Financial Vocabulary Builder

-A-
Allowance - an amount of money parents give kids to help them learn to manage money. The
amount is usually given weekly. Sometimes an allowance is tied to completing
responsibilities — household chores or jobs for the family.
*His father gives him a monthly allowance of £200.

Annual Percentage Rate (APR) - the rate of interest (in terms of a percent, such as 8.75%)
being charged for a loan over a year's time. The APR rate includes interest, transaction fees,
and service fees.
*And people say that the APR is the most important piece of information about credit terms
for them.
*When the offer ends the rate is 12.9 APR.

Appreciate - to grow in value. Usually a term used in relation to investments: stocks,

collectibles, etc., which are now worth more than you paid for them.
(≠depreciate : to decrease in value or price * New cars depreciate in value quickly.)
*Our house has appreciated over 20% in the last two years.
*This property has appreciated rapidly during the last ten years.

Asset - any item of value that you own: house, land, gems, stocks, bonds, money in savings,
etc.
*a corporation with $9 billion in assets
*the value of a company's assets
*Star Banc is a bank holding company with about $ 9. 7 billion in assets.

ATM - These letters stand for Automatic Teller Machine. This is an electronic machine that
enables people to take care of Credit Union business 24 hours a day, 7 days a week. You can
deposit and withdraw money, pay loans, etc., at most ATMs.

-B-
Balance - 1) In talking about loans, the balance is the difference between the amount owed
and the amount paid. If you pay $45 on a $100 debt, your balance is $55. 2) In talking about
checkbooks, balancing means to account for all money that came into and went out of your
account, so that at the end of the month you and your Credit Union statement agree. 3) In
talking about savings, your balance is what is left in your savings account after you deposit or
withdraw money.
*My bank balance isn't good.
*The balance is due at the end of the month.
*The firm owns about 96% of the portfolio, with the balance belonging to our family.

Bankruptcy - a state of being in so much debt that you are legally declared unable to pay in
full the people and companies you owe. When you legally declare yourself bankrupt in some
states, you must sell off all your possessions and pay off your debts as best you can.

Blue Chip Stock - a name given to the stocks of major corporations, like IBM and General
Motors. The name is derived from the most highly valued poker chip, the blue chip.

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Bond - an IOU issued by a corporation or government that confirms you are lending the
corporation or government money. Bonds pay interest regularly to lenders. At the end of the
term of the bond, the borrower returns to the lender the face value of the bond (the amount the
lender invested in the bond).

Broker - a licensed professional who advises people about investments; also helps people buy
and sell stocks, bonds, mutual funds, etc. The broker earns a fee for this help, called a
commission, usually a percentage of the transaction.

Budget - a plan you create for controlling spending and encouraging saving.

-C-
Certificate of Deposit - a type of investment that requires you to invest money for a certain
length of time and guarantees the same rate of return (interest) for that entire time. CDs
usually require a minimum deposit.

Charge - to borrow money (from a store, service provider, or credit card company) to make a
purchase. If you do not pay the debt off in full within the card issuer's grace period (usually
25-28 days), you will pay interest on the amount you owe.

Check register - (sometimes called a check ledger). This booklet is usually kept in your
checkbook, and you use it to keep track of all the deposits, withdrawals, and checks you write.
After you write each in your register, you subtract or add the amount to your checking
account balance. If you keep your register up-to-date, you will always know how much
money you have in your checking account.

Collectibles - objects such as art, jewelry, baseball cards, and antiques that people buy in the
hope that the objects' value will increase.

Commodities - raw materials — such as oil, wheat, soybeans, pork, or gold -you buy. In
buying commodities you are hoping that the price will rise, so that you can sell the
commodity for a profit.

Compound Interest - interest on an investment, like a savings account, that is calculated not
only on the money you originally invested, but also on any interest the investment has already
earned.

Corporation - the most common form of organizing a business — the organization's total
worth is divided into shares of stock, and each share represents a unit of ownership and is sold
to stock holders. A corporation is considered a separate entity from the stockholders for legal
and tax purposes. Examples of corporations: Pepsi Cola, Intel, The Gap.

