be sold. The APRs for pawn shop loans are typically around 120-300 percent, much higher than the rate charged on credit cards. Many pawn shops also charge additional fees for insurance and storage. against your future income. You give them a postdated check, which is deposited if you do not pay back the loan. The APR (interest expressed as an annual percent rate) is usually over 200 percent and can go much higher if you refinance the loan instead of paying it off as soon as it comes due. Institutions that give loans- Banks vs. credit unions - ANSWER Credit unions generally charge lower inlerest ratcs. Less liquid {liquid} - / ~The state of a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value. Iligquid assets also cannot be sold quickly because of a lack of ready and willing investors or speculators to purchase the asset. Examples: Housing, stocks that have no buyers. Rule of 72 - ‘is a simplified way to determine how long an investment will take to double, given a fixed annual rate of interest. By dividing 72 by the annual rate of return, inveslors can gel.a rough estimate of how many years it will take for the initial invesliment Lo duplicate itself. Reconciling a Checking account - ANSWER-A record, usually sent to the account holder once per month, summarizing all transactions in an account during the time from the previous statement to the current statement. The opening balance from the prior month combined with the net of all transactions during the period should result in the closing balance for the current statement. Reconciling a Checking account - why and when - «Consumers should carefully review their bank statements and retain them for their own records. In reconciling their own record of lransactions wilh the bank’s records, account holders should be on the lookout. for incorrect or transposed numbers as well as unauthorized transactions. Discrepancies should be reported as soon as possible, in writing if possible. Ropayment of sludent loans - ‘You must repay a sludent loan even if your financial circumstances become difficult. Your student loans cannot be canceled because you didn't get the education or job you expected, or because you didn’t complete your education (unless you couldn't complete your education because your school closed). Tax anticipation loans - TA Refund Anticipation Loan (RAL) is a loan that is offered by many tax preparation companies to people against thei income tax return. These loans are based on the full amount of the lax refund. Loans can be had [or the entire amount or a partial amount of the anticipated refund. When the check arrives at the tax preparer’s office, the loan is paid in full, with interest, and any remaining balance is issued to the recipient. Many people use this program for its quick access to money without considering the high interest rates attached. Credit card cash advances - ANSWER-A service provided by many credit card issuers allowing cardholders to withdraw a certain amount of cash, either through an ATM or directly from a bank or other financial agency. Cash advances typically carry a high interest rate - even higher than credit card ilsclf- and the interest begins to accrue immediately. On the plus side, cash advances are quick and easy to obtain in a pinch. Truth in Lending Act - ANSWER-A federal law enacted in 1968 with the intention of protecting consumers in their dealings with lenders and creditors. The Truth in Lending Act was implemented by the Federal Reserve through a serics of regulations. Consequences of paying the minimum payment duc on a credit card bill or paying a bill late - ANSWER-Y our credit score will fall *Your monthly bills start Lo balloon *Your credit card costs skyrocket How does the degree of risk influence the interest rate charged for credit - ANSWER* Higher risk = higher interest rate *Lower risk = lower interest rate Debt to credit ratio - ANSWE: * Amount of available credit you are using *divi all the cards 2 the aggregate outstanding balance of all your credit cards by the total credit limit across 2. Remove unauthorized charges from your credit. 3. Close down your account to prevent future fraudulent charges. 4. Issue you a new card and account number. Consequences of a lost or stolen credit card - Several credit card companies have adopted a “zero liability” policy which means the consumer is not held responsible for any fraudulent charges. You should alsa check with the three major credit reporting agencies and obtain a copy of your credit report to be sure that nothing else has been accessed fraudulently. *Be wary of credit card protection offers. This type of insurance is unnecessary because federal law limits your credit card fraud lability. But scam artists try to sell $200-300 credit card insurance by falsely claiming that cardholders face significant financial risk if their cards arc misused. According to recent. Federal Trade Commission cslimates, 3.3 million consumers have purchased unnecessary insurance Lo prevent unauthorized use of their credit cards. The length of debt repayment and impacts on cost - A ‘Longer you take to pay, the more you pay in total (accumulating int What to do if'a person thinks he/she is the victim of identity theft - A! creditors and credit reporting agencies * Report to *Watch credit report carefully for several months Characteristics of predatory loans - ANSWER-*Giving unfair and abusive loan terms to borrowers *Showing lower interest than actually paying, making it seem they can afford more than they can, using collateral against default, high fees, etc. Collateral (secured vs. unse ER Secured = has collateral tied to it in case of default (home mortgage, car financing) Collateral (secured vs. unsecured) - ANSWER-Unsecured = no collateral (credit cards) Pawnshops - ANSWER-*Offer collateralized loans *Bring in item of value, get loan of percentage of value *Pay back with interest * Tf unpaid, item is forfeited to the pawnshop and considered paid in full * Does NOT affect credit score, doesn’t require a credit check or bank account management in which the insured transfers the cost of potential loss to another entity in cxchange for monetary compensation known as the premium Insurance