Penn State Sokolov-Miller Family Financial and Life Skills Center Glossary of Basic Financial Terms
Annual percentage rate (APR) – the Cashier's check – a form of check bought interest rate charged, expressed as a for a specific amount and paid to a person percent per year, for the use of credit or firm named on the check. People pay a fee for a cashier's check. A cashier's check Assets – possessions that have economic cannot bounce because full payment value (some of which may provide an is needed prior to a cashier's check economic and/or financial return) being issued.
ATM – automated teller machine; an Certificate of deposit (CD) – a certificate ATM allows bank customers to deposit issued by a bank to a person depositing and withdraw money without the direct money in an account for a specified period assistance of a bank employee. of time. A penalty is charged for early withdrawal from most CD accounts. Bank – a company chartered by state or federal government to offer numerous Check – a written order to a financial financial services, such as checking and institution directing the financial institution savings accounts, loans and safe-deposit to pay a stated amount of money, as boxes; the Federal Deposit Insurance instructed, from the customer's Account Corporation (FDIC) insures accounts in federally chartered banks and most state- chartered banks. Checking account – a financial account into which people deposit money and from Bond – a certificate of indebtedness issued which they withdraw money by writing by a government or a company, promising to checks or using debit or ATM cards repay borrowed funds to the lender at a fixed rate of interest and at predetermined Compound interest – a situation in which intervals interest is earned on previously earned interest in such a way that earnings Borrower – an individual, business or accumulate more rapidly over time government that has received and used something belonging to somebody else, with Credit – borrowing to buy something with the intention of returning or repaying it - the promise to make payment at a later time often with interest in the case of borrowed Money Credit card – a small, specially coded plastic card issued by a bank, business, etc., Budget – a plan to manage income, authorizing the cardholder to purchase spending and saving goods and services on credit. Credit cards allow users to borrow funds (that must be Capital gains – a profit realized from the repaid) that the user does not currently have. sale of property, stocks or other investments Credit report – a written record collected Cash – money in the form of paper currency by a credit agency that tracks a borrower's or coins credit payments, whether or not these
Adapted from: Financing Your Future. Council for Economic Education, 2017. DVD. Penn State Sokolov-Miller Family Financial and Life Skills Center
Glossary of Basic Financial Terms payments are made on a timely basis, and Financial literacy – basic financial how long the borrower has had various knowledge, including an understanding of credit accounts. banks and the banking system, financial markets, credit and credit cards, and tax Credit union – not-for-profit cooperatives laws, as well as the ability to apply this of members with some type of common knowledge in making decisions on how to bond (e.g., employer) that provide a wide spend, earn, or save money today to build array of financial services, often at a lower wealth for tomorrow cost than commercial banks Fixed expenses – expenses that are the same Debit card – a small, specially coded every month plastic card issued by a bank; allows the cardholder to transfer funds electronically Grace period – the amount of time one has and immediately from his or her checking to pay a line of credit before there is a account, as if the cardholder were writing a finance charge check to pay for a purchase. A debit card is different from a credit card in that debit card Human capital – the knowledge, skills, users are limited to accessing only the abilities and talents that people acquire available balances in their deposit accounts. through experience, training and education Credit cards allow users to borrow funds that help workers produce goods and that must be repaid. services and help determine their income- producing capacity Diversify – to invest in a variety of financial assets, such as stocks, bonds, money market Income – earnings that result from accounts, etc., in order to reduce the overall providing resources in the market place risk of financial investment Inflation risk – the chance that the rate of Dividend – a payment of apportion of a inflation will exceed the rate of return on company's net profits which is periodically an investment; also, the risk that future made to stockholders earnings will have reduced purchasing power because of an increase in average Expenses – payments for goods and services prices
FICO score – a mathematical model that Installment plan – a closed-end loan for a assesses a person's reliability in repaying specific product such as furniture or borrowed funds appliances
Finance charges – the interest paid on Interest – the price associated with using unpaid credit balances someone else's money. Banks pay savers interest to encourage them to make deposits. Financial institutions – intermediaries that Banks charge interest to borrowers, who pay help channel funds from savers to borrowers this interest as a cost of using someone else's money. In general, banks earn profits when the interest payments made on loans are
