Terms & Definitions

APR

Annual Percentage Rate (APR) The cost of borrowing money on a yearly basis expressed as a percentage rate.

Asset

An item with economic value, such as stock or real estate.

ATM

Stands for “automated teller machine,” a machine that lets bank customers perform basic transactions, such as deposits and withdrawals.

Direct Debit

Setting up a bill pay directly with your merchant or service provider. This bill will be paid with your checking account information directly by the merchant or service provider for the amount specified (like your cellphone bill or utility company). You authorize them to take funds from your account each time a bill is due.

Beneficiary

Someone who is named to receive proceeds or benefits. This pertains to most accounts and benefits you have, including bank accounts, retirement accounts, insurance policies and any other assets. Generally, you would need to take action with each account or asset independently. This is one of the most important things you can do to make sure your assets go to the person you intend.

Bank

A financial institution and business that accepts deposits, makes loans, and handles other financial transactions.

Benefit

Something that an employer, the government, or an insurance company provides that’s often used only for a particular purpose. Also, benefit refers to something 'good.'

Bill Pay Service

A service you set up with your bank, credit union or business that allows you to pay bills online or through a mobile app.

Bond

A type of debt. When you buy a bond, you’re lending to the issuer, which may be a government, municipality, or corporation. The issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal — also known as the bond’s face value or par value — when the bond “matures,” or comes due after a set period.

Budget

A plan that outlines what money you expect to earn or receive (your income) and how you will save it or spend it (your expenses) for a given period of time; also called a spending plan.

Borrow

To receive something on loan with the understanding that you will return it.

Borrower

A person or organization that borrows something, especially money from a bank or other financial institution.

Business

The activity of making, buying, or selling goods or providing services in exchange for money.

Business Income

The money a business receives for selling its goods and services is its income.

Buy

To get something by paying money for it.

Career

A profession that may span your lifetime and includes your education, training, professional memberships, volunteering, and full history of paid work.

Capital Gain

The profit that comes from selling an investment for more than you paid for it.

Capital Loss

The loss that comes from selling an investment for less than you paid for it.

Cash

Paper or coin money.

Certificate of deposit (CD)

A savings tool from a bank or credit union that has a fixed maturity date and a fixed interest rate.

Checking Account

An account at a bank that allows you to make deposits, pay bills, and make withdrawals.

Collateral

An asset that secures a loan or other debt that a lender can take if you don’t repay the money you borrow. For example, if you get a home loan, the bank’s collateral is typically your house.

Cosigner

An individual who signs a loan, credit account, or promissory note of another person as support for the credit of the primary signer and who becomes responsible for the debt obligation.

Commission

An amount of money someone earns for selling something.

Compound Interest

When you earn interest on both the money you save and the interest you earn.

Consumer

A person who buys or receives goods or services for personal needs or use and not for resale.

Copayment (copay)

A fixed amount ($20, for example) you pay for a covered health care service in addition to the amount your insurer pays.

Cost

The amount of money that is needed to pay for or buy something.

Credit

Borrowing money, or having the right to borrow money, to buy something. Usually it means you’re using a credit card, but it might also mean that you got a loan.

Credit Card

An open-ended loan that allows you to borrow money up to a certain limit and carry over an unpaid balance from month to month. There is no fixed time to repay the loan aslong as you make the minimumpayment due each month. You pay interest on any outstanding credit card loan balance.

Credit Limit

A limit set by the credit card company on how much you can charge on the card it issued to you. You can use your credit card to make purchases up to your credit limit.

Credit Report

A summary of your credit activity and current credit situation such as loan paying history and the status of your credit accounts. Lenders use these reports to help them decide if they will loan you money and what interest rates they will offer you.

Data Breach

The unauthorized movement or disclosure of sensitive information to a party, usually outside the organization, that is not authorized to have or see the information. Someone who gets the data might use it for identity theft.

Debt Consolidation

Consolidation means that your various debts, whether they are credit card bills or loan payments, are rolled into a new loan with one monthly payment. If you have multiple credit card accounts or loans, consolidation may be a way to simplify or lower payments. But a debt consolidation loan does not erase your debt. You might also end up paying more by consolidating debt into another type of loan.

Credit Score

A number created from a scoring model that uses information from your credit history.

Debit Card

A card used to make purchases at businesses (like grocery stores and gas stations) with money in your checking account.

Debt

Money you owe another person or a business.

Deductible

The amount of expenses the insured must pay before the insurance company will contribute toward the covered item. For example, the amount you pay for covered healthcare services before your insurance plan starts to pay is your deductible.

Downpayment

Initial cash payment made when something is bought on credit, such as a home or vehicle. The down payment reduces the amount of money that is borrowed.

Direct Deposit

Money electronically sent to your bank account, credit union account, or prepaid card.

Dividend

A portion of a company’s profit paid to shareholders.

Earned Income

Money made from working for someone who pays you or from running a business or farm. This includes all the income, wages, and tips you get from working.

Emergency Fund

A cash reserve that’s specifically set aside for unplanned expenses or financial emergencies. Some common examples include car repairs, home repairs, medical bills, or a loss of income.