deductible - whal happens to the premium when the deductible is raised or lowered - ANSWER*Deductible=The amount you have to pay out-of-pocket for expenses before the insurance company will cover the remaining costs. Renters insurance - ANSWE}-Covers possessions within the home and isolated events not covered in the property insurance held by the owner. Disability insurance - ANSWER Disabili who become disabled for a long period of time, and as a result can no longer work during that Act (FICA) tax fora certain amount of time, are eligible to receive the Social Security disability income insurance. insurance offers income protection to individuals time period. Employ who have paid the Federal Insurance Contributions car, drop unneeded coverage, drive less, safety discounts, student discounts, combine policies Securities and equities - ANSWER- amounts you sell it for and When you sell a capital asset, the difference between the our basis - which is usually what you paid for it - is a capital gain or a capital loss. * Historical performance of stocks: Up and down but average 9-10% Securities and equities - ANSWER-*Primary market: The primary market is where securities are created. It’s in this market that firms sell new stocks and bonds to the public for the first time (IPO - Initial Public Offering} *Secondary market: The secondary market is what people are talking about when they refer to the “stock market” This includes the New York Stock Exchange (NYSE), NASDA® and all major exchanges around the world. The defining characteristic of the secondary market is that investor's trade among themselves. What is a bull market (remember U in bull - market goes UP vs. a bear market) - ANSWER The use of “bull” and “bear“ to describe markets comes from the way the animals attack their opponents. A bull thrusts its horns up into the air while a bear swipes its paws down. These actions are metaphors for the movement of a market. If the trend is up, it’s a bull market. If the trend is down, it’s a bear market. Bonds - purpose, how they work, interest feature, tax free feature of municipal bonds - “A debt. in rmmental) that borrows the funds for a defined period of time at a fixed inte {corporate or Bonds states and U.S. and foreign governments to finance a f estment in which an investor loans money to an enti Bove t rat are used by companies, municipalities varicly of projects and aclivitics. *The indebted entity (issuer) issues a bond that states the interest rate (coupon) that will be paid and when the loaned finds (bond principal) are to be returned (maturity date). Interest on bonds is usually paid every six months (semi-annually). The main categories of bonds are corporate bonds, municipal bonds, and U.S. Treasury bonds. notes and bills, which are collectively referred toas simply “Treasuries.” Mutual funds - what they are, how they work, who manages the fund - A ‘An investment. vehicle that is made up of a pool of funds collected from many investors for the purpose of invesLing in sceurilics such as stocks, bonds, moncy market instruments and similar asscls. Mutual funds are operated by money mana: . who invest the fund’s capital and attempt to produce capital gains and income for the fund's investors. Investment Portfolio - ANSW! A grouping of financial assets such as stocks, bonds and cash equivalents, as well as their mutual, exchange-traded and closed-fund counterparts. Portfolios are held directly by investors and/or managed by financial professionals. taxes are paid on funds (Pensions, 401K. Traditional IRA [Individual Retirement Account], Roth IRA) worth *A pension is a retirement account that an employer maintains to give you a fixed payout when you retire. It’s a kind of defined benefit plan. *Your payout typically depends on how long you worked for your employer and on your salary. When you retire, you can choose between a lump-sum payout or a monthly “annuity” payment Retirement - ANSWER*Traditional IRA: An individual retirement account (IRA) that allows individuals to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred (no capital gains or of distribution/withdrawal. dividend income is taxed). Taxes are paid at the *Roth IRA: With a Roth IRA, you make contributions with money on which you've already paid taxes. Your money can then potentially grow tax-free, with tax-free withdrawals in retirement, provided that certain conditions are met. Inflation - A, ‘R-*Purchasing power of money. Government tries Lo keep it 10 2-3%. o Most hurt: lenders and those on fixed incomes ired) o Least hurt: minimum wage eamers, middle class home owners Inflation - ANSWER-* Deflation: Reduction in the general level of prices, ollen cansed by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression. Taxes - graduated income taxes worth (VCEE Scope and Sequence - Unit 14)- ANSWER-A tax that takes a larger percentage from the income of high-income earners than it does from low-income individuals. Taxpayers are broken down into categories based on taxable income; the more one earns, the more taxes they will have to pay once they cross the benchmark cut-off points between the different tax bracket levels. Roles of SEC, Federal Reserve (the Fed}, FDIC, CFPB worth - ANSWER-SEC (Securities and Exchange Commission): A government commission created by Congr to regulate the securities markets and protects investors. In addition to regulation and protection, it also monitors the corporate Lakcovers in the U.S. Role is lo prolect the investing public against fraudulent and manipulative practices in the securities markets. Roles of SEC, Federal Reserve (the Fed), FDIC, CFPB worth - ANSWER-The Fed: The central bank of the United States and the most powerful financial institution in the world. Roles of SEC, Federal Reserve (the Fed), FDIC, CFPB worth - ANSWER-Roles: Conducting national monetary policy by influencing monetary and credit conditions in the U.S. economy ta ensure iaximmum omployment, slable prices and moderate long-term inLerest rates. * Supervising and regulating banking institutions to ensure safety of the U.S. banking and financial sysiom and to protect consumers’ credit rights. *Maintaining financial system stability and containing