A financial glossary for students and young adults

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Fiscal responsibility is a vital life skill.

When you know how to budget, earn and save money, you’re better prepared for the real world. Get a jump-start on your financial future with this short glossary of essential terms as a reference.


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.

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.

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.

Compound interest

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

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.

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.

Gross income

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

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.

Mortgage

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

Net worth

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

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.

Simple interest

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

Tax deduction

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