FINANCIAL LITERACY VOCABULARY

Transcription

1 FINANCIAL LITERACY VOCABULARY 401K - a type of retirement savings account in the United States which takes its name from subsection401(k) of the Internal Revenue Code. A contributor can begin to withdraw funds after reaching the age of 59 1/2 years. 401(k)s were first widely adopted as retirement plans for American workers, beginning in the 1980s. The 401(k) emerged as an alternative to the traditional retirement pension, which was paid by employers. Employer contributions with the 401(k) can vary, but in general the 401(k) had the effect of shifting the burden for retirement savings to workers themselves. - A - Advertising - To make something known generally or in public, especially in order to sell it. Affinity Fraud - A scam that targets members of a certain demographic. Amortization - Payment of a portion of the principle of a mortgage loan, reducing or amortizing the mortgage amount. Annual Percentage Rate (APR) - The total annual percentage amount it will cost a person to use credit. Annual Report - Audited document required by the SEC and sent to a public company s or mutual fund's shareholders at the end of each fiscal year, reporting the financial results for the year (including the balance sheet, income statement, cash flow statement and description of company operations) and commenting on the outlook for the future. ARM - A mortgage on which the interest rate can move up and down on a periodic basis. Asset - Any items of value that people own, including cash, property, personal possessions, and investments. Automobile Insurance - Insurance purchased for cars, trucks, and other road vehicles. Its primary use is to provide protection against physical damage and/or bodily injury resulting from traffic collisions and against liability that could also arise therefrom. - B - Bait and Switch - Baiting consumers with an advertised but nonexistent bargains and then switching them to a more expensive product. Bank - An institution that handles savings and checking accounts, issues loans and credit, and deals in government and corporate issued securities. Bankruptcy - A legal process to get out of debt when you can no longer make all your required payment.

2 Beneficiary - The person designated to receive the benefits of the policy upon the death of another individual. Benefit - Something the company offers besides a paycheck. Better Business Bureau (BBB) - A nonprofit, business-sponsored agency with local offices dedicated to educating consumers, helping to resolve disputes, and promoting honest business practices. ( Bond - A certificate of debt that is issued by a government or corporation in order to raise money with a promise to pay a specified sum of money at a fixed time in the future and carrying interest at a fixed rate. Borrowing - Obtaining funds from a lender. Bounced Checks - A check that a bank returns because it is not payable due to insufficient funds - also called rubber check. Broker - An individual or firm who acts as an intermediary between a buyer and seller, usually charging a commission. For securities and most other products, a license is required. Budget - A plan for spending and saving money based on a person s goals during a given time period. (See Spending Plan) Bureau of Consumer Protection - A federal agency (a division of the FTC) that provides state and local consumer protection to help answer consumer problems and enforce consumer protection and fraud laws. Business Plan - A written document that outlines measures and actions to define where you want to go and how you will get there. Buy and Hold - An investment strategy in which stocks are bought and then held for a long period, regardless of the market's fluctuations. Buying on Margin - A risky technique involving the purchase of securities with borrowed money, using the shares themselves as collateral. - C - Cafeteria-Style Benefits - Allows workers to choose the benefits that best meet their personal needs. Career - A life-work chosen by a person to use personal talent, provide some service or goods, earn money, and contribute to society. Career Plan - Outlines the steps you need to take to reach your career goal. Catastrophic Health Insurance - Often included in major medical insurance policies. It covers the costs of intensive care, heart surgery, or long illness.

