Financial Literacy and Investing Flashcards

A set of vocabulary flashcards based on lecture notes covering the basics of money, the South African financial system, budgeting strategies, and the fundamentals of investing.

Fiat money

Derived from the Latin for "let it be done," this is money that has value because a government declares it does and society accepts that declaration.

Double coincidence of wants

A central problem of the barter system where both trading parties must want exactly what the other has at the same time.

Commodity money

A type of currency involving things with real, intrinsic value, such as gold, silver, cattle, or salt.

South African Reserve Bank (SARB)

The central bank of South Africa, known as the "bank of banks," which controls the money supply and sets the repo rate.

Repo rate

The interest rate at which commercial banks borrow from the $SARB$, which impacts interest rates for home loans and savings accounts throughout the economy.

Medium of exchange

One of the three jobs of money that enables trade without the need for a direct barter system.

Store of value

A function of money that allows it to be saved and spent at a later date, holding its value across time.

Unit of account

A function of money that provides a common measuring stick, allowing for the comparison of values between different items like a house and a loaf of bread.

Inflation

An economic process where prices rise over time, which typically runs around $5-6\%$ per year in South Africa and erodes the purchasing power of savings.

Investing

The act of using money to buy an asset with the expectation that it will grow in value or generate income in the future.

Shares

An investment asset that represents owning a small piece of a company.

Bonds

An investment where an individual lends money to a government or a company for a return.

JSE

South Africa's stock exchange where company shares are traded.

Avalanche method

A debt repayment strategy that focuses on paying off debts with the highest interest rates first to save on total interest paid over time.

Simple interest time conversion

The rule that time must be converted into years when using the simple interest formula since rates are annual (e.g., $18$ months $= 1.5$ years).

Progressive tax brackets

A tax system where only the portion of income within a specific bracket is taxed at that bracket's rate, rather than the entire income being taxed at the highest rate reached.