Credit - a loan that enables people to buy something now and to pay for it in the future.

Credit Limit - the highest amount you may charge on a credit card. Your limit is set by your
card company's opinion of your ability to handle debt.

Credit History - a record of your borrowing and paying habits. Credit reporting companies
track your history and supply this information to credit card companies, credit unions, and
other lenders.

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Credit Rating - Credit agencies are companies that keep track of how you pay your debts
(bills). Do you pay on time? Do you make the required payments? When you want to borrow
money from a Credit Union or apply for a credit card, the Credit Union or the credit card
company will ask a credit agency to rate you. Lenders want to know if you are a reliable bill
payer before they approve your loan or credit card.

-D-
Debit Card - This plastic card looks like a credit card, but it is used to withdraw money from
a savings or checking account. When you use a debit card at Automatic Teller Machines or in
stores to make purchases, money is immediately withdrawn from your account. You cannot
withdraw more money than you have in the account.

Debt - money or goods you owe.

Deposit - to put money into a Credit Union or investment account.

Diversify - to spread out the money you invest into different types of investments: bonds,
stocks, CDs, mutual funds, etc. The idea is to avoid putting all your eggs in one basket.
Different kinds of investments do well in different kinds of economic climates. Therefore, if
one of your investments drops in value, the other kinds of investments should hold or increase
their value.

Dividend - a payment made by a company to a stockholder to share in the company's profits.

Discount - to reduce from an original price or an item's full worth.

-E-
Earned Income - wages paid in exchange for work.

Entrepreneur - a person who assumes the risk to start a business with the idea of making a
profit.

Expenses - things you pay money for - both needs and wants.

-F-
Finance Charge - the fee you pay when you do not pay off the entire credit card debt within a
single payment period, usually about 25-28 days.

Fixed - not changing. Fixed interest rates never change during the time of the investment or
loan.

Fixed Expenses - expenses which stay basically the same from month to month, such as
housing and transportation.

-G-
Grace Period - the time, usually about 25-28 days, which you have to pay a bill or a loan in
full. If you pay within the grace period, you do not have to pay a finance charge.

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-I-
Income Tax - money that wage earners pay the government to run the country. The amount
of the tax depends upon how much you earn.

Insufficient Funds - a phrase that means you did not have enough money to cover an
expense. Usually checks that bounce are returned stamped with the phrase, "insufficient
funds." The amount of the check was larger than the balance in the checking account.

Insure - to protect yourself from loss. You pay premiums (payments) to an insurance
company who, in turn, agrees to pay for losses to your property (house, car, jewelry, etc.) or
your person (in case of injury). You can buy insurance that protects you even when you cause
a loss to other people. For example, you cause a car accident.

Insured Savings - accounts that are insured up to $100,000 by NCUA. Credit Union are
insured by NCUA or another insurance company, so your money in Credit Union accounts is
insured.

Interest - the amount paid by a borrower to a lender for the privilege of borrowing the
money.

Interest Rate - the price paid for the use of someone else's money expressed as an annual
percentage rate, such as 6.5%.

Invest - to put your money into CDs, money market accounts, mutual funds, savings
accounts, bonds, stocks or objects that you hope will grow in value and earn you more money.

-L-
Lien - a right given to a lender over a borrower's property or money when the borrower
cannot pay a debt.

Liquidity - - how quickly an asset (any item of value that you own) can be turned into cash.
In other words, you don't have to wait until a certain date or pay a penalty to withdraw your
money.

Loan - money or an object that is lent, usually with the understanding that the loan will be
paid back, usually with interest.

-M-
Minimum Payment - the smallest amount you are required to pay a lender each month on a
debt.

Money Market Account - a savings account offered by a Credit Union (or a mutual fund).
The account typically requires 1) a minimum deposit and 2) that you maintain a minimum
balance. The account invests in certificates of deposit and treasury bills and pays a rate of
interest that rises and falls with the economy.

Mutual Fund - a savings fund that uses cash from a pool of savers to buy a wide range of
securities, like stocks, bonds, and real estate. This is a way to diversify your investments

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because you own small units of each of the fund's investments. The fund is managed by
professionals and permits small amounts of money to be invested.