3 Certificate of Deposit (CD) - A savings alternative in which money is left on a stated time period (ranging from a month to five or more years) to earn a specific rate of return. Charitable Giving - A gift made by an individual or an organization to a nonprofit organization, charity or private foundation. Charitable donations are commonly in the form of cash, but can also take the form of real estate, motor vehicles, clothing and other assets or services. Checking account - A transaction deposit account at a financial institution that that allows consumers to make deposit and withdrawals. Money that is in a checking account is very liquid, meaning it can be easily accessed. It can be withdrawn using checks, automated cash machines and electronic debits. Claim - A formal request made to an insurance company for payment for a loss. Closing Costs - Fees and charges for which a seller and buyer are responsible when a real estate transaction is completed; also known as settlement costs. Collateral - A form of security to help guarantee that a creditor will be repaid. Collectibles - An item which has value due to its rarity and desirability, such as coins. Collision Insurance - Will cover the cost of repairing your car if it is damaged in an accident with another vehicle. Compound Interest - Interest which is calculated not only on the initial principal but also the accumulated interest of prior periods. Comprehensive Insurance - Covers your car if it is damaged by fire, flood, earthquake, hurricane, hail or collision with an animal. It also covers losses if your car is stolen. Consequence - An often bad or inconvenient result of a particular action or situation. Consumer - A person who purchases and uses goods or services. Consumer Bill of Rights - State of the Union Address of 1962-President John F. Kennedy The right to safety - protection against the sale of products that are dangerous to life or health. The right to choose - protection against practices that result in noncompetitive prices for goods and services available. The right to be informed - protection against false and misleading advertising. The right to be heard - guarantee of consumer representation in the deciding of government policy and enforcement of consumer protection laws. Consumer Product Safety Commission (CPSC) - A federal agency that which sets and enforces safety standards household appliances, toys, and tools. ( Consumer Protection Laws - Laws designed to ensure fair trade competition and the free flow of truthful information in the marketplace. The laws are designed to prevent businesses that engage in fraud or specified unfair practices from gaining an advantage over competitors and may provide additional protection for the weak and those unable to take care of themselves. Contract - An agreement between two or more people that can be enforced by law.

4 Co-signer - Agreeing to be responsible for loan payments if the borrower fails to make them. Cost of Living - Cost of food, transportation, housing, and other expenses. Credit - An arrangement to receive cash, goods, or services now and pay for them in the future. Credit Bureau - Company that collects information about your credit history and sells it to lenders. (Equifax ( Trans Union ( Experian ( Credit Card - A plastic card that can be used by the holder to make purchases or obtain cash advances using a line of credit made available by the card-issuing financial institution. Credit Rating - A measure of a person s ability and willingness to make credit payments on time. Credit Report - A record that lists all past and present debts and the timeliness of their repayment; it documents an individual's credit history. Credit Score - A number, generally between 300 and 800, that reflects the credit history shown in a borrower's credit report. This score is considered predictive of the borrower's future credit performance. Credit Union - A cooperative financial institution, chartered by a state or federal government, which is member-owned. Credit Unions serve groups that share something in common, such as where they work, live, or go to church. Credit Worthiness - This is determined before you are given the option to buy or get credit. The guidelines used to determine your credit worthiness are character, capacity, and capital. Character - is established by your conduct and living habits. Capacity - is your ability to earn enough income to repay. Capital - is what you own. It includes savings, investments, and property. Creditor - An entity (bank, finance company credit union, business, or individual) to which money is owed. Culture - The way of life, especially the general customs and beliefs, of a particular group of people at a particular time. - D - Debt - The entire amount of money a person owes to lenders. Debt Collectors - Businesses that collect debts for creditors. Decision-Making - The process of considering and analyzing information in order to make a choice. Deductable - Regarding insurance policies: A set amount an insured person must pay per loss before the insurance company will pay a claim.

