adjusted gross income: Earned income (wages or salary) and unearned income (interest income) added together. advance-fee fraud: A scam artist promises something of value: a loan, a job, or access to some kind of discount, on condition that a fee is paid beforehand. The client pays the fee, but then does not get what was promised; the scam artist disappears with the client’s money. amortization: The reduction of a debt over time. An amortization table is used by lenders to show how payments are applied (part to pay interest and part to pay principal) over the loan term, and how that leads to paying off the loan. annual percentage rate (APR): The percentage cost of credit on a yearly basis. The interest rate on a loan is expressed as an annual percentage. annual percentage yield (APY): The percent - age interest payments on a bank account on a yearly basis. The Truth in Savings Act of 1991 required that banks calculate and demonstrate to consumers a standardized APY for an account, so that various accounts are directly comparable. appreciate/ appreciation: To gain in value/the gain in value. apprenticeship: A formal training period, during which an individual is taught a trade or skill by someone more experienced. asset allocation: Distributing investments among different asset classes. Stocks, bonds, options, mutual funds, CDs, T-bills, etc. are examples of different classes of assets. assets: All the items of value that a person owns: whether properties, cash, securities, or other investments.
231 ATM (automated teller machine): A bank device that allows customers to make withdrawals and deposits at a machine instead of through a teller at the bank. ATM card: A plastic card from the bank needed to use an ATM. audit: A tax audit is when the government scrutinizes a tax return to check its validity, choosing someone either at random or purposely. The IRS audits a certain number of returns each year, requiring those taxpayers to provide proof for what they have claimed on their returns. authorized user: A person issued a credit or debit card with their name on it, where that person is not the one in charge of paying the bill. They are authorized by the account holder to use the account. auto insurance: Insurance a driver buys to protect against paying for the costs associated with getting into a car accident, including medical bills, legal fees and car repairs. Car owners are required by law to purchase such insurance. average daily balance: A calculation that the credit card company uses to bill finance charges. With this method, the card company averages the balance on the card from each day of the month. Finance charges are based on this average balance.
balance: On a credit card account, the outstanding debt left on that card past the first billing period, when interest will start to accrue. In a bank account, the amount of money in that account at any point in time. balance transfer: Taking the balance from a credit card and moving it to a different card account. Usually done to reduce
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interest charges, often by taking advantage of a special offer. bank statement: A monthly report from the bank sent to the account holder, showing transaction history and bank account balances for the month. bankruptcy: A last resort for a debtor. The person declares in court the inability to pay his or her debts, in order to be freed from debt. First, by law, the individual would have to go through a credit counseling program and submit to a repayment plan. basis: In calculating capital gains, it is the price of an investment security minus commissions or fees. bear market: When the stock market is trending downward (losing value) over a period of time. beneficiary: The individual named on a life insurance policy, or a will, who will receive the insurance benefits or the deceased’s estate. benefits: Economic rewards offered to employees of a company that are additional to salary. They are an added form of compensation, because they have monetary value. bodily injury liability coverage: Part of auto insurance that covers legal or medical responsibilities if the other driver or passengers are killed or injured. bonds: Certificates issued by a corporation or government agency in exchange for a loan, usually long-term. brokers: Investment brokers are people who are licensed to act as go-betweens for buyers and sellers of investments. budget: A spending plan that helps balance present and future income/revenue and spending flows. budget deficit: When expenses and savings exceed income. budget surplus: When expenses and savings are below income.
bull market: When the stock market is trending upward (gaining value) over a period of time. business plan: A detailed plan indicating the nature of a potential new business, its market, source of funding, and the risks, expectations, and marketing approach involved in starting the business.
capacity: What a lender determines is a borrower’s ability to take on a loan. The lender may want to see proof of income, assets, and other debt (for example, pay stubs and account statements) to assess whether they have the capacity to make loan payments. capital: Money invested for use in creation of more income, investment opportunities, or production. Can also mean working assets, like machines, tools, and buildings used in the production of goods and services. capital appreciation: An increase in the value of a security/investment. Also, an invest - ment strategy emphasizing money growth. capital gains: Positive returns on an investment that involve selling the asset for a higher price than was paid for it. capital losses: Negative returns on an investment that involve selling the asset for less than was paid for it. capital preservation: An investment strategy that emphasizes maintaining capital already accrued, through buying secure, less risky investments or assets. career: One’s area of work over a long time; a professional path in which there is room for growth. cash advance: Money withdrawn directly from an ATM as a loan against a credit card account. check register: A booklet used to keep a detailed list of transactions, both debit and credit, in one’s checking account.