-O-
Opportunity Cost - the next best alternative that is given up when a choice is made.

-P-
Penny Stock - a nickname for extremely low priced stock, usually only a few dollars a share.
These stocks are considered highly speculative, which is another way of saying highly risky.
They are priced low because they have not yet proven themselves in the market.

Percentage - a way of measuring. The number 100 (which stands for the whole amount) is
usually divided into 100 smaller, but equal, parts, each called a percent. So a percentage
usually refers to a certain number of parts within the whole. Therefore, 6% is 6 units out of
100% (the whole). If you have invested $100, and you earn 8% interest on the money, you
will earn 8 parts of the whole, or $8. A percentage explains a number in relation to the whole.

Profit - the money you've earned after you subtract a) any money you had to spend to make
the product or perform the service. B) any taxes that had to be paid on your earnings.

-R-
Rate of Compounding - When an account compounds interest (figuring interest on interest
already earned) it does so regularly. Compounding can take place annually, semi-annually,
quarterly, monthly, or daily. The more often interest is compounded the faster your money
will grow.

Real Estate - property in the form of land or buildings.

Return - the amount of money a saver receives from a savings account or fund. The return is
usually talked about as a percentage, such as "This account returns 7.37%."

Risk - the likelihood that you will lose money on an investment.

Rule of 72 - math formula that determines the number of years needed to double your money
at a given interest rate. Here's how it works: you divide 72 by the interest rate. Therefore,
money invested at 10% interest rate will double in 7.2 years.

-S-
Save - hanging onto your money for a future use instead of spending it. Saving is the opposite
of spending.

Savings Account - a Credit Union account that pays you interest for keeping your savings in
it. Credit Unions use your money to make loans, so they pay you interest for the use of your
money. Your savings is insured up to $100,000 by the FDIC, so you don't have to worry about
borrowers taking your money and not paying it back.

Scarcity - a lack of something, like money, natural resources, etc. Scarcity forces you to make
choices about how you use or treat whatever is scarce.

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Share - a unit of ownership in an investment or a company.

Shareholder - someone who owns stock in a company.

Social Security Tax - a tax used to fund a program of the US government that gives money to
elderly people. The elderly receive funds because the federal government has deducted money
from each of their paychecks during the course of their working lives. The money taken out of
their paychecks has been deposited into the Social Security fund. Employers, too, deposited
money to this fund on behalf of each employee. When people reach a certain age, they
become eligible to receive Social Security payments. The government mails checks each
month. These payments help the elderly live, now that they are no longer working full-time.
The money they receive is drawn out of the Social Security fund, where it has been earning
interest for many years.

Sole Proprietor - a business owned by a single person.

Splitting - to divide stock in order to lower its price so that more people will invest in it. In a
two-to-one split, 100 shares of $70 per-share stock become 200 shares of $35 per-share stock.
In a three-to-one split, 90 shares at $60 a share become 270 shares at $30 a share.

Standard of Living - the level of material well-being of an individual or group.

Stock - a certificate representing a share of ownership in a company.

Stock Market - an organized way for 1) people to buy and sell stocks and 2) corporations to
raise money. There are three widely known stock exchanges: The New York Stock Exchange,
the American Stock Exchange, and the National Association of Securities Dealers Automated
Quotation System (you hear it called NASDAQ on the news).

-U-
Unearned Income - money you make that is not the result of your labor, such as interest from
a savings account or other kind of investment.

U.S. Bond - a kind of investment in which you lend money to the government for a certain
amount of time and at a certain interest rate. You are paid interest according to the terms of
your bond. At the end of the agreed-on time, the borrower (the government) returns to you the
amount you originally lent.

-V-
Variable Expenses - kinds of spending that can be controlled and typically change from
month to month. For example, groceries can be a variable expense. You can choose to buy
expensive food, (steak, lobster, lamb chops, or shrimp) or inexpensive food (chicken legs,
turkey, hamburger). With variable expenses, you have choices.

-W-
Withdraw - to take money out of an account.