5 Default - Failure to repay a loan in accordance with the terms of the promissory note. Deficiency Clause - A creditor can repossess, or take back, and resell goods. Delayed Payment - To make a payment at a later time than originally planned or expected. Demand - The amount of goods and services people are willing to buy. Depository Institution - A business that offers financial services to people. Disability Income Health Insurance - Protects a person or family from loss of income due to illness or disabling injury. It Guarantees the continuation or a portion of the wage earner s salary during the time he/she is unable to work. Discount Broker - Full-service broker who charges less than the prevailing commission rates in his or her community. Diversification - The process of spreading one s assets among several different types of investments in order to reduce risk. Dollar Cost Averaging - An investment strategy in which securities (typically mutual funds) are purchased in fixed dollar amounts at regular intervals -- regardless of how the market is performing. - E - Economic Conditions - Consumer prices (inflation), consumer spending, and interest rates. Economic Reasoning - Making decisions by comparing costs and benefits. Economy - Consists of the ways in which people make, distribute, and use their goods and services. Entrepreneur - One who organizes, manages, and assumes the risks of a business or enterprise. Escrow Account - An account usually set up by a mortgagee for a purpose of collecting and paying property taxes and insurance on the property. Estate - All that a person owns, less debts owed, at the time of death. Estate Planning - Preparing a plan for transferring property during one s lifetime and at one s death. Exemption - A tax break received because of particular circumstances. Expenses - Any money a person spends or gives away. - F -

6 FDIC - Federal Deposit Insurance Corporation A federal agency that insures deposits in member banks up to $250,000 Federal Citizen Information Center (FCIA) - Assists federal agencies in the development, promotion, and distribution of practical consumer publications. ( Federal Trade Commission (FTC) - A federal agency that protects consumers against false advertising, illegal sales schemes, and unfair trade practices. ( Finance Charge - The total dollar amount a person pays to use credit. Financial Goals - A statement of something a person wants or needs to do that pertains to finances and/or money. Common reasons for setting financial goals are: saving for a comfortable retirement, saving for college, and managing finances to enable a home purchase. Financial goals should be Specific, Measurable, Attainable, Realistic, and Time-bound (SMART). Financial Planner - A specialist who is trained to offer specific financial help and advice. Financial Planning - A blueprint or plan for managing all aspects of a person s money. Financial Services - Programs that offer aid with money management. Fiscal Policy - Changes in the expenditures or tax revenues of the federal government, undertaken to promote full employment, price stability and reasonable rates of economic growth. Fixed Expense - Expenses that are the exact amount every time. Food and Drug Administration (FDA) - A federal agency that sets and enforces safety standards for food, drugs, and cosmetics. ( Fraud - A deliberate deception, designed to secure unfair or unlawful gain. Full-service Broker - A brokerage which, in addition to executing trades for its clients, also provides them with research and advice. - G - Gambling - Any behavior that involves the risking of money or valuables on the outcome of a game, contest, or other event. This event or game may be in part or totally dependent upon chance. Garnishment - A court order to an employer to withhold some of an employee s wages; that money must be sent to the court to pay someone who has won a lawsuit against the employee. Goals - A statement of something a person wants or needs to do. Good - A physical object that is produced and can be weighed or measured. Grace Period - The time between the billing date and the payment due date when no interest is charged. Gross Earnings - An individual's taxable income before any appropriate adjustments are made.

7 Gross Income - Total income amount of income from wages or salary before payroll deductions. Group Health Insurance - This is usually less expensive than individual policies. The employer pays a share of the cost and sometimes all of it. - H - Hard Assets - Hard assets often refer to items such as buildings, cash or other fungible assets. Hard assets are considered particularly valuable because they can be used to produce or purchase other goods or services. Health Insurance - Insurance against loss due to ill health. Homeowner's Insurance - A form of insurance that protects the insured property against loss from theft, liability and most common disasters. Human Capital - The set of skills which an employee acquires on the job, through training and experience, and which increase that employee's value in the marketplace. - I - Identity Theft - Someone wrongfully acquires and uses a consumer s personal identification, credit, or account information. Impulse Buying - Purchasing items on the spur of the moment. Income - Money that a person receives; such as a paycheck from a job, an allowance from parents (inheritance), or interest earned on a savings account. Income Tax - The government s leading source of revenue (money). Inflation - The general rise in the level of prices for goods and services over time. Installment Loans - A loan in which the amount of payment and the number of payments are predetermined, such as an automobile loan. Insurance - A method for spreading individual risk among a large group of people to make losses more affordable for all. Insurance Policy - Insurance contract. Insurance Rates - Rates are based on risk. Risk is the chance of losing something. An insurance company has greater risk when there is a greater chance of an accident. The greater the risk to an insurance company, the higher the rated it charges. Rating Territories - Higher in cities, lower in rural areas.

