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Financial Literacy Glossary

February 9, 2021 2:43 pm0 commentsViews: 491



This is where a product, or the benefits of a service, are announced to the public. Usually, advertising is paid for. Advertisements encourage purchases.

Annual Percentage Rate (APR)

This is the percentage that credit costs each year. The law states that this must be disclosed to those obtaining credit.

Annual Percentage Yield (APY)

The percentage rate of return per year on a certain investment. This must be disclosed as required by law. The APY varies depending on the compounding frequency.


Assets are items that have a certain economic value that are owned by an individual or an organization. Assets can be real estate, stocks, business equipment, or personal property.

Automated Teller Machine (ATM)

A computer terminal through which someone can conduct business with a bank or other financial institution, or a method to purchase items, such as transportation tickets or stamps. An ATM is often referred to as a cash machine.



A for-profit financial organization that is chartered either by the state or federal government. Banks offer consumer and commercial loans, as well as various other financial services.


Bankruptcy happens when an individual or business is released from all financial obligations to repay debt. In return, the entity is forced to lose certain assets. The court will determine personal bankruptcy and this will remain on the credit record of that person for 10 years.

Bankruptcy Abuse Prevention and Consumer Protection Act

This Act revised the bankruptcy law so that the system would be fairer for debtors and creditors alike. It ensures more affordable credit is available to people overall.


The organization or person that has been legally named to receive the assets of an individual after passing away.


A certificate that represents the agreement made by a purchaser to lend money to the government or a business, which is the one issuing the bond, under the promise that the money will be repaid to the bond holder at a specific time, with interest.


A plan that records and plans spending in comparison to actual or projected income and expenses over a set period of time.

Business Plan

A document that describes the organizational structure of a business, including its activities, staff and financial and marketing plans. A business plan includes expected expenses and sources of income.


Capital Gain

Capital gain is a form of income that is obtained when the selling price of a certain asset is higher than the price that was originally paid for it.

Capital Loss

The financial loss that is incurred when the selling price of a certain asset is lower than the price that was previously used to buy it.


A field of employment or profession for which someone is trained or has studied. Examples include medicine or financial services.

Cash Flow Statement

A statement that shows payments or receipts over a set period of time. This is useful when creating a budget. A cash flow statement is also often referred to as an income and expenses statement.

Charitable Gift

A donation that is given to charities to help those in need. An income tax deduction for the giver is usually allowed by the government.

Closed-End Credit

This is a type of loan that is issued for a specific purpose. It requires payments, including interest and other potential charges, at a set date. A mortgage is an example of closed-end credit.


Collateral is a piece of property that is offered by a borrower in return for a loan. If the borrower does not repay the loan, the lender will own the collateral.


Physical property, such as stamps, art or antique, that are purchased by an investor in the hope that their value will grow over time.

Collection Agency

A business that attempts to obtain payments from people who have defaulted on loans or other bills.

Comparison Shopping

Finding information about services or products in order to receive the best value for money.


The benefits and payments for work that has been done. It can also refer to payments received following an injury or other situation that caused physical, financial or emotional loss.


An expression of dissatisfaction relating to a service, product or person. Usually, complaints take on a written form and are sent to the service provider or product manufacturer or seller. It documents what the perceived problem is and outlines the solution the complainer would like to see.


The accumulation of interest charges whereby the interest is calculated based on a certain percentage of the principal amount plus earned interests.


An agreement between two parties that is legally binding.


Credit is an agreement to provide money, services or goods in exchange for payments in the future, which will include interests that are usually compounded. Payments are made according to a specific schedule on specific dates. It also refers to using money that belongs to someone else.

Credit Card

This is a plastic card that is used to authorize the provision of services or goods to the holder who promises to pay for them in the future. The owner of the credit card then repays the money owed plus interests, with a minimum amount required to be paid each month.

Credit Counseling Service

An organization, usually non-profit, that provides people advice on debt and money management. They also give help to people who are experiencing debt problems.

