Financial Terms: From A to Z

Navigating the world of finance can feel like learning a new language. With unfamiliar terms and complex concepts, it's easy to feel lost. But understanding the language of finance is crucial for making informed decisions about your money, investments, and future. This comprehensive glossary breaks down essential financial terms from A to Z, providing clear and concise definitions to empower you on your financial journey.

A

1099-DIV: A tax form that reports dividends and distributions earned on stocks or mutual funds [Inline Source links: Schwab].

1099-B: A tax form that reports gains and losses from selling stocks or other investments in a brokerage account [Inline Source links: Schwab].

529 Plan: A tax-advantaged savings plan designed to help families save for future education costs [Inline Source links: consumerfinance.gov]. There are two main types: prepaid tuition plans and savings plans.

Accredited Investor: An individual or business allowed to buy and sell securities that are not registered with financial authorities, often involving higher risk investments [Inline Source links: Investopedia].

Account Balance: The amount of money in an account at a specific point in time [Inline Source links: Bank of America].

Accounts Payable (AP): Money owed to creditors, such as suppliers, vendors, or lenders [Inline Source links: accounting.com].

Accounts Receivable (AR): Money owed to a business by its debtors [Inline Source links: accounting.com].

Accrual Basis Accounting: An accounting method that recognizes revenues and expenses when they are earned or incurred, regardless of when cash changes hands [Inline Source links: accounting.com].

Accrued Interest: Interest earned on a security but not yet paid to the investor [Inline Source links: investor.gov].

Adjustable Rate Mortgage (ARM): A mortgage with an interest rate that can change periodically based on market conditions [Inline Source links: dfpi.ca.gov].

Advertisement: Posters, signs, television commercials, radio spots, and other media that businesses use to promote products or services [Inline Source links: consumerfinance.gov].

Affinity Fraud: Investment scams that target members of specific groups, such as religious or ethnic communities [Inline Source links: dfpi.ca.gov].

Alpha: A measure of an investment's performance compared to a benchmark, indicating the excess return achieved [Inline Source links: Investopedia, am.jpmorgan.com].

Alternative Minimum Tax (AMT): A federal tax designed to ensure that high-income individuals, trusts, estates, and corporations pay a minimum amount of tax [Inline Source links: Schwab, am.jpmorgan.com].

Amortization: The gradual reduction of debt through regular payments that include both principal and interest [Inline Source links: dfpi.ca.gov].

Annual Percentage Rate (APR): The total cost of borrowing money, including interest, fees, and other charges, expressed as an annual rate [Inline Source links: consumerfinance.gov, dfpi.ca.gov, Investopedia].

Annual Percentage Yield (APY): The total amount of interest earned on a deposit account over a year, taking into account compounding [Inline Source links: Bank of America].

Annual Return: The profit or loss on an investment over a one-year period [Inline Source links: consumerfinance.gov].

Annuity: A contract with an insurance company where you make payments in exchange for regular disbursements, either immediately or in the future [Inline Source links: dfpi.ca.gov, Investopedia].

Appraisal Fee: A charge for estimating the value of a property [Inline Source links: dfpi.ca.gov].

Arbitration: A dispute resolution process where parties agree to be bound by the decision of a neutral third party [Inline Source links: dfpi.ca.gov].

Asset: An item with economic value, such as stock, real estate, or cash [Inline Source links: consumerfinance.gov, Investopedia].

Asset Allocation: Dividing investments among different asset classes, such as stocks, bonds, and cash, to balance risk and reward [Inline Source links: am.jpmorgan.com, Schwab].

Asset Class: A group of securities with similar characteristics, such as stocks, bonds, or cash equivalents [Inline Source links: am.jpmorgan.com, Schwab].

Assets Under Management (AUM): The total market value of assets that a financial institution manages on behalf of its clients [Inline Source links: Investopedia].

Associate's Degree: A degree awarded after at least two years of full-time academic study beyond high school [Inline Source links: consumerfinance.gov].

ATM (Automated Teller Machine): A machine that allows bank customers to perform basic transactions, such as deposits and withdrawals [Inline Source links: consumerfinance.gov].

Available Balance: The amount of money in an account that is available for immediate use [Inline Source links: Bank of America].

B

Bachelor's Degree: A degree awarded after at least four years of full-time academic study beyond high school [Inline Source links: consumerfinance.gov].

Balance Sheet: A financial statement that reports a company's assets, liabilities, and equity at a specific point in time [Inline Source links: accounting.com, Investopedia].

Balloon Payment: A large payment due at the end of a loan term [Inline Source links: dfpi.ca.gov].