checking account: Deposits in a bank allowing the depositor to make with - drawals by issuing checks or debit card charges against the account. The most liquid type of retail bank account. Many pay no interest, but are secure places to have money on hand instead of carrying cash. circular flow: The economic circulation of goods, services, and payments among households, businesses, and government. claim: A request for reimbursement from a policyholder to the insurance company, for a loss covered by their insurance. closed-end credit: A one-time advance of a sum of money that the borrower agrees to pay back over a predetermined length of time (called a term). Examples of this type of loan include mortgages, car loans, and student loans. closing costs: Costs that home buyers must budget for when getting a mortgage; for one-time expenses like attorney fees and credit check fees incurred when finalizing the purchase of the house. co-insurance: When health insurance requires the policyholder to pay a percentage of medical bills and drug costs as part of the policy. collateral: Money or items of value used to back up a loan, to be seized if the borrower defaults. collection agency: A company that tracks down delinquent debt in exchange for a commission from the credit card company or bank. collision coverage: Part of auto insurance that covers costs of damage to one’s car from an accident. commission: Money earned as a percentage of a sale of an item. compound interest: A way interest can accrue on borrowed money. Interest is earned on the principal and on interest previously earned. Compounding can
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happen annually or monthly. The equation for compound interest is: Future value = principal (1 + interest rate)number of compounding periods comprehensive coverage: Part of auto insurance that covers costs of damage to the car from anything other than an accident—a tornado or vandalism, for example. co-pay: A predetermined dollar amount that one must pay at the end of each doctor or hospital visit, as determined by a health insurance policy. The rest of the bill is sent on to the insurer. cost of living: The cost of food, rent, transportation, and all other necessities to live in a certain city or area. coupon: The promised interest rate to be paid on a bond to the bond holder periodically. cover letter: A letter that accompanies a résumé when applying for a job. In the letter, an applicant introduces himself or herself to the hiring manager, and makes a case for why he or she is the best candidate for the position offered. credit: An advance of money to an individual, with the understanding that they will pay all or part of it back within a specified time limit. Credit cards are a form of credit; so are home mortgages, student loans, and auto loans. credit limit: Instead of a set loan amount, a maximum amount of money one is allowed to borrow from the company or bank at any one time (usually refers to credit cards or lines of credit). credit reporting agencies (or bureaus): Companies that prepare credit reports on individuals that lenders and other service agents (such as insurance companies) can use to assess an individual’s ability to handle credit. The three major agencies are TransUnion, Experian, and Equifax.
credit report: A document that chronicles an individual’s borrowing over the past several years. A report shows every loan or credit line taken out over a certain period by the individual, as well as payment history on those loans. credit score: The information in a person’s credit reports is turned into a numerical assessment of creditworthiness, known as a FICO credit score, which is provided to interested lenders. Lenders use these scores to determine who should get loans and at what rates. credit union: A nonprofit owned by its members, who typically have a common interest. Offers members services similar to those offered by a retail bank.
death benefit: Total amount that a life insurance policy agrees to pay the beneficiary upon death of the policyholder. debit card: A plastic card directly linked to a checking account, which can be used at ATMs and store cash registers. The purchase amount is withdrawn automatically from the account. deductible: The amount of money the insured policyholder must pay before the insurance will bear the remaining costs. deduction: Something that directly reduces taxable income; the dollar amount of the deduction is subtracted from gross income, leaving a smaller amount of income to be taxed. default: When the borrower has not abided by the loan terms, by not paying or not being able to pay. Also in bonds, when a bond issuer is unable to pay back the original principal because they have no money to pay. deficit: Occurs when spending exceeds income or revenue. deflation: An extended period of decline in prices.