Credit Report

A file kept on individuals that shows their credit history, including what type of credit they have and in what amount, how much is outstanding, whether they have missed any payments, have any tax liens, or have been declared bankrupt.

Credit Score

A number that is calculated based on the information contained on someone’s credit report. This number determines whether that person is worthy for future credit, representing the likelihood that he or she would actually repay what is owed.

Credit Union

A non-profit financial cooperative, state or federally charted, that provides financial services solely to its members. Members are also owners of the credit union. Requirements in terms of residence, employment or others are set before someone is able to access these financial services.


Someone who is creditworthy is a person who is presumed to have sufficient income and assets to be able to repay a loan.


Debit Card

A plastic card, just like a credit card, that provides people access to EFT (electronic funds transfer) through ATM terminals or POS (point of sale) terminals.


Something that somebody owes to someone else, usually measured in monetary value.


With regards to insurance, it is the dollar amount of uninsured loss. Different insurance policies have different deductibles. With regards to income tax, a deductible is the amount allowed by government to be subtracted from income to come up with the taxable income.


A situation when someone does not meet financial agreements or obligations.


Any person who is reliant on another person for financial, emotional or physical support.

Disposable Income

Money left from income after current taxes have been deducted.


An investment strategy that helps to lower the chances of losing money by choosing a variety of investments. The principle is that if one investment fails, the other investments are likely to counteract its effects.


Earnings distributed to holders of credit union shares or corporate stocks. Issuance of dividends has to be approved by the stockholders.

Dollar-Cost Averaging

An investment strategy whereby a fixed dollar amount is invested in the same investment at regular intervals, no matter what the stock price is at that particular time.


Earned Income

The earnings someone gets from employment, including tips, commissions and overtime pay.

Easy Access Credit

These are types of short term loans that are granted to people regardless of their credit history. Usually, these loans have higher interest rates compared to regular loans.

Electronic Funds Transfer (EFT)

When money is moved from one account in a financial institution to a different account, without anybody physically moving cash.

Emergency Fund

Money that is kept aside for unexpected and emergency expenses, including the cost of living after someone suddenly becomes unemployed.

Employee Benefit

Any type of compensation received by an employee on top of salary or wage. This includes life insurance, health insurance, subsidized meals, child care, and so on.

Employer Sponsored Retirement Savings Plan

These are various types of tax-deferred investment programs. The most popular is the 401(k) for corporate employees, as well as the Section 457 for employees of state and local government. Sometimes, these provide employer matching funds.


A person who establishes, conceives of and operates a business, thereby also assuming its risks.

Equal Credit Opportunity Act

This is a federal law that stops a lender from discriminating against someone applying for a loan based on race, gender, religion, marital status, age, national origin, or receipt of welfare and other forms of public assistance.


The stock ownership someone has in a corporation. Also the value of a piece of property against which no lien (such as mortgage or other type of finance) exists.


The debts and assets someone accumulates during his or her lifetime and are left after death.


The moral principles and beliefs that determine the actions of an individual.


The amount of money spent for goods and services, including fixed expenses (car payments and rent, for instance) and variable expenses (like clothing, food and entertainment).


Fair and Accurate Credit Transactions (FACT) Act

This is federal law that ensures consumers have different methods available to them to restore their credit reputation after their identity has been stolen. It also ensures that consumers are allowed to have one free copy of their credit report per year from each of the major credit agencies.

Fair Credit and Charge Card Disclosure Act

This is an element of the Truth in Lending Act. It demands that key features and costs have to be described clearly on a credit card application. These include grace period, APR, annual fees, balance calculations, and penalties.

Fair Credit Billing Act

Another federal law designed to deal with billing issues that people can experience with open end credit. For instance, it requires consumers to inform the creditor of any errors on a bill within 60 days of receiving it. It also stops creditors from placing negative markings against the credit rating of a consumer if a bill is being disputed.

