– A –
Allowance – an amount of money parents give kids to help them learn to manage money. The amount is usually given weekly. Sometimes an allowance is tied to completing responsibilities -; household chores or jobs for the family.
Annual Percentage Rate (APR) – the rate of interest (in terms of a percent, such as 8.75%) being charged for a loan over a year’s time. The APR rate includes interest, transaction fees, and service fees.
ATM – These letters stand for Automatic Teller Machine. This is an electronic machine that enables people to take care of Credit Union business 24 hours a day, 7 days a week. You can deposit and withdraw money, pay loans, etc., at most ATMs.
Balance – 1) In talking about loans, the balance is the difference between the amount owed and the amount paid. If you pay $45 on a $100 debt, your balance is $55. 2) In talking about checkbooks, balancing means to account for all money that came into and went out of your account, so that at the end of the month you and your Credit Union statement agree. 3) In talking about savings, your balance is what is left in your savings account after you deposit or withdraw money.
Bankruptcy – a state of being in so much debt that you are legally declared unable to pay in full the people and companies you owe. When you legally declare yourself bankrupt in some states, you must sell off all your possessions and pay off your debts as best you can.
Bond – an IOU issued by a corporation or government that confirms you are lending the corporation or government money. Bonds pay interest regularly to lenders. At the end of the term of the bond, the borrower returns to the lender the face value of the bond (the amount the lender invested in the bond).
Broker – a licensed professional who advises people about investments; also helps people buy and sell stocks, bonds, mutual funds, etc. The broker earns a fee for this help, called a commission, usually a percentage of the transaction.
Certificate of Deposit – a type of investment that requires you to invest money for a certain length of time and guarantees the same rate of return (interest) for that entire time. CDs usually require a minimum deposit.
Charge – to borrow money (from a store, service provider, or credit card company) to make a purchase. If you do not pay the debt off in full within the card issuer’s grace period (usually 25-28 days), you will pay interest on the amount you owe.
Check register – (sometimes called a check ledger). This booklet is usually kept in your checkbook, and you use it to keep track of all the deposits, withdrawals, and checks you write. After you write each in your register, you subtract or add the amount to your checking account balance. If you keep your register up-to-date, you will always know how much money you have in your checking account.
Corporation – the most common form of organizing a business -; the organization’s total worth is divided into shares of stock, and each share represents a unit of ownership and is sold to stock holders. A corporation is considered a separate entity from the stockholders for legal and tax purposes. Examples of corporations: Pepsi Cola, Intel, The Gap.
Credit Rating – Credit agencies are companies that keep track of how you pay your debts (bills). Do you pay on time? Do you make the required payments? When you want to borrow money from a Credit Union or apply for a credit card, the Credit Union or the credit card company will ask a credit agency to rate you. Lenders want to know if you are a reliable bill payer before they approve your loan or credit card.
Debit Card – This plastic card looks like a credit card, but it is used to withdraw money from a savings or checking account. When you use a debit card at Automatic Teller Machines or in stores to make purchases, money is immediately withdrawn from your account. You cannot withdraw more money than you have in the account.
Diversify – to spread out the money you invest into different types of investments: bonds, stocks, CDs, mutual funds, etc. The idea is to avoid putting all your eggs in one basket. Different kinds of investments do well in different kinds of economic climates. Therefore, if one of your investments drops in value, the other kinds of investments should hold or increase their value.
Insufficient Funds – a phrase that means you did not have enough money to cover an expense. Usually checks that bounce are returned stamped with the phrase, “insufficient funds.” The amount of the check was larger than the balance in the checking account.
Insure – to protect yourself from loss. You pay premiums (payments) to an insurance company who, in turn, agrees to pay for losses to your property (house, car, jewelry, etc.) or your person (in case of injury). You can buy insurance that protects you even when you cause a loss to other people. For example, you cause a car accident.
Money Market Account – a savings account offered by a Credit Union (or a mutual fund). The account typically requires 1) a minimum deposit and 2) that you maintain a minimum balance. The account invests in certificates of deposit and treasury bills and pays a rate of interest that rises and falls with the economy.
Mutual Fund – a savings fund that uses cash from a pool of savers to buy a wide range of securities, like stocks, bonds, and real estate. This is a way to diversify your investments because you own small units of each of the fund’s investments. The fund is managed by professionals and permits small amounts of money to be invested.
Penny Stock – a nickname for extremely low priced stock, usually only a few dollars a share. These stocks are considered highly speculative, which is another way of saying highly risky. They are priced low because they have not yet proven themselves in the market.
Percentage – a way of measuring. The number 100 (which stands for the whole amount) is usually divided into 100 smaller, but equal, parts, each called a percent. So a percentage usually refers to a certain number of parts within the whole. Therefore, 6% is 6 units out of 100% (the whole). If you have invested $100, and you earn 8% interest on the money, you will earn 8 parts of the whole, or $8. A percentage explains a number in relation to the whole.
Rate of Compounding – When an account compounds interest (figuring interest on interest already earned) it does so regularly. Compounding can take place annually, semi-annually, quarterly, monthly, or daily. The more often interest is compounded the faster your money will grow.
Rule of 72 – math formula that determines the number of years needed to double your money at a given interest rate. Here’s how it works: you divide 72 by the interest rate. Therefore, money invested at 10% interest rate will double in 7.2 years.
Savings Account – a Credit Union account that pays you interest for keeping your savings in it. Credit Unions use your money to make loans, so they pay you interest for the use of your money. Your savings is insured up to $250,000 by the FDIC, so you don’t have to worry about borrowers taking your money and not paying it back.
Social Security Tax – a tax used to fund a program of the US government that gives money to elderly people. The elderly receive funds because the federal government has deducted money from each of their paychecks during the course of their working lives. The money taken out of their paychecks has been deposited into the Social Security fund. Employers, too, deposited money to this fund on behalf of each employee. When people reach a certain age, they become eligible to receive Social Security payments. The government mails checks each month. These payments help the elderly live, now that they are no longer working full-time. The money they receive is drawn out of the Social Security fund, where it has been earning interest for many years.
Splitting – to divide stock in order to lower its price so that more people will invest in it. In a two-to-one split, 100 shares of $70 per-share stock become 200 shares of $35 per-share stock. In a three-to-one split, 90 shares at $60 a share become 270 shares at $30 a share.
Stock Market – an organized way for 1) people to buy and sell stocks and 2) corporations to raise money. There are three widely known stock exchanges: The New York Stock Exchange, the American Stock Exchange, and the National Association of Securities Dealers Automated Quotation System (you hear it called NASDAQ on the news).
U.S. Bond – a kind of investment in which you lend money to the government for a certain amount of time and at a certain interest rate. You are paid interest according to the terms of your bond. At the end of the agreed-on time, the borrower (the government) returns to you the amount you originally lent.
Variable Expenses – kinds of spending that can be controlled and typically change from month to month. For example, groceries can be a variable expense. You can choose to buy expensive food, (steak, lobster, lamb chops, or shrimp) or inexpensive food (chicken legs, turkey, hamburger). With variable expenses, you have choices.
Zero Coupon Bond – a security which the interest and/or principal has been discounted to be offered at less than the stipulated principal or coupon amount due at maturity or early option payment. These securities effectively behave like treasury bills or other paper offered at an original discount. Zero coupon bonds can have conversion factors and other features implicitly embedded or explicitly stated.