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delinquent: When an individual misses a scheduled loan payment, the loan is considered delinquent. At that point, the lender will probably start charging late fees. depreciate/depreciation: To decrease in value/a decrease in value. disability insurance: Replaces a portion of the policyholder’s income in the event that he or she becomes sick or disabled and cannot work. discretionary income: Income left over after allocating income toward necessary expenses, or needs; money left to spend on wants. disposable income: The amount of income received after taxes and other deductions, available for living expenses or savings. Also known as take-home pay. diversification: Including in a portfolio different kinds of investments with varying volatility, return potential, and market exposures in order to reduce overall risk. dividends: A share of a company’s profits issued to stockholders. dollar-cost averaging: This investment strategy involves investing in an asset over time, rather than all at once. An investor allots equal amounts of money in a certain investment on a regular schedule; so that as the price rises and falls over time, the cost to the investor is averaged. down payment: The initial amount of money one is required to pay when buying a good or service on an installment loan. For a house, a percentage of the total cost that the mortgage issuer requires to be paid before granting a loan for the remainder.
earned income: The money a worker is paid as compensation for labor. emergency fund: Money set aside specifically for paying unexpected expenses.
entrepreneur: An individual who starts a business, organizes and develops it, and assumes the risks and rewards of ownership. equities: Stocks or shares of a company. equity: Value of real estate or other property owned; the part that has been paid for is the owner’s equity. (What is still owed on the mortgage loan is not equity to the homeowner.) estate: Accumulated assets, including a house, stocks, bonds, savings, and any valuables like jewelry that someone owns. Upon death, can be distributed in whole or part to beneficiaries in a will. estate tax: A tax imposed on inherited money or property. exclusions: Specified conditions or circumstances that an insurance policy does not cover. executor: Person who is named responsible for making sure the provisions of a will by the deceased are complied with. exemptions: Circumstances that reduce taxable income (establishing a certain portion of income as not to be taxed). For example, in a bigger household (where a greater number of dependents rely on one income), more income is exempt from taxes.
Fair Isaac Corporation (FICO): The company that turns the information in people’s credit reports into a numerical assessment of creditworthiness called a FICO credit score. fake-check scams: A common Internet scam, where the sender wants to send the targeted person a large check, with the requirement that they send back a portion of the money through legal means. The sender’s check ends up a fake, and bounces, while the money the victim sent has gone to the scam artist.
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Federal Deposit Insurance Corporation (FDIC): A government agency that guarantees deposits to individuals if a bank goes bankrupt. The FDIC was founded during the Great Depression to restore trust in banking institutions. Federal Insurance and Contributions Act (FICA): The government agency that oversees payroll taxes that fund government services, such as Social Security and Medicare. Federal Trade Commission (FTC): An office of the government responsible for consumer protection. They deal with cases like identity theft, credit card mistreat - ment, and fraudulent sales schemes. fee schedule: A complete list of fee charges on bank accounts. Banks are mandated to create and provide these schedules to customers by the Truth in Savings Act. finance charge: The cost of credit (in dollars) that is charged by the lender; both interest owed on a loan or a credit card, and also any fees on the loan. financial aid: Ways of paying college tuition that come as help from outside sources such as governments or banks. Financial aid can include grants, scholarships, work-study, and loans. financial planner/advisor: This professional helps individuals create comprehensive, individualized action plans to reach their financial goals. financial planning: Applying personal finance principles to manage money in ways that will help to achieve financial security and other money-related goals. 529 college savings plan: An account meant for college savings, named after the section of tax law that allows it preferential taxation rates. There are two types of 529s: savings plans and prepaid plans. Within these, students or their parents choose mutual funds from a selection offered, to invest college savings.
fixed expenses: Expenses that do not change from month to month, like rent, a car payment, or a gym membership. forbearance: A relaxed payment schedule on a loan that the borrower asks for during a time of financial hardship. During the forbearance period, interest may still accrue and be added onto the loan as a lump sum when the period is up. foreclosure: Repossession of a house by the mortgage company that owns it, when the homeowner can no longer make mortgage payments (they default on their loan). Form 1040EZ: A tax return form. The main federal tax return is known as a Form 1040. Those who are single or married filing together, and earning less than $100,000 a year, can fill out a simple version called the 1040EZ. Form 1099: A required income statement, totaling the income for the year on which taxes are owed. A Form 1099 reports income on which tax was not withheld. Form I-9: A government form used to verify that the hired employee is a U.S. citizen or otherwise authorized to work in the United States. Form W-2: This form, provided by the employer, reports an employee’s taxable income for the year. It also shows the federal and state income tax and payroll tax already withheld. Form W-4: A tax document an employee fills out, that signals to employers the income tax an employee is estimated to owe over the year. formal education: Education that takes place in a classroom. High school, college, and graduate school are all formal education. So is trade school, a place to get training in a specific technical field. 401(k)/403(b): Retirement investment accounts, where employees contribute a portion of their pre-tax incomes into a selection of investments chosen by the
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employer for retirement savings. 401(k) plans are for private company employees, and 403(b) plans for public and nonprofit employees. fraud: Intentional deceit for the purpose of gain. Free Application for Federal Student Aid (FAFSA): Getting financial aid begins with filing the FAFSA. This government form directs the calculation of a student’s eligibility for grants, work-study, and government loans.