Fair Credit Reporting Act

This federal law determines the type of debt repayment information that can be included on credit files. For instance, certain information must be removed after 7 or 10 years. It also ensures consumers are always able to find out information on their report, as well as allow them to dispute information and to add an explanation for each of the negative markings on their report.

Fair Debt Collection Practices Act

This law stops debt collectors from using deceptive, unfair or abusive practices. For instance, they cannot call consumers at their place of employment if they were asked not to.

Federal Insurance Contributions Act (FICA)

This is related to social security. The FICA enables the legislation that makes people pay social security automatically out of their pay.

Finance Charge

The total amount in dollars that a consumer has to pay in order to obtain credit.

Financial Adviser

An individual who provides financial advice and information. This includes employees at credit unions or banks, employee benefit experts, brokers, credit counselors, accountants, financial planners, attorneys, and insurance agents.

Financial Goals

What somebody hopes to achieve through financial activities. This relates to personal economic satisfaction.

Financial Literacy

The skills and knowledge an individual may have that help in the effective management  of financial resources, thereby achieving lifetime financial security.

Financial Plan

A written document that shows what an individual’s financial needs and goals are, including expected future earnings from investments, savings, debt management, insurance, and more. Usually, a financial plan also shows a statement of net worth.


Illegal and intentional deception, concealment of information and/or misrepresentation with the goal of achieving monetary gain.



A procedure sanctioned by the courts that sets a portion of someone’s salary aside automatically to meet a financial obligation, usually a debt.

Grace Period

The time a borrower has in which to pay the remaining balance without having to incur finance charges. A grace period can also apply to the time period in which someone can pay an insurance premium without being penalized.

Gross Pay

The amount of salary someone earns before taxes are deducted.


Identity Theft

A crime in which somebody uses someone else’s name, debit or credit card number, social security number, or any other type of personal information for the purpose of committing fraud.

Impulse Buying

When someone buys services or goods without thinking about needs or goals, or the potential consequences of the purchase.


All the money someone earns from employment, investments and other sources.


The amount in percentage of how much the price of services and goods rise. The opposite of inflation is deflation.


A tool for risk management that gives protection to an individual in case of certain types of losses. The terms of premium payments are agreed beforehand, which are described in a policy document. There are many types of insurance, with the most common being car, disability, health, homeowners, liability, life, long term care, and renters insurance.


The cost of borrowing money. It also refers to the earnings a financial services company makes from lending money.

Interest Income

Money that is paid by governments, financial institutions and corporations in order to allow them to use money from their investors.


Buying certain securities, like bonds, stocks or mutual funds, with the purpose of increasing overall wealth over time. Investing always carries the risk of losses.

Individual Retirement Account (IRA)

Retirement savings that are invested and have certain tax advantages. Paying into a traditional IRA means taxes on earnings are deferred until the IRA is withdrawn. In some cases, some contributions can be deducted from taxable income as well. A Roth IRA, however, requires contributions to be made after tax, but the withdrawals are tax free, so long as certain rules and requirements are met.



Where someone holds certain duties and is compensated in a certain way.



A contractual document that shows the terms associated with using a specific property, as well as the legal responsibilities both parties have in the agreement. The parties can be the landlord and the tenant, for instance.


The potential or actual financial obligation of a person or business.


A measurement of how easy an asset can be quickly converted into cash without losing its value. For instance, mutual funds have higher liquidity than real estate.

Living Will

A document that states the desires of the person who signed it for specific medical treatment if, at any point, that individual is no longer able to make certain medical decisions. It is also called the health care directive.

Loan Shark

An individual who charges exorbitant interest rates on any loan provided.



A state and federal government financed program through tax revenues, that enables people to pay for certain health care costs if they cannot otherwise afford them.


A federal government program that has been financed by automatic deductions from wages. It is designed to pay for the health care needs of the elderly. The program is managed by the Social Security Administration (SSA).


A long term loan that enables people to purchase real estate, which includes the land and structures that are placed on it.

