Savings & The Financial System

Flashcards covering vocabulary and key terms related to savings, the financial system, and investment considerations.

Financial System

A network of savers, investors, financial institutions, and financial assets that work together to transfer savings from savers to investors.

Financial Intermediaries

Institutions like banks, credit unions, life insurance companies, pension funds, and finance companies that collect funds that can be saved and provide these savings to borrowers.

Borrowers

Entities (businesses, individuals) that use funds for various purposes, such as capital goods acquisition or purchasing a house/car.

Financial Assets

Documents that prove borrowing has taken place and there is a claim on income and assets from the borrower.

Banks

Financial institutions that offer checking/savings/CD accounts, with credit cards being the most profitable product.

Credit Union

A non-profit service cooperative operated for and by its members, offering services like deposits, loans, CDs, and checking accounts.

Finance Companies

Firms specializing in making loans directly to consumers and buying installment contracts from merchants.

Life Insurance Companies

Companies that provide financial protection for dependents in the event of a person's death, collecting premiums and lending surplus cash to large businesses.

Pension Funds

Funds that collect periodic contributions from firms or employees and make regular payments (pensions) to workers after retirement or disability; typically invested in high-quality corporate stocks and bonds.

Consistency (in Investing)

Investing periodically at the same rate to grow investments.

Simplicity (in Investing)

Sticking with investments that you understand and avoiding investments that seem too good to be true.

Diversification (in Investing)

Spreading out investments to cover different financial assets, mitigating the risk of losing everything from one event.

Risk-Return Relationship

The principle that higher risk usually demands higher returns as compensation.