government transfer payments: Government programs that provide money, valuable services (such as health care), or vouchers for food to citizens with particular needs. Among the beneficiaries of such programs are low- income individuals and families, retired persons, very ill or disabled people, and veterans. grace period: The time between the credit card bill’s statement date and the due date, in which one can pay off purchases made during the period before any finance charges accrue. grants: Money from the government, corporations, or a university, given to those with extra financial need for tuition costs. Like scholarships, grants do not require repayment as loans do. gross pay: The income amount a worker earns before deductions or taxes are taken out of the paycheck. group health insurance: Health insurance coverage through an employer is called group health insurance (since there is a large number of people insured), and this is usually the cheapest way to get health care. It is less expensive because the risks are spread out among a large group. growth investing: Investment choices made with the emphasis on increasing total capital worth. Growth investors seek out
capital appreciation, an increase in the value of the security in which they invested.
health insurance: A way of managing the financial risks of getting sick or injured. In exchange for a monthly fee (called a premium), the insurance will pay for hospital, medical, and drug costs. healthcare proxy: The individual that a patient has named in charge of making medical decisions on his or her behalf, in the event that the patient cannot make his or her own decisions. homeowners insurance: Protection to cover costs of various types of risks to the owner’s house or apartment and its contents.
identity theft: The unlawful use of an individual’s personal information by another individual. income investing: Investing with the emphasis on maintaining a constant level of income. Some people use investments to increase their current cash flow rather than wait for future capital appreciation. They buy certain investments that pay out money on a regular basis. income tax: Tax levied on income, both earned and unearned. Almost everyone who has income must pay income taxes. indexes/indices: A selection of stocks that are tracked, and used to represent the overall market trend. Among the more frequently cited indexes are the Dow Jones Industrial Average, which tracks 30 of the largest public companies in the United States; and the S&P 500, which tracks 500 of the largest U.S.-traded companies. inflation: A sustained rise in the prices of goods and services over an extended period. informal education: Training that happens outside of a traditional school. It may
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occur while on the job, or through an apprenticeship or internship. initial public offering (IPO): The first time a company sells stock on the stock market, making it a public company. installment loan: A one-time advance of a sum of money that the borrower agrees to return through regular payments over a predetermined length of time (called the term). Examples include mortgages, car loans, and student loans. in-store financing: Loans made by retail companies when they let an individual take an item home and pay for it over time. These loans often come with high APRs and hidden fees. insurance: A contract between an individual and a company in which the individual makes regular, small payments in exchange for the company’s promise to cover certain types of possible monetary losses. insurance agent: One who earns a living selling insurance policies. interest: The cost for the use of borrowed money. Paid to the lender by the borrower of the money. interest rate: The charge for the use of borrowed money, expressed as a percentage of the amount borrowed. Internal Revenue Service (IRS): The federal agency that collects tax money. internship: A position in which young workers take a low-level position in their field of interest in order to try it out and gain experience. invest: To buy different types of financial products that have the potential to provide growth in value; but the chance of taking a higher reward brings with it a risk of losing money. investment club: A group of people who share a common interest in investing and come together to educate one another on investments and investment practices.
IRA (individual retirement account): A kind of retirement account that anyone who has income can set up through a bank, brokerage, or investment company.
job: Originally meant to refer to work done in the short term for pay. Has become a general term used for any employment, even a career position, although they are two different things. job interview: When an employer calls in a job applicant to answer questions in person, about why the applicant wants the available position, and what makes the applicant qualified. joint account: A bank account where two individuals share responsibility and access to the account.
lay off: When a company must let some of its employees go, for financial reasons. This is different from being discharged (fired), which is dismissal of an individual for cause. lease: A contract between a tenant and a landlord, stating the period of time the tenant will live in the apartment, monthly rent amount, and the responsibilities of the landlord and the tenant in maintaining the property. legal guardian: The person named to take care of minor children should anything happen to the parents. The person legally charged, by the state, to oversee a minor child. lenders: Those that advance money to others, with the expectation of being repaid with interest. Banks are the most common lenders for individuals. liabilities: Any debts outstanding, such as a credit card balance, or student loans. Financial obligations owed to others are liabilities.