Mutual Fund

This is a tool for investors that enables different shareholders to pool their money together so that they can invest, together, in a diverse portfolio that includes various securities like bonds, stocks and other money market assets.


Net Worth

The exact financial condition of an individual at a set time. It is equal to that person’s assets (what is owned) minus liabilities (what is owed).


Open End Credit

A credit agreement with a financial institution by which the holder can borrow various amounts for a non-determined time period until the credit limit is reached. The borrower can choose to pay back certain amounts before the payments are due. This is also known as a revolving line of credit. Credit cards are a common example of open end credit.

Opportunity Cost

Potential financial gain that is no longer available when another alternative is taken. Another word for opportunity cost is trade-off.



A credit business that provides high interest loans to people regardless of their credit rating. These loans are secured by a piece of personal property, like jewelry.

Payday Loan

Another type of easy access credit but this is not secured by a piece of property, but rather against the salary of the borrower. The loan amount and interest are repaid on the borrower’s next pay. Payday loans are illegal in some states, but most payday lenders avoid breaking the law by offering their services online.

Payment Method

The chosen way of making a payment on a financial obligation. This can be check, cash, debit card, credit card, automatic transfer, and so on.

Payroll Deduction

The amount of money that is withheld from an employee’s paycheck. There are a number of mandatory deductions, including taxes. And there are also possible voluntary deductions, such as charitable contributions, loan payments, and direct deposits into different types of financial accounts.

Peer Pressure

The influence exerted by the social group to which a particular person belongs to. Peer pressure is based on the fact that the individual seeks the approval of the group. This is frequently applied in financial circles, for instance, through someone’s desire to purchase a home in a certain neighborhood.

Pension Protection Act

A federal law that is in place to help strengthen the retirement security of employees. Additionally, it allows any employee to be automatically enrolled into a retirement savings plan set up by their employer.

Personal Finance

The methods and principles used by people so that they can get and manage assets and income.


Someone who voluntarily contributes to the welfare of others. Philanthropists tend to be very wealthy people.

Point of Sale (POS)

The geographical location where a financial transaction takes place. There is also POS software, through which sales and inventory can be tracked, as well as documentation customer information.


The collection of securities (bonds, stocks, mutual funds, real estate, etc.) owned by an individual investor.


A loan principal is the amount of money that is actually owed, without counting the interest charges. This may change as it becomes the outstanding loan balance, without interest. It can also refer to the amount of money that somebody originally invested, without  interests or dividends.


The right that somebody has to keep personal information from being known by others.

Probate Court

The court that has jurisdiction over the will and estate of a person who is deceased.


The financial result achieved by a business when total revenue exceeds total expenses. It is calculated as total revenue minus total expenses.


A legal document in which full information is provided in relation to stocks, mutual funds, bonds and various other types of investments that people can buy. This is required by the Securities and Exchange Commission (SEC).


Rate of Return

The rate of return is the annual earnings or losses for a particular investment. It is expressed as a percentage compared to the original invested amount.

Record Keeping

The process of keeping a documented account of a person’s financial affairs. This includes taxes paid, income earned, loans, household expenditures, legal documents and insurance policies.


The fee paid periodically in return for being allowed to use a certain property.


A system whereby a person intends to purchase a property without making a deposit (sometimes a very small amount of deposit is required) by renting the property until after the final payment. At this point, the total price that has been paid will be far higher than the original purchase price.


Where collateral is confiscated, generally without notice, because a borrower has defaulted on payments.


A measurement of the possibility of experiencing loss for a particular investment. It also indicates the uncertainty in the rate of return of an investment.

Risk Management

Certain methods are used to counteract or minimize the possibility of suffering a loss. Common risk management strategies are diversification and insurance.

Rule of 72

A method of estimating the number of years that it would take for an investment to double in value based on the interest rate. It is obtained simply by dividing 72 by the percentage of interest. For example, if the interest is 10 percent, divide 72 by 10 and you get 7.2 years.



