WSS Financial Literacy Course - Key Terms

401(k)

A qualified retirement savings plan established by employers to which eligible employees may make salary deferral contributions on a post-tax and/or pretax basis. Earnings accrue on a tax-deferred basis and employers may or may not match a percentage of employee contributions.

403 (b)

A U.S. tax-advantaged retirement savings plan available for public education organizations, some non-profit employers such as schools, churches, and hospitals.

Annual Percentage Rate (APR)

The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.

Bank

A financial institution licensed as a receiver of deposits usually regulated by the national government of most countries. Typically there are two types: commercial/retail and investment.

Budget

A financial plan used to forecast and track income and expenses.

Bonds

A low-risk lending investment vehicle issued by a government or private company, which promises to pay back with interest the money borrowed from the investor.

Certificate of Deposit (CD)

A savings certificate entitling the bearer to receive interest at a set time in the future called the maturity date, and at the specified fixed interest rate. Generally, these are issued by commercial banks for terms ranging from one month to five years, and are insured by the FDIC.

Cosigning

The act of signing for another person's debt involves a legal obligation made by another person to make payment on the borrower's debt should that person default. This is sometimes a way for individuals with a low income or poor/limited credit history to obtain financing.

Collateral

Something pledged as security for repayment of a loan, to be forfeited in the event of a default.

Commission

A service charge assessed by a broker or investment advisor in return for providing investment advice and/or handling the purchase or sale of a security.

Mobile Payments

sending or receiving payment through apps such as Apple Pay, Softcard, Google Wallet.

Person to Person Payment (P2P)

Payments through services such as PayPal, Popmoney, Square Cash, Venmo.

Credit

A contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some date in the future, generally with interest.

Credit Bureau

Company that collects information about your credit history and sells it to lenders. (Equifax (www.equifax.com), Trans Union (www.transunion.com), Experian (www.experian.com)

Credit Report

A record of your credit history that includes information about your identity, existing credit, public record, and inquiries about you.

Credit Union

Member-owned financial institution in which account holder deposits are insured by the NCUA up to $250,000, and offer a wide range of banking services.

Creditworthiness

Trustworthiness with money based on prior history; a general qualification for borrowing, including character, capacity, capital, collateral and conditions.

Deductible

The amount of money an insured person pays before the insurance company makes payments for loss.

Default Rates

The (always higher) interest rate charged to a borrower when payments on a revolving line of credit (such as a credit card) are overdue.

Delayed Gratification

Refers to the ability to put off something mildly fun or pleasurable now in order to wait for something that is more fun, pleasurable, or rewarding later.

Diversification

A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

Emergency Fund

An account that is used to set aside funds to be used for unplanned costs due to unexpected loss of a job, an illness, accident, or other major expense.

W-4 Form

Employment form you fill out so that your employer can withhold the correct federal income tax from your pay.

W-2 Form

A year-end tax report form provided by an employer for each employee to report annual income earned, social security, Medicare and state, and federal tax withheld.

I-9 Form

A required employment form through which an employee must show documentation to verify his or her identity and authorization to work in the US.

Expense

Money spent for goods and or services.

FAFSA

(Free Application for Federal Student Aid): these forms become available in October of the senior year. All students applying for any federal financial aid must file this form as soon as possible after October 1.

Federal Deposit Insurance Corporation (FDIC)

A government entity that provides deposit insurance guaranteeing the safety of a depositor's accounts in member banks up to $250,000 for each account in each insured bank.

Fixed Expense

A cost of goods or services that is paid regularly (monthly).

Grace Period

A provision in most credit card, loan and insurance contracts that allows payment to be received for a certain period of time after the actual due date. During this time no late fees will be charged, and the late payment will not result in default or cancellation of the loan.

Identity Theft

The crime of obtaining the personal or financial information of another person for the sole purpose of assuming that person's name or identity in order to make transactions or purchases.

Income

Money earned from a job or other sources.

Inflation

A rise in the general or average price level of all the goods and services produced in an economy.

Installment Loan

A loan that is repaid over time with a set number of scheduled payments; normally at least two payments are made towards the loan. The term of loan may be as little as a few months and as long as 30 years.