8 Driver classification - Age, sex, marital status, how much you drive, and your driving record are considered in setting rates. Age and type of car - Higher for cars that are more expensive to repair. Rates are higher for sports cars than for sedans. Coverage - The greater the coverage the higher the rate. Interest - The amount paid for the use of borrowed money. Interest Rate - The cost of borrowing money, expressed as a percentage, usually over a period of one year. Investing - An item of value purchased for income or capital appreciation. Investment - The use of savings to earn a financial return. Investment Advisor - Someone who advises others how to invest their money. Investment Broker - Investment brokers are individuals who bring together buyers and sellers of investments. They need a license to operate. They act on behalf of buyers and sellers of stock. They charge a commission on trades. Investment Vehicles Types of investments such as stocks, bonds, real estate, and hard assets. IRA - Individual Retirement Account A tax-deferred retirement account for an individual that permits individuals to set aside money each year, with earnings tax-deferred until withdeawals beginat age 59 ½ or later (or earlier, with a 10% penalty). - L - Late Fees - The fees that credit-card companies charge when you pay your bill past the due date. Leave - A period of time away from your job, sometimes paid for. Lender - An organization or person that lends money to borrowers. Liability Insurance - Protects you whether you are driving or someone else is driving your car with your permission. Life Insurance - A form of insurance on the life of a person. If the person dies then the insurance policy pays out a sum of money to the policyholder (such as a person's family). Life Style - The way a person chooses to spend his or her time and money. Liquidity - The ability to easily convert financial resources into cash without a loss of value. Living Trust - Transfer some property to a trustee, giving him/her instructions regarding it management and disposition while you are alive and after your death. Loan - A sum of money given to an individual with the intent that it is to be repaid at some future date along with any agreed upon interest.

9 Loan Agency - An agency that offers loans. Long Term Disability Insurance - A disability insurance designed to offer income payments for long-term injuries, illnesses or disabilities. Long- term if often considered over 90 days. - M - Major Medical Insurance - This covers many out-of-hospital costs. It may also extend your basic policy and any additional days of hospital care. Marketing - To make goods available to buyers in a planned way which encourages people to buy more of them. Monetary Policy - Changes in the supply of money and the availability of credit initiated by a nation's central bank to promote price stability, full employment and reasonable rates of economic growth. Money Management - How a person manages money coming in and going out. Money Market - A savings account in which the interest rate varies as market rates change. Monopoly - A company that has an unfair advantage over competitors in an area of business. Mortgage - An agreement that a borrower gives a lender in return for the lender giving a loan for the purpose of buying property. Mutual Fund - An open-ended fund operated by an investment company which raises money from shareholders and invests in a group of assets, in accordance with a stated set of objectives. Need The essentials or basics of life. - N - Needs - The essentials or basics of life. Net Income - The amount of a paycheck that a person can actually spend; gross income less any payroll deductions. No-Fault Insurance - The driver's own insurance company pays for accident costs no matter who caused the accident. - O -