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liability insurance: Part of homeowners or renters insurance. Covers legal responsibility should anything occur to visitors on the property. life insurance: An insurance policy that protects against income loss to a family, by promising a specified sum of money should one of its income earners die. line of credit: A form of revolving debt, like a credit account, linked to a checking or savings account. It often comes with yearly maintenance fees and a high APR. liquidity: The ease by which an asset or investment can be converted into cash. living will: States one’s medical wishes in circumstances where one becomes unable to speak for oneself. long-term capital gains: Unearned income created on the sale of an asset that has been owned for more than a year. long-term care insurance: Insurance that covers the costs of long-term nursing care or hospitalization in the event of its necessity. Medicare covers only certain kinds of short-term nursing care, so some people purchase long-term care insurance to cover the rest.
marginal tax rates: The tax percentage rate that applies to the last dollar one earns. Also called a tax bracket, the highest bracket (rate of taxation) one falls into at one’s income level. maturity: The date at which a bond can be redeemed. minimum payment: The lowest amount of money one can pay on a credit card bill or other line of credit to avoid delinquency and late fees. Usually a minimum payment equals 2% to 5% of the balance owed, or a set amount like $25. minimum wage: By law, the lowest hourly rate an employer may pay a worker.
money market deposit account: Similar to savings accounts, these accounts combine some of the features of savings and checking, typically with higher interest rates. mortgage: A loan used to buy a home. mutual fund: A kind of investment made up of a group of securities (stocks or bonds). The fund is created and managed by a business, with the intention of increasing profits and returns for the fund’s shareholders.
needs: Goods or services that one cannot do without—such as food, housing, etc. Net Asset Value (NAV): The price per share of a mutual fund. net pay: The amount remaining of a paycheck after all of the payroll deductions and income tax are taken out. Also known as take-home pay, or disposable income. net worth statement: A listing of all of a person’s or family’s assets and liabilities: assets – liabilities = net worth. no-fault laws: State laws that require an insurer to pay for the policyholder’s medical costs in a car accident, no matter who caused the accident. States with no- fault laws are Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania and Utah. nominal interest rate: The interest rate quoted on a loan or bank account; it does not account for inflation. nonsufficient funds fee: The fee charged to a checking account if the user spends past the balance in the account. Often this fee is in excess of $30.
open-end credit: An account that offers a credit limit instead of a set loan amount.
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The borrower can spend any amount up to that limit at any one time. Credit cards are a form of open-end credit, also called revolving credit. opportunity cost: That which must be given up in order to get something else; a trade- off. out-of-pocket maximum: The amount specified in a health insurance policy that must be spent by the policyholder before the insurer covers all following costs; also called the total yearly deductible. overdraft (overdrawing): Charging one’s bank account for more than the balance in the account. Depending on the account, the transaction will be denied, or the transaction will be paid but a nonsufficient funds fee will be charged to the account. overdraft protection: The bank agrees it will pay when charges are overdrawn on the account; but a nonsufficient funds fee will usually be charged.
par value: The face value, or cost, of a bond when it is issued. pawnbroker: Someone who runs a pawnshop. pawnshops: Places to pawn, or bring in, a valuable item—such as jewelry, a musical instrument, a camera, or a computer—in hopes that the pawnbroker will make a short-term loan up to the value of the item, in trade for holding that item as collateral and charging interest. (These are loans typically under $1,000 dollars.) payday loans: Cash loans for people who need money before their next paycheck. These are short-term loans—usually two weeks—written up to the amount of the coming paycheck. payroll taxes: Taxes deducted directly from a worker’s paycheck, applied to specific government programs such as Social Security.
