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Credit and Debt
Personal Finance
What is Money?
• Medium of Exchange
• Used to determine value during the exchange
• Unit of Account
• Ability to compare value of g/s
• Store of Value
• Holds value if saved and not spent
What Backs our Money?
• Commodity
• Objects that have value in and of themselves
• Representative
• Holder can exchange them for something of value
• Fiat
• An order or decree
• Has value because the government stands behind it
• FED keeps track of the money and growth of the economy
Modern Banking
• Federal Reserve System
• Not enough gold
• Central bank to lend $ to
member banks
• Established a board of
governors
• Control $ supply
Changes to Banking
• Great Depression
• FDIC
• High-risk loans
• Bank holiday
• Bank runs,
• Insure
failure
deposits
• Glass-Stiegle Act
• Fiat money
New Problems
• Deregulation
• Relaxation of
government
restrictions
• Credit Cards – 1962
• Repeal Glass-Stiegle
- 1991
• S & L Crisis (1980s)
• New
competition
• High interest
rates
• Bad loans,
fraud
Issues of Today
• Credit Crisis (2000s)
• Credit default swaps
• Cheap money
• Stated Income
• Community Reinvestment Act
• ARM loans
•FED policy of quantitative easing
HISTORY OF CREDIT
• Credit has been around since people first started
making transactions with each other
• It used to be … thought of as evil
• Only for business and government, not
individual people
• It was … made available to a few
• Only for people you knew well and could trust
• It is now … acceptable and expected
• For everyone, all the time, and everywhere
CREDIT SCORES
• Available through services
• Free once per year
• Assess applicants credit risk
• Equifax, Experian, TransUnion
• “I Love Debt Score”
MORTGAGES
• Secured loan for the purchase of real property
• Fixed = interest stays the same throughout life of loan
• Longer term costs more
• Plan for budget
• Adjustable = interest rate varies with the market
• Usually starts off lower
• May be capped
• Refinance
CAR PAYMENTS
• Lease
• New cars, maintenance free, short run savings
• Limits on mileage, no ownership, expensive in long run, insurance
• Buy New
• New cars, ownership
• Depreciation, eventual maintenance, possible high interest rate, insurance
• Buy Used
• Least expensive, ownership, insurance savings
• Not new, maintenance costs
CONSUMER PROTECTION
• SEC = federal agency responsible for regulating the securities
industry and for enforcing federal securities law
• FTC = promotion of consumer protection and the elimination and
prevention of anticompetitive business practices
• BBB = nonprofit, independent, local organizations focused on
advancing marketplace trust
• OCC = represents households in proceedings before state and
federal regulators and in the courts; also educates consumers
about electric, natural gas, telephone and water issues.
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