10 Online Broker - Many broking firms offer an online trading platform that allows customers to control their orders with the click of a mouse. The fees are usually a fraction of the full service brokers. Online Commerce - Involves multiple transactions or the transfer of payment information across a secure Internet connection in exchange for goods and services. Opportunity Cost - The value of what is given up when a person chooses one option over another. Outstanding Check - A check that has been written but that has not cleared the bank. - P - Payday Loans - A loan or advance that is put into your bank account or provided as cash in a short time period, usually within a day. At the end of the loan term, the cash borrowed as a payday loan will be withdrawn from the borrower's bank account. Payment Methods - A means for accepting payment. The most common are credit card, electronic check, phone charge, corporate account, and invoice. Payment Penalty - A penalty assessed because of paying off a loan or a payment too late. Believe it or not, sometimes there are PRE-payment penalties assessed for paying off a loan TOO EARLY!! Payroll Deductions - Amounts subtracted from gross income that is withheld by an employer for items like taxes and employee benefits. Peer Pressure - The strong influence of a group on members of that group to behave as everyone else does. Pension Plan - Retirement plan that is funded at least in part by an employer. Permanent Life Insurance - Life insurance that provides a death benefit plus a savings plan and lasts for the policy holder s lifetime. Personal Financial Planning - Spending, saving, and investing money so a person can have the kind of life desired as well as financial security. Phishing - An scam that attempts to trick consumers into revealing personal information or use to "fish" the Internet hoping to hook people into giving their passwords and/or credit card information. Points - A mortgage term that refers to the fee a lender charges the borrower for lending money. Ponzi Scheme - Is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays

11 requires an ever-increasing flow of money from investors to keep the scheme going. The scheme is named after Charles Ponzi who became notorious for using the technique in early Predatory Lending - A type of lending that falls between appropriate risk-based pricing and blatant fraud. An example would be a broker who writes loans for people who they know cannot afford the repayments, expecting them to default but going through the transaction for the sake of their commission. Premium - The amount of money you pay for your insurance. Pretexting - The practice of getting your personal information under false pretenses and selling your information to people who may use it to get credit in your name, steal your assets, or to investigate or sue you. Probate - A court supervised process of paying your debts and distributing your property to your heirs upon your death. Productivity - The ratio of the quantity and quality of units produced to the labor per unit of time. Promissory Note - The legal and binding contract signed between the lender and the borrower who states that the borrower will repay the loan as agreed upon in the terms of the contract. Prospectus - A document that discloses information about a company s earnings, it s assets and liabilities, it s products or services, and the qualifications of it s management. A report that provides potential investors with detailed information about a particular mutual fund. PYF (Pay Yourself First) - A popular phrase used to describe what people should do to stay on track with saving money. Basically meaning that the first deposit out of a person's paycheck should be into a savings account or retirement account. Pyramid Schemes - A type of financial fraud in which people pay to join an organization in exchange for the right to sell memberships to others. - R - Real Estate - A piece of land, including the air above it and the ground below it, and any buildings or structures on it. Reconcile - To check a financial account against another for accuracy. Regulatory Pyramid - The U.S. securities regulates itself in a careful and through manner. The market protects and maintains its integrity through the combined efforts of four basic groups. Together these roups form what the industry refers to as the Regulatory Pyramid. Renter's Insurance - A form of insurance that protects the insured renter to protect personal items against theft or damage. Although a landlord will likely have insurance, that insurance will only cover the building of the apartment and not the personal items in the apartment. Repossess - Forced or voluntary surrender of merchandise as a result of a consumer's failure to repay a loan as promised.

12 Retirement - The age at which you stop working full time. Retirement Planning - Act of creating a financial plan for life after retirement from compensated work. Return - The annual return on an investment, expressed as a percentage of the total amount invested. Revolving Credit - A type of credit that does NOT have a fixed number of payments, such as a credit card. Risk - A situation in which some kind of loss is possible. Risk Management - Procedures to minimize the adverse effect of a possible financial loss by: 1) identifying potential sources of loss; 2) measuring the financial consequences of a loss occurring; and 3) using controls to minimize actual losses or their financial consequences. Risk-return - The relation between risk and return in which one must be willing to accept greater risk if one wants to pursue greater returns. Roth IRA - A type of IRA, established in the Taxpayer Relief Act of 1997, which allows taxpayers, subject to certain income limits, to save for retirement while allowing the savings to grow tax-free. Rule of 72 - Formula used to determine how long it takes for money to double in value. - S - Sales Strategies - A way of talking that is intended to persuade people to buy something. Savings - The part of a person's income that is not spent. Savings Account - A deposit at a bank or savings and loan that pays interest, but cannot be withdrawn in check writing. Scam - Fraudulent or deceptive schemes. Scarcity - When something is not easy to find or obtain. Security Exchange Commission (SEC) - Securities and Exchange Commission. The primary federal regulatory agency for the securities industry, whose responsibility is to promote full disclosure and to protect investors against fraudulent and manipulative practices in the securities markets. Service - A task that a person or machine performs. Service Credit - A member's earned service, prior service, and purchased service. Short Selling - Borrowing a security from a broker and selling it with the understanding that it must later be bought back, hopefully at a lower price, and returned to the broker. Simple Interest - The interest calculated on a principal sum, not compounded on earned interest.