A deceptive or fraudulent act used for financial gain.


The amount of compensation someone receives in return for work done expressed as an annual sum but paid periodically. Most salaries are paid weekly, bi-weekly or monthly.


Money that is set aside from income to be spent at a later stage. It ensures people have money available for emergencies, to reach their short term goals, or to invest for long term goals.

Savings Account

An account with a financial institution in which savings can be deposited. Interest is paid on these savings. Some accounts allow withdrawals, while others do not.

Savings Bond

A document that outlines a loan of longer than a year that is provided to the government by the bond holder. This loan will be repaid in full, including interests, on a specific data.

Savings & Loan Association (S&L)

This is a federal or state chartered financial institution (for profit) that provides mortgage loans and pays dividends on deposits.


This can be a collateral for a loan. More commonly, however, it refers to the legal agreement in which an equity or debt obligation is recorded. The obligation comes from a government, corporation or other type of organization.

Simple Interest

This is the periodically calculated interest on the principal of a loan or investment only, not including previously earned interest.

Social Security

A program from the federal government that ensures benefits are provided at retirement, to survivors and the disabled. This is funded by payroll tax, which is paid by all workers. It appears as FICA on their pay stubs.

Spending Plan

The same as a budget.

Standard of Living

The degree of comfort that a household, individual or entire population has, measured by the number of services and goods consumed by that household, individual or population, often compared to national or state medians.


A type of investment that reflects a share of ownership of a corporation’s earnings and assets.

Stored Value Card

A plastic prepaid card that allows people to make purchases up to a certain amount. Once that amount is reached, the card is discarded. Some can be recharged, meaning further funds are placed on them.


Take Home Pay

The amount of money that a person actually receives as compensation for work rendered after adding bonuses and removing taxes, health care premiums, retirement savings and other deductions.


A fee that the government charges businesses and individuals on their products, activities and income.

Tax Credit

The amount of money that can be subtracted from tax due for those who meet specific criteria.

Tax Deduction

A certain expense that people can subtract from their overall taxable income. This includes mortgage interests, charitable gifts, and more.

Tax Deferral

When a taxpayer is allowed to delay the payment of taxes for a particular income for a certain period of time.

Tax Exemption

Certain earnings, such as municipal bond interests, over which certain taxes do not have to be paid.

Time Value of Money

The possibility that a certain amount of money will increase in value because of the potential compounded interest earnings.


Money paid on top of the actual bill for a certain service. Tips are usually given to show satisfaction, which is why they are also called gratuities. Tips also refer to a type of advice that is given on the stock exchange market.

Title Loan

A short term easy access loan with a high interest rate that is secured against the title deed of the borrower’s vehicle.

Transfer Payment

Money that is provided by the government to its citizens for reasons that do not include employment or the delivery of services and goods. Social security, welfare and veteran’s benefits are examples.


A legal setup in which a person transfers the title of a property to a trustee who is responsible for its management for the beneficiary.

Truth in Lending Act

A federal law that dictates all financial institutions fully disclose the information listed under their terms and conditions, such as cost of credit, APR and finance charges.

Truth in Savings Act

A federal law that dictates that all financial institutions must be fully transparent in terms of the information they provide on their terms and conditions, including APY.


Unearned Income

Income that is obtained outside of employment. This includes royalties and investment returns.



The beliefs an individual holds about the things that are desirable, important and worthwhile. These values often influence the decisions that person makes. An item’s value is how much it is worth in terms of dollars.


The amount of money someone receives for work rendered. Usually, this is calculated on piecework basis, or on daily or hourly rates. Usually, it is paid according to a certain schedule, just as a salary.


A guarantee, in writing, from a distributor or manufacturer, in which the terms and conditions are specified in terms of when a product can be returned, repaired or replaced.


The positive net worth or accumulated assets of a person.


Help that is provided to people in need, in the form of either money or other necessities. Most welfare are provided by government programs.


A legal document that declares what should happen to a person’s estate after he or she passes away.