Adapted from: Financing Your Future. Council for Economic Education, 2017. DVD. Penn State Sokolov-Miller Family Financial and Life Skills Center
Glossary of Basic Financial Terms larger than the interest used to attract savers to make deposits. Money order – a form of payment that a person can buy for a specific amount and Lender – one who lends; may be an sign over to the person or firm named on the individual, a business or a government money order. People must pay a fee to obtain a money order. A money order cannot Liabilities – things that are owed; financial bounce because full payment is needed obligations that must be paid. Debt is a before the money order is issued. common household liability. Mutual fund – a pool of funds used by a Liquidity – the ease with which a financial services company to purchase a financial asset can be turned into cash. O variety of stocks, bonds or money market instruments. A mutual fund provides f Terms diversification and is professionally Liquidity risk – the chance that an investor managed by investment professionals. will find it difficult to turn an investment into cash (by trying to sell a house, for Net income – the amount of income left example, in a real estate market that is slow) after taxes have been paid
Long-term goal – a goal that a person or Net worth – a person's assets, or what a organization plans to achieve more than person owns, minus a person's liabilities, or five years in the future what a person owes
Medium-term goal – a goal that a person or Open-ended credit – a form of credit that organization plans to achieve in one to five allows a person to borrow funds to make years purchases for which there is no predetermined repayment period Minimum payment – the smallest amount a person is required to pay in a given month Opportunity cost – the highest-valued on an open-ended credit account alternative that is given up when a choice is made not regularly Money market account – an interest- bearing account that offers limited check- Productive resources – factors used to writing privileges. Deposits may be added at produce a good or service (natural resources any time; some money market accounts limit or land, human resources, human capital the withdrawals depositors may make and capital goods) without paying a penalty. Money market accounts are low-risk investments that serve Problem-solving model – also known as the as a cross between saving and checking PACED model; the five steps of decision- accounts. Money market accounts offered making: identify the problem, list the within the banking system are known as alternatives, list the criteria upon which the money market deposit accounts. Money decision will be based, evaluate the market accounts offered by mutual funds are alternatives using the criteria, make a known as money market mutual funds. decision
Adapted from: Financing Your Future. Council for Economic Education, 2017. DVD. Penn State Sokolov-Miller Family Financial and Life Skills Center
Glossary of Basic Financial Terms
and processes information. Because of the Rate of return – earnings from a financial chip, the card can handle multiple investment, stated as a percentage of the applications such as personal identification, amount invested; usually calculated on an banking, and use in pay phones. The cards annual basis make it easy to carry data. They provide high data security and offer great Return – earnings from an investment, convenience to users. usually expressed as an annual percentage rate Spending – using income for current consumption Revolving credit – an open-ended account with a limit to how much can be borrowed Stocks – shares of ownership in a but no time limit for repayment corporation
Risk – the chance of experiencing Taxes – required payments to government a financial loss Trade-off – that which is given up to Rule of 72 – offers a simple way to get something determine how long it will take for a principal value to double in size. Divide the Traveler's check – a form of check that can annual expected interest rate into be used to obtain cash; the buyer of the 72 to know the approximate number of traveler's check pays a specific dollar years it will take for the principal to double. amount to acquire these checks, which are issued in standardized packets by a traveler's Saving – income not spent on current check issuer. The checks are written to a consumption or taxes person or firm and signed by the person writing the check. Often these come with Savings account – an interest-bearing protection against loss or theft. Traveler's deposit account at a banking establishment check issuers usually charge a fee when they that is not typically used for transactions and sell these instruments. has no maturity date Variable expenses – expenses that may Scarcity – the condition that arises change from week to week or from month to whenever limited resources are month insufficient to provide for peoples' basically unlimited wants
Short-term goal – a goal that a person or organization plans to achieve in less than one year
Smart card – a plastic card, usually about the size of a credit card, which has been embedded with a microchip that manages
Adapted from: Financing Your Future. Council for Economic Education, 2017. DVD.