13 Skimming - The theft of credit card information used in an otherwise legitimate transaction. Small Claims Court - A simple, inexpensive way to settle minor differences involving small amount of money. Social Security - The comprehensive federal program of benefits providing workers and their dependents with retirement income, disability income, and other payments. The Social security tax is used to pay for the program. Spending Plan - A tool used to record and track projected and actual income and expenses over a period of time. (See Budget) Standard of Living - A measure of quality of life based on the amounts and kinds of goods and services a person can buy. Stock - An instrument that signifies an ownership position (called equity) in a corporation, and represents a claim on its proportional share in the corporation's assets and profits. Student Loans - Student loans are loans offered to students to assist in payment of the costs of professional education. These loans usually charger lower interest than other loans, and are also usually issued by the government. A student loan allows a person to finance their education and defer payments until after graduation. Supply - The amount of goods and services available for sale. - T - Tax Sheltered Annuity (TSA) - A contract sold by an insurance company designed to provide payments to the holder at specified intervals, usually after retirement. Taxes - A contribution made by people to fund the services provided by the government, such as transport, education or health services. The most common tax is income tax, which is a contribution made from income. The amount is usually a percentage of income that is determined by the amount of income earned. Term Life Insurance - Life insurance that pays a death benefit if the policyholder dies within a specific time period but has no remaining value at the end of this time. Time Value of Money - The increase in an amount of money as a result of dividends or interest earned. The idea that a dollar now is worth more than dollar in the future, even after adjusting for inflation, because a dollar now can earn interest or other appreciation until the time the dollar in the future would be received. Tradeoffs - A choice that involves giving up some of one thing to have more of another. Ex: In the morning my cousin spends a lot of time putting on make-up, she doesn't have enough time to eat breakfast because she has to go to school. The time she could spend on her nutrition is being given up.

14 Treasury Bill (T-Bill) - A negotiable debt obligation issued by the U.S. government and backed by its full faith and credit, having a maturity of one year or less. Exempt from state and local taxes. Trust - A legal document in which an individual (trustor) gives someone else control of someone else (trustee) control of property, for ultimate distribution to another person (beneficiary). Types of Taxes - Two main types are Social Security and income taxes. - U - Underinsured - A person who carries insufficient insurance to pay for losses he/she is liable for. Uninsured Motorist Insurance - Will cover you and your immediate family against injury by a hitand-run driver or a driver who has no insurance. Uses of Taxation - To pay for the growing demand for services and needs of the government (military, police, roads, public servants, schools, social services). - V - Values - The beliefs and principles a person considers important, correct, and desirable. Variable Expense - Expenses that fluctuate. - W - Wage - A fixed amount of money paid to an employee for each pay period. Wants - Items, activities, or services that increase the quality of life. Warranty - A company's promise that its product will meet specific standards over a given time period or replace or refund. Full Warranty: A written promise that the company will repair or replace a defective or dissatisfied product at no charge. Limited Warranty: May require the consumer to pay labor or handling charges. Implied Warranty of Merchantability: The product is what it is called and does what its name implies. Implied Warranty of Fitness: The product is fit for any performance or purpose promised by the seller.

15 Whole Life Insurance - Insurance on the life of the insured for a fixed amount at a definite premium that is paid each year in the same amount during the entire lifetime of the insured. Will - A legal document that tells how the decedent wishes his/her property to be distributed upon death. The Finance in the Classroom