Federal Income Tax

The federal government collects taxes based on the earnings of individuals and businesses, called an income tax. The federal income tax pays for national programs such as defense, foreign affairs, law enforcement, and interest on the national debt.

Financial Emergency

Expenses that come up unexpectedly, are very important, and need attention right away.

Fixed Expenses

Expenses, like bills, that must be paid each month and generally cost the same amount. Some fixed expenses, like a utility bill, may also be variable because the amount changes each month depending on usage.

Form W-4

Employee’s Withholding Allowance Certificate (W-4) is a form that the employee completes and the employer uses to determine the amount of income tax to withhold.

Goal

Something, such as an outcome, you wish to achieve or accomplish in a specific amount of time.

Grace Period

The number of days you have to pay your bill in full before finance charges start. Without this period, you may have to pay interest from the date you use your card or when the purchase is posted to your account.

Health Savings Account

An account at a bank, insurance company, or other financial institution that lets you set aside pre-tax money, sometimes directly from your paycheck, to pay for eligible medical expenses.

Homeowner's Insurance

Covers a home’s structure and the personal belongings inside in the event of loss or theft; helps pay for repairs and replacement.

Identity Theft

Using your personal information — such as your name, Social Security number, or credit card number — without your permission.

Income

Money earned or received such as wages or salaries, tips, commissions, contracted pay, government transfer payments, dividends on investments, tax refunds, gifts, and inheritances.

Income Tax

Federal, state, and local taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends). Includes both personal and business or corporate income taxes. Not all states and localities have income taxes.

Inflation

Inflation occurs when the prices of goods and services increase over time.

Invest

To commit money to earn a financial return; the strategic purchase or sale of assets to produce income or capital gains.

Interest

A fee charged by a lender, and paid by a borrower, for the use of money. A bank or credit union may also pay you interest if you deposit money in certain types of accounts.

Interest Rate

A percentage of a sum borrowed that is charged by a lender or merchant for letting you use its money. A bank or credit union may also pay you an interest rate if you deposit money in certain types of accounts.

Job

A specific arrangement where you do tasks for an employer.

Lend

The act of giving something to someone with the understanding that they will give it back to you.

Lender

An organization or person that lends money with the expectation that it will be repaid, generally with interest.

Liability

Something that is a disadvantage,money owed, or a debt or obligation according to law.

Liquidity

A measure of the ability and ease with which you can access and use your money.

Loan

Money that needs to be repaid by the borrower, generally with interest.

Long-Term Goals

Goals that can take more than five years to achieve.

Maturity Date

The date that an investor’s investment is to be paid back in full in accordance with its agreement.

Minimum Wage

A wage set by contract or by law as the lowest that may be paid to employees.

Money

You can use money to buy goods and services. Money looks different in different places around the world.

Mobile Banking

A service that allows you to use your smartphone or tablet to manage your bank or credit union account without the aid of a teller. Generally, you can deposit checks into your account using this service, but not cash.

Money Market Account

Federally insured account at a bank or credit union that offers a higher rate of interest than a savings account, allows for a limited number of transactions monthly, and may require a minimum deposit or minimum account balance.

Money Order

A money order can be used instead of a check. You can buy a money order to pay a business or other party.

Mortgage

Mortgage loans are used to buy a home or to borrow money against the value of a home you already own.

Net Income

Amount of money you receive in your paycheck after taxes and other deductions are taken out; also called take-home pay

Mutual Fund

A company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.

Needs

Basic things people must have to survive (such as food, clothing, and shelter), resources they may need to do their jobs (such as reliable transportation and the tools of the trade), and resources to help build and protect their money and property so they can meet future needs (such as emergency savings and insurance).

Overdraft

An overdraft occurs when you don’t have enough money in your account to cover a transaction, but the bank pays the transaction anyway.

Prepaid Card

A card on which you load money in advance to spend. While a prepaid card might look like a debit or credit card, there are differences. A debit card is linked to your checking account. When you use a credit card, you’re borrowing money. A prepaid card is not linked to a checking account or credit union share draft account. In most cases, you can’t spend more money than you have already loaded onto your prepaid card.

Pay Period

The amount of time that an employee works before being paid — for example, a week or a month.

Paycheck

A check for your salary or wages made out to you.

Payroll Card

A type of prepaid card you get from your employer that you receive your paycheck on.

Payroll Tax

Taxes taken from your paycheck, including Social Security and Medicare taxes.

Prepayment

Payment of all or part of a debt before it comes due.

Prepayment Penalty

A fee lenders can charge borrowers if they pay off a loan early.

Profit

Money that is made in a business after all the costs and expenses are paid.

Principal

In the lending context, principal is the amount of money that you originally received from the lender and agreed to pay back on the loan with interest. In the investment context, it is the amount of money you contribute with the expectation of receiving income.

Property Tax

Taxes on property, especially real estate, but also can be on boats, automobiles (often paid along with license fees), recreational vehicles, and business inventories.

The definitions above are from the Consumer Financial Protect Bureau Building Block Teacher Resource financial terms glossary. Following is a link to the guide which has additional financial terms. Highlighted below are other CFPB financial resources.