penalty APR: The rate charged on a credit card if an individual violates the terms of their credit card agreement. Often it is paying the bill late, or going over the credit limit, that triggers this rate. pension: A retirement plan an employer offers an employee, conditional on an extended term of employment. It requires no investment of the employee’s salary, but is direct pay from the employer. Perkins Loan: The least expensive government student loan offered to students with extra financial need. permanent life insurance: A life insurance policy that remains in force as long as premium payments are made, with no set term end date. In addition, this policy accrues cash value, meaning the policy - holder could cash out the policy at any time. personal finance: Relates specifically to how people—as individuals or part of a household—manage their money. philanthropy: Giving to charities or other causes, either with a donation of money or time as a volunteer. PIN (personal identification number): Four or more digits used as a password for an individual. This code is needed when using the ATM, for instance. PLUS loan: The Parent Loan for Under - graduate Students, a special loan for college students where their parents must cosign the loan. policy: A contract between an individual and an insurance company, outlining payment should the policyholder incur specified losses. Ponzi scheme: A scheme set up to look like an interest-earning investment, where actually there is no investment, but the new deposits are cycled to older clients to look like returns. Eventually the arrangement is discovered or collapses from a lack of new investors, and all the money is taken by the scam artist.
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portfolio: All of a person’s investment holdings. pre-existing conditions: Health issues that existed before a health insurance policy was put into effect. premium: The amount of money an insured person must pay regularly to maintain an insurance policy. prime rate: The interest rate banks charge their best customers, usually corporations rather than individuals; this is often used as a reference point for personal loan rates. principal: The original value of a loan or deposit/investment, to which interest or returns may be added. private student loans: These are issued by banks to help pay college costs. They are not regulated by the government. There are no limits on how much one can borrow, but these loans also typically come with high interest rates. profit: Money earned from the operation of a business after expenses have been paid. progressive tax system: One that imposes a higher tax rate as an individual’s income increases. promissory note: A contract with a lender (of a student loan, for example), stating that the borrower will repay the loan amount. property damage liability coverage: Part of auto insurance. Covers repairs needed— or replacement costs—for the other person’s car or other property if the policyholder caused the accident; also covers any legal costs if the policyholder is sued. property insurance: Part of homeowners/ renters insurance. Financial protection for an insured person’s property, furniture, clothing, electronics, or other belongings. It protects against loss or damage caused by natural disasters, weather conditions, crime, or fire.
prospectus: An explanatory document containing details about a mutual fund investment, and the fund manager’s intentions with the investment. public companies: Companies that issue stock to the public are known as public companies, in contrast to companies that are privately owned. pyramid scheme: An illegal investment scheme in which new investors make up the bottom of the pyramid, with their investment money going to those on the level above. The only gains are the dollars that come from new recruits. Because there is no real investment or growth, the pyramid inevitably collapses.
real estate: Commercial or residential property, including land and buildings, that is privately owned. real interest rate: The interest rate calculated to account for inflation. recession: A period of economic decline. recurring expenses: Expenses that are incurred and must be paid regularly. refinance: To trade in a loan for one with different terms, usually something done with mortgages. There are often fees associated with doing this. renters insurance: Protection to cover costs of various risks to someone who rents a house or apartment; particularly covers belongings, and liability of injury to guests or neighbors. rent-to-own: An installment loan in which the item itself is being loaned and the interest is built into the price of eventual purchase. repossession: Taking back a good or property due to the failure of the purchaser (or borrower) to make required payments. résumé: A personal career document, outlining professional job history and experience, which highlights abilities and education.
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retail bank: A financial institution that takes deposits and makes loans to individuals and small businesses. return: The gain or loss on invested capital, usually represented as a percentage. revolving credit: Credit that offers a credit limit, instead of a set loan amount, where the borrower can spend up to that limit at any one time. Also called open-end credit. rewards cards: Many credit card companies offer rewards programs through which the cardholder can earn airline miles, points, or money back on each dollar spent on the card. Roth IRA: A retirement account that does not offer a tax deduction up front (like a traditional IRA), but instead allows withdrawals tax-free after age 591⁄2. The reason people invest in Roth IRAs is that they think they might be in a higher tax bracket at retirement than they are in now. Rule of 72: This rule states that dividing 72 by the interest rate or rate of return, gets an estimate of the years required to double the initial investment. For 4% returns: 72 4 = 18 years to double the investment.