Insurance

A contract by which someone guarantees for a fee to pay someone else for the value of property if it is lost or damaged (as through theft or fire) or to pay usually a specified amount for injury or death.

Insurance Companies

A company that offers insurance policies to the public, either by selling directly to an individual or through another source such as an employer's benefits plan An insurance company can specialize in one type of insurance, such as life insurance, health insurance or auto insurance, or offer multiple types of insurance.

Home Owner/Renter's Insurance

Insurance Types -A form of insurance that protects the insured property against loss from theft, liability and most common disasters.

Automobile Insurance

Insurance Types - Insurance purchased for cars, trucks, and other road vehicles. Its primary use is to provide protection against physical damage and/or bodily injury resulting from traffic collisions and against liability that could also arise therefrom.

Health Insurance

Insurance Types - Insurance against loss due to ill health.

Whole/Term Life Insurance

Insurance Types -Insurance on the life of the insured for a fixed amount at a definite premium that is paid each year in the same amount during the entire lifetime of the insured.

Interest

The cost of money that is borrowed or loaned, which is usually a percentage of the borrowed/loaned amount.

Investment

Money put aside for profit: A financial holding/asset that is purchased with the expectation of increased value.

Investment or Brokerage Firm

A business whose main responsibility is to be an intermediary that puts buyers and sellers together in order to facilitate a transaction, and who are paid commission after the transaction has been successfully completed.

IRA

An account in which an individual may set aside earned income in a tax-deferred savings plan for his or her retirement. There are two types: traditional and Roth, each with its own qualifications and rules governing contributions and withdrawals.

Late Fee

A charge a consumer pays for making a required minimum payment on a credit card after the due date, typically $25-$35 per occurance; these always negatively impact the consumer's credit report and credit score.

National Credit Union Administration (NCUA)

An independent federal agency that regulates, charters, insures, and supervises federal credit unions, just as the FDIC insures traditional banks.

Opportunity Cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another.

Pay Yourself First (PYF)

A phrase commonly used in personal finance and retirement planning literature that means to automatically route your specified savings contribution from each paycheck at the time it is received, to prioritize savings over all other expenses each month.

Payday Lending

A type of short-term loan where an individual borrows a small amount at a very high rate of interest. The borrower typically writes a post-dated personal check in the amount they wish to borrow plus a fee in exchange for cash.

Periodic Expense

Costs which occur on an irregular basis, rather than monthly. Examples include quarterly insurance premiums, school taxes, or automobile maintenance costs.

phishing and smishing

A high-tech scam that uses spam or pop-up messages to deceive consumers into disclosing their card numbers, bank account info, Social Security numbers, passwords, or other personal information by claiming to be from a business or organization that the consumer deals with.

Ponzi Scheme

A fraudulent investing scam promising high rates of return with little risk to investors; these scams generate returns for earlier investors by acquiring new investors. This scam actually yields the promised returns to earlier investors, as long as there are more new investors.

Predatory Lending

Any lending practice that imposes unfair or abusive loan terms on a borrower. It is also any practice that convinces a borrower to accept unfair terms through deceptive, coercive, exploitative or unscrupulous actions for a loan that a borrower doesn't need, doesn't want or can't afford.

Premium

The amount paid for a contract of insurance.

Principal

The initial amount of money borrowed, loaned, or invested.

Retirement Planning

the process of determining retirement income goals and the actions and decisions necessary to achieve those goals, including identifying sources of income, estimating expenses, implementing a savings program and managing assets.

Revolving Credit

An account on which the account holder can charge repeatedly up to a maximum limit, such as a credit card, of home equity line of credit.

Risk/Reward

A ratio used by many investors to compare the expected returns of an investment to the amount of risk undertaken to capture these returns.

Roth IRA

An individual retirement plan that bears many similarities to the traditional form, but contributions are not tax deductible and qualified distributions are tax free. That is, the tax is paid when contributions are made so all the future the earnings on those contributions are tax free.

Rule of 72

A method used in finance to quickly estimate the doubling or halving time through compound interest or inflation, respectively. For example, an investor who invests $1,000 at an interest rate of 4% per year, will double their money in approximately 18 years.

Savings Account

A bank [or credit union] account in which you deposit money for future spending.

