A financial glossary for students

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In a Nutshell

Your student’s financial education starts with teaching them some simple concepts and terms about money and the economy. This glossary covers some of the most-important terms and links out to activities and lesson plans for kids.

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This article was edited and fact-checked by Credit Karma Director of Editorial Collin Brennan.

Fiscal responsibility is a vital life skill that all children should learn.

When children are raised with the knowledge of how to budget, earn and save money, they’re better prepared for the real world. This financial education starts with teaching them some simple terms about money and the economy. As you help your young students get a jump-start on their financial future, use this glossary of essential terms as a reference.


A

Asset

An item or resource with economic value that is owned or controlled by an individual, corporation, association, estate or country. Examples of assets include stocks, real estate, equipment and property that is expected to provide future benefits.

Annual percentage rate (APR)

Your interest rate (and any applicable fees) stated as a yearly rate. An APR can give you a good idea of how much you’ll pay to take out a loan, or how much interest you’ll pay on credit card purchases if you don’t pay off your full statement balance by the monthly due date.

Annual percentage yield (APY)

APY is the annual rate of return earned on a savings deposit or investment. APY takes compounding interest into effect when it’s calculated, and that’s why the account balance and the interest paid on the balance get bigger every period. Depending on your bank, your interest may compound at different time periods — daily or monthly, for example.

B

Bank

An institution that offers financial products and services such as savings accounts, lines of credit, and commercial or consumer loans. Traditional banks provide financial products and services to customers primarily through a network of brick-and-mortar branches.

Bankruptcy

The process of being released from having to pay debt in exchange for being forced to lose certain assets. Bankruptcy can remain on a credit record for up to 10 years, and those who file for personal bankruptcy are often required to undertake credit counseling and learn about personal financial management before filing.

Barter

Exchanging goods or services for other goods and services from another party directly, without involving money.

Budget

A projected spending plan using your income and expenses.

C

Check

A slip of paper from the bank that provides a written order to pay money as instructed. A typical check includes the date, the name of the payee, the payment amount, the payer’s signature and an optional memo noting the reason for payment.

Checking account

A bank account with funds that are typically used for living expenses and other bills. Checking accounts typically pay little to no interest, though some high-interest checking accounts are an exception.

Compensation

Payment or benefits for completed work. It can also be payment to injured or unemployed workers or their dependents.

Compound interest

The addition of interest to the principal and previously earned interest of a loan or deposit.

Credit

The use of someone else’s money, typically involving a fee to do so. The creditor agrees to provide goods or services now in exchange for the borrower’s payments later, usually with interest that accumulates according to a set schedule.

Credit card

A small plastic or metal card issued by a financial institution. This card allows the holder to borrow money to purchase goods or services from the creditor, with the promise to pay it back at a later date with interest. With most credit cards, you can avoid paying interest on purchases if you pay off your full statement balance by the monthly due date.

D

Debit card

A small plastic or metal card issued by a financial institution. This card is typically linked to your checking account and can be used to make purchases or withdraw money from a point-of-sale, or POS, terminal or automated teller machine. When you use your debit card to buy something or withdraw money, money is deducted from your checking account.

Debt

Money or goods owed to another person or institution.

E

Economy

The system of how money is made, regulated and used within a country or region. The economy is connected to how many goods and services are produced and how much these goods and services cost.

F

Fraud

Intentionally deceptive action, misrepresentation or concealment of information for monetary gain.

G

Gross income

The total pay from an employer or other sources of income before taxes or deductions are taken out.

I

Inflation

The overall, ongoing increase in the price of goods and services in an economy over time.

Insurance

An arrangement in which a company or agency protects the purchaser from unexpected financial losses. Insurance can help manage the risk associated with damage to big purchases like a car or home. It can also financially protect the purchaser and their loved ones in the event of a death, injury or other health issue.

Interest

The cost of borrowing money. With credit cards and many types of loans, your interest rate is included in an annual percentage rate. But note that annual percentage rates can also include fees in addition to interest.

Interest rate

The amount or proportion of a loan that is charged as interest to the borrower.

L

Liability

A financial obligation that is potentially required by law.

Loan

Money or goods that are borrowed and are expected to be paid back, typically with interest.

M

Mortgage

A long-term loan used to buy or refinance real property, such as a home.

Mutual fund

A tool for investors that pools money from multiple shareholders to invest in a collection of stocks, bonds and money market funds. This collection is often called a “portfolio.”

N

Net worth

The measure of a person’s financial condition. This amount is equal to a person’s assets minus their liabilities.

O

Opportunity cost

The value of possible alternatives that are given up when a person makes one choice instead of another. This is also known as a trade-off.

P

Principal

The principal is an amount of money that is invested or borrowed. The principal is distinct from interest, which is the cost of borrowing the money.

Profit

The difference between the total revenue and total expenses of a business.

R

Risk

A measure of the potential for loss or the uncertainty in the rate of return of an investment. All investments involve risk, though the degree may vary greatly depending on the investment.

Risk management

The act of risks and devising ways to minimize losses.

S

Salary

Compensation for work or services. Salary is usually expressed as a fixed annual sum and paid out weekly, biweekly or monthly.

Saving

The act of setting aside money for future spending. Saving money can provide cash for emergencies, short-term goals and investing.

Savings account

A place to keep and grow money that you’re setting aside for an emergency or saving for another financial goal. The money you deposit may earn interest, and savings accounts at many banks and credit unions are insured by the government for up to $250,000.

Simple interest

Interest calculated periodically on only the loan principal or investment principal and not on previously earned interest.

Supply and demand

Pricing is typically determined by the demand consumers have for a product as well as the supply provided by manufacturers.

T

Tax

A government fee on income, activities and products that helps to pay for public services.

Tax credit

A dollar-for-dollar reduction in the amount of tax owed. For example, if you qualify for a $1,000 tax credit of some kind and owe $5,000 in taxes, that credit will reduce your tax burden to $4,000.

Tax deduction

A reduction in the amount of income you pay taxes on, which means you could pay less in taxes.


Collin Brennan is Director of Editorial at Credit Karma. He has more than a decade of experience as a professional editor and writer, including six years of experience leading editorial teams at online publications. His work has been featured in LA Weekly, Reviews.com, SF Weekly and StubHub, among other print and online publications. Collin’s passion for financial justice led him to Credit Karma in 2017, and he has enjoyed building out an editorial team whose mission is to empower readers to make financial progress on their own terms. Collin earned his bachelor’s degree in English from the University of California, Davis.