safe deposit box: Rented boxes within a bank’s vault, meant to keep important documents and small valuables safe. salary: A yearly income figure earned by an employee, with the expectation of working a set number of hours per week. sales load: A commission paid to the salesperson of a mutual fund. savings: The portion of personal or business income that is not spent or invested. savings account: A very liquid account, like a checking account, but usually with fewer withdrawals allowed per month. It pays interest on the money kept in it. scarcity: The economic condition of having insufficient resources (like money) to
cover all that one might like. Also, the condition resulting from the fact that there is not enough of everything to go around to everyone. scholarships: Money for education given to a student based on criteria such as academic ability or athletic skill. secured loan: A loan in which the borrower pledges something of value in case the loan is not repaid. Securities and Exchange Commission (SEC): A government agency that provides regulation and law enforcement actions on behalf of investors. The SEC was founded in 1934, during the Depression and not long after the great stock market crash of 1929. security/securities: Financial instruments or investments that represent some value; stocks and bonds. security deposit: A sum of money given to the landlord upon leasing an apartment, to guarantee against any damage to the apartment or delinquency in paying the rent. shares: Stocks or equities; called shares because they represent part ownership of the corporation that issued them. short-term capital gains: Unearned income on an asset that has appreciated in value and that has been owned for less than a year. signature card: A card signed by the owner of a bank account, enabling the bank to compare the signatures on future transactions to verify identity. simple interest: Interest that is not compounded, but only paid on the principal balance each given period. Simple interest earned = principal × interest rate × periods. Social Security: A government benefit program that is paid for by taxes; provides income to retirees after a certain age.
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Stafford Loan: A government loan for students, fixed at a low interest rate. Any student is eligible for unsubsidized Stafford Loans. This is the best available loan for many students. stock exchanges: Places or markets where securities are bought and sold. stocks: Shares or equities, which represent ownership stakes in a company. subprime: Risky credit borrowers with under “prime” credit scores, typically those with credit scores 620 and below. These borrowers are considered at high risk of defaulting on their loans, and often will either be denied credit or assessed at the highest interest rates. subsidized student loans: Student loans that do not accrue interest until after graduation. surplus: Occurs when spending is less than income or revenue.
tax credit: Government incentives that reduce taxes owed dollar-for-dollar. A $1,000 tax credit means $1,000 less in taxes for the year. Recently, credits have been offered for buying a home or buying a hybrid car. tax liability: Amount owed on yearly total taxable income. tax liens: Claims by a state or federal government on something a person owns, in order to secure money for unpaid taxes. tax return: Any one of several standard forms for reporting to the IRS all the income an individual has made (both earned and unearned), and taxes already paid. It is a way for the government to assess whether the appropriate amount of taxes have been paid given income. tax-deferred: Describes certain investments or retirement accounts where taxes are not owed on the money until it is withdrawn for use.
taxes: Households and businesses give a certain amount of their income to the government in the form of taxes. The government—federal, state, or local— then spends this revenue on items it deems necessary for society, putting money back into the economy. term life insurance: Life insurance that covers a certain period—say, five to 15 years. If the policyholder dies in that period, his or her beneficiary gets the benefits. ticker symbols: Stocks are identified by ticker symbols, three- or four-letter codes that identify the company on the stock market. time value of money: A certain amount of money saved today is worth more than the same amount saved in the future. The reason is that money saved now has time to grow with interest. tips: Money (income) given by a customer for good and friendly service to a service- sector employee (like a waiter). traditional IRA: A tax-deferred retirement account, set up by an individual at a bank. tuition: The costs of attending school or college.
U.S. Savings Bonds: A type of bond issued by the U.S. Treasury, originally designed as a way for the government to raise money to pay for World War I. underwrite: To assume risk as one’s own. Insurance companies underwrite risk when they sell policies. unearned income: This type of income is passive—not produced by working. Types of unearned income include interest income, capital gains, and dividends.
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unemployment rate: The percentage of the workforce not employed but looking for work. union: A collective of laborers in one sector, which bargains for benefits, good working conditions, and wage increases. Examples of unions include the Airline Pilots Association, the United Auto Workers (UAW), Major League Baseball Players Association, the American Federation of Teachers (AFT), and the Screen Actors Guild. unsubsidized student loans: Student loans that accrue interest from the moment they are taken out.
variable expenses: Expenses that may increase or decrease from month to month. volatility: The extent of an investment’s price fluctuation.
wage: An hourly fee for work performed. wants: Things that are desired, but that are not necessities. will: A legal document that states a person’s plans for his or her estate— that is, all the assets he or she has accumulated—after his or her death. withholding: The amount of taxes paid per paycheck, determined by how many exemptions one can claim, and total salary or wages. worker’s compensation: Benefits paid by employers to workers who are injured in accidents on the job. work-study: A job given to a student by or through a university or college, that pays wages through government resources. This is another form of financial aid.
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