Scarcity

The basic economic problem that arises because people have unlimited wants but resources are limited. Because of this principle, economic decisions must be made to allocate resources efficiently.

Secure Credit (Card)

A type of credit card that is backed by a savings account used as collateral on the credit available with the card. Money is deposited and held in the account backing the card.

Simple Interest

Interest paid or figured on the original amount of a loan or on the amount of an account.

Student Loans

Loans designed to help students pay for university tuition, books, and living expenses. It may differ from other types of loans in that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in school.

Taxes (Federal, State, Local)

Required payments of money to governments that are used to provide public goods and services for the benefit of the community as a whole, such as roads, parks, schools and public safety departments.

Time Value of Money

The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received.

Unsecured Credit Card

The most common type of credit cards. Unlike loans such as mortgages or auto loans, these are not directly connected to property that a lender can seize of the card holder fails to pay.

Variable Expense

A cost of goods or services that changes in amount from week to week or month to month. Examples include utilities, groceries, clothing.

Debt

An obligation of repayment owed by one party (debtor/borrower) to a second party (creditor/lender); in most cases, this includes repayment of the original loan amount plus interest.

Financial Literacy

The knowledge and skill set necessary to be an informed consumer and manage finances effectively

Loan

A debt evidenced by a "note," which specifies the principal amount borrowed, interest rate, and date of repayment.

Personal Finances

All of the decisions and activities of an individual or family regarding their money, including spending, saving, budgeting, etc.

Compound Interest

Interest paid on interest previously earned (or paid!)

Interest Rate

The percentage paid to a lender for the use of borrowed money; percentage earned on invested principal, usually represented as an annual rate.

3 basic reasons to save

1) emergency fund

2) purchases

3) wealth building

Impulse Purchase

an item that is bought without previous planning or consideration of the long-term effect

Overdraft

Occurs when money is withdrawn from a bank account and the available balance goes below zero. Usually results in a fee to be paid.

Zero-Based Budget

a spending plan that assigns an expense to every dollar of your income.

Wealth Building Habits

-live on less than you make

-keep trying to increase your income

-write monthly budget and stick to it

-plan spending

-stay out of debt

-save a portion for savings and invest

-use extra money wisely

Annual Fee

a yearly fee that's charged by the credit card company for the convenience of having/using a credit card

Credit Card

type of revolving debt account issued by a bank that allows users to finance a purchase and pay back the borrowed amount over time.

Credit Score

A measure of an individual's credit risk; calculated from a credit report using a standardized formula. FICO is the most popular version.

Debt Snowball

preferred method of debt repayment; includes a list of all debts organized from smallest to largest balance; minimum payments are made to all debts except the smallest, which is attacked with the largest possible payments.

Depreciation

A decrease or loss in value

Introductory Rate

an interest rate charged to the customer in the early stages of a loan or credit card; the rate often goes up after a specified period of time.

Loan Term

time frame that a loan agreement is in force, and before or at the end of which the loan should either be repaid or renegotiated for another term

Grant

a form of federal or state financial aid that does not need to be repaid; usually given to students who demonstrate financial need.

Scholarship

A form of financial aid that does not need to be repaid; usually awarded on the basis of academic, athletic or other achievements

Work Study

A program that allows students to work part time while continuing their studies.

Investing

The action of setting money aside to increase wealth over time for long-term financial goals like retirement

Liquidity

Quality of an asset that permits it to be converted quickly into cash without loss of value; a measure of the availability of your money.

Share

Piece of ownership in a company, mutual fund or other investment

Stocks

securities that represent part ownership or equity in a corporation

SMART Goal

s-specific

m-measurable

a-attainable

r-realistic

t-time bound

CARD Act of 2009

Provides consumer protections for credit card holders, especially young adults under 21.

1040 Form

The standard Internal Revenue Service (IRS) form that individuals use to file their annual income tax returns.

Payroll Taxes (FICA)

Taxes on wages and salaries to finance government sponsored Social Security and Medicare programs

Minimum Payment

The smallest required payment that a credit card holder can pay on a monthly bill and still remain in good standing with the lender.

Room and Board

The cost of housing and food while attending college or career school.