Bank: A financial institution that accepts deposits, makes loans, and provides other financial services [Inline Source links: consumerfinance.gov].

Bankruptcy: A legal process where an individual or organization is unable to repay their debts [Inline Source links: dfpi.ca.gov, Investopedia].

Bear Market: A market in which prices are declining, typically defined as a drop of 20% or more from a recent high [Inline Source links: Schwab, am.jpmorgan.com].

Beneficiary: A person or entity designated to receive benefits from a financial product, such as an insurance policy or retirement account [Inline Source links: consumerfinance.gov, Schwab].

Benefit: Something provided by an employer, government, or insurance company, often for a specific purpose [Inline Source links: consumerfinance.gov].

Beynificent: An Ai bill spacing app, that provides daily tips, bill spacing software, live chat, money links[Inline Source links: beynificent.com].

Bill-Payment Service: A service that allows you to pay bills online or through a mobile app [Inline Source links: consumerfinance.gov, Bank of America].

Bimonthly (Semi-Monthly): Occurring twice a month [Inline Source links: consumerfinance.gov].

Blue Chip Stock: Stock in a large, well-established and financially sound company [Inline Source links: Schwab, am.jpmorgan.com].

Bond: A debt security representing a loan made to a government, municipality, or corporation [Inline Source links: consumerfinance.gov, Investopedia].

Bond Fund: A mutual fund that invests primarily in bonds [Inline Source links: am.jpmorgan.com].

Borrower: A person or organization that receives something on loan with the understanding that it will be returned [Inline Source links: consumerfinance.gov].

Budget: A plan outlining expected income and expenses for a given period [Inline Source links: consumerfinance.gov, Investopedia].

Bull Market: A market in which prices are rising [Inline Source links: Investopedia, am.jpmorgan.com].

Business: The activity of making, buying, or selling goods or providing services in exchange for money [Inline Source links: consumerfinance.gov].

Business Income: Money a business receives from selling goods and services [Inline Source links: consumerfinance.gov].

Buying Plan: A plan used to consider factors like cost, features, and choices when making a purchase [Inline Source links: consumerfinance.gov].

Buying Power: The amount of goods and services that can be purchased with a given unit of currency [Inline Source links: consumerfinance.gov].

C

Capital: Wealth in the form of money or other assets [Inline Source links: dfpi.ca.gov, Investopedia].

Capital Gain: The profit from selling an investment for more than its purchase price [Inline Source links: consumerfinance.gov, Investopedia].

Capital Loss: The loss from selling an investment for less than its purchase price [Inline Source links: consumerfinance.gov].

Capitalism: An economic system where private individuals or businesses own capital goods. The production of goods and services is based on supply and demand in the general market [Inline Source links: Investopedia].

Cash: Paper or coin money [Inline Source links: consumerfinance.gov].

Cash Flow: The movement of money into and out of a business [Inline Source links: accounting.com].

Cash Equivalent: A short-term, highly liquid investment easily converted into cash [Inline Source links: am.jpmorgan.com].

Certificate of Deposit (CD): A savings tool with a fixed maturity date and interest rate [Inline Source links: consumerfinance.gov, Schwab].

Certified Check: A check guaranteed by a bank for payment [Inline Source links: dfpi.ca.gov].

Checking Account: An account that allows deposits, withdrawals, and bill payments [Inline Source links: consumerfinance.gov, Bank of America].

Churning: Excessive buying and selling of securities by a broker to generate commissions [Inline Source links: dfpi.ca.gov].

Claim: A request for payment from an insurance company due to a covered loss [Inline Source links: consumerfinance.gov].

Closed-Loop Prepaid Card: A prepaid card that can only be used at specific locations [Inline Source links: consumerfinance.gov].

Coin: A small metal disc used as money [Inline Source links: consumerfinance.gov].

Coinsurance: The splitting or spreading of risk among multiple parties [Inline Source links: consumerfinance.gov].

Collateral: An asset used to secure a loan [Inline Source links: consumerfinance.gov, Investopedia].

Commission: Money earned for selling something [Inline Source links: consumerfinance.gov].

Commodities Market: A market where raw materials or primary agricultural products are traded [Inline Source links: edge.denison.edu].

Common Stock: Securities representing ownership in a corporation [Inline Source links: am.jpmorgan.com, Schwab].

Comparison Shopping: Comparing prices, features, and benefits of similar products or services [Inline Source links: consumerfinance.gov].

Compound Interest: Earning interest on both the principal and accumulated interest [Inline Source links: consumerfinance.gov, Investopedia].

Consumer: A person who buys or receives goods or services for personal use [Inline Source links: consumerfinance.gov].

