Key Terms in Financial Literacy

Basic Financial Terms

1. Income – Money received, typically from work, investments, or business.

2. Expenses – Money spent on goods, services, and bills.

3. Budget – A plan for managing income and expenses.

4. Savings – Money set aside for future use.

5. Emergency Fund – Savings reserved for unexpected expenses.

6. Debt – Money borrowed that must be repaid.

7. Net Worth – The difference between assets (what you own) and liabilities (what you owe).

8. Cash Flow – The movement of money in and out of your finances.

Banking & Accounts

1. Checking Account – A bank account for everyday transactions.

2. Savings Account – A bank account designed for storing money with interest.

3. Interest – Money earned on savings or paid on borrowed money.

4. Overdraft – Spending more money than is available in an account, often leading to fees.

5. Direct Deposit – Automatic electronic deposit of wages into a bank account.

Credit & Debt

1. Credit Score – A numerical rating of a person's creditworthiness.

2. Credit Report – A record of an individual's borrowing and repayment history.

3. Loan – Borrowed money that must be repaid with interest.

4. APR (Annual Percentage Rate) – The yearly cost of borrowing, including interest and fees.

5. Secured Loan – A loan backed by collateral (e.g., a car or house).

6. Unsecured Loan – A loan not backed by collateral, often with higher interest rates.

7. Debt-to-Income Ratio (DTI) – A measure of debt compared to income.

8. Minimum Payment – The lowest amount that must be paid on a loan or credit card each month.

Investing & Wealth Building

1. Stock – A share of ownership in a company.

2. Bond – A loan to a company or government that pays interest.

3. Mutual Fund – A pool of money from multiple investors used to buy a diversified portfolio of stocks and bonds.

4. ETF (Exchange-Traded Fund) – A type of investment fund traded on stock exchanges.

5. Compound Interest – Interest earned on both the initial investment and accumulated interest.

6. 401(k) & IRA – Retirement savings accounts with tax advantages.

7. Diversification – Spreading investments across different assets to reduce risk.

8. Risk Tolerance – An individual’s ability to handle financial losses.

Taxes & Insurance

1. Gross Income – Total earnings before deductions.

2. Net Income – Earnings after taxes and deductions.

3. Tax Deduction – An expense that lowers taxable income.

4. Tax Credit – A direct reduction of the tax owed.

5. FICA (Federal Insurance Contributions Act) – Payroll taxes for Social Security and Medicare.

6. Premium – The cost of an insurance policy.

7. Deductible – The amount paid out-of-pocket before insurance covers costs.

8. Liability Insurance – Protection against claims resulting from injuries or damage to others.

Economic & Financial Planning

1. Inflation – The rise in prices over time, reducing purchasing power.

2. Recession – A period of economic decline.

3. Opportunity Cost – The potential benefit lost when choosing one option over another.

4. Financial Goal – A target for saving, investing, or spending.

5. Estate Planning – Preparing for asset distribution after death.

6. Asset – Anything of value owned.

7. Liability – Any debt or financial obligation.

8. Financial Independence – Having enough wealth to cover living expenses without relying on work income.

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