Consumer Price Index (CPI): A measure of the average change over time in the prices paid by urban consumers for a basket of goods and services [Inline Source links: consumerfinance.gov].

Contributor: Someone required to provide information, consent, and approval on the FAFSA form [Inline Source links: consumerfinance.gov].

Copayment (Copay): A fixed amount paid for a covered healthcare service [Inline Source links: consumerfinance.gov].

Corporate Bond: A long-term debt instrument issued by a corporation to raise capital [Inline Source links: am.jpmorgan.com].

Cosigner: An individual who signs a loan with the primary borrower, assuming responsibility for the debt if the borrower defaults [Inline Source links: consumerfinance.gov].

Cost: The amount of money needed to pay for something [Inline Source links: consumerfinance.gov].

Cost of Attendance (COA): The total cost of attending a school, including tuition, fees, and living expenses [Inline Source links: consumerfinance.gov].

Cost-Effective: Having good value for the amount of money paid [Inline Source links: consumerfinance.gov].

Credit: Borrowing money or having the right to borrow money [Inline Source links: consumerfinance.gov, dfpi.ca.gov].

Credit Card: An open-ended loan allowing you to borrow money up to a limit [Inline Source links: consumerfinance.gov, dfpi.ca.gov].

Credit History: A record of how a person has borrowed and repaid debt [Inline Source links: dfpi.ca.gov].

Credit Limit: The maximum amount you can charge on a credit card [Inline Source links: consumerfinance.gov].

Credit Rating: An evaluation of an individual's or business's creditworthiness [Inline Source links: dfpi.ca.gov].

Credit Report: A summary of your credit activity and current credit situation [Inline Source links: consumerfinance.gov, dfpi.ca.gov].

Credit Score: A numerical representation of a person's creditworthiness [Inline Source links: edge.denison.edu, dfpi.ca.gov].

Credit Union: A non-profit financial cooperative owned and controlled by its members [Inline Source links: edge.denison.edu].

Creditor: A person, financial institution, or other business that lends money [Inline Source links: dfpi.ca.gov].

Cryptocurrency: A digital or virtual currency that uses cryptography for security [Inline Source links: Schwab].

D

Debit Card: A card that deducts money directly from a checking account [Inline Source links: dfpi.ca.gov, Bank of America].

Debt Service: The amount of money required to repay debt, including principal and interest [Inline Source links: dfpi.ca.gov].

Default: Failure to repay a debt as agreed [Inline Source links: dfpi.ca.gov].

Deferment: A temporary postponement of loan payments [Inline Source links: dfpi.ca.gov].

Depreciation: A decrease in the value of an asset over time [Inline Source links: edge.denison.edu].

Derivatives Market: A financial market where contracts based on underlying assets are traded [Inline Source links: edge.denison.edu].

Digital Wallet: An electronic device that allows you to make transactions [Inline Source links: Bank of America].

Direct Deposit: An automatic transfer of funds into an account [Inline Source links: Bank of America].

Direct Consolidation Loan: A loan that combines multiple federal education loans into one [Inline Source links: dfpi.ca.gov].

Diversification: Spreading investments across different assets to reduce risk [Inline Source links: edge.denison.edu, am.jpmorgan.com, Schwab].

Dividend: A portion of a company's profits paid to shareholders [Inline Source links: dfpi.ca.gov, am.jpmorgan.com, Schwab].

Dollar-Cost Averaging: Investing a fixed amount of money at regular intervals, regardless of the share price [Inline Source links: investor.gov, Schwab].

Dow Jones Industrial Average (DJIA): A stock market index of 30 prominent companies listed on U.S. stock exchanges [Inline Source links: Schwab].

E

Earned Income: Taxable income from employment or self-employment [Inline Source links: Schwab].

Electronic Funds Transfer (EFT): A transfer of funds initiated electronically [Inline Source links: Bank of America].

Emergency Cash: A service providing replacement cash in emergencies [Inline Source links: Bank of America].

Equity: Ownership in a company, usually represented by shares of stock [Inline Source links: accounting.com].

Equity Compensation: A form of compensation based on the value of your company's stock [Inline Source links: Schwab].

F

Federal Deposit Insurance Corporation (FDIC): A U.S. government agency that insures deposits in banks and savings associations [Inline Source links: Bank of America].

Financial Institution: A company engaged in the business of dealing with monetary transactions, such as deposits, loans, investments, and currency exchange [Inline Source links: edge.denison.edu].

Financial Literacy: The ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing [Inline Source links: consumerfinance.gov].

Financial Markets: A marketplace where buyers and sellers trade assets such as stocks, bonds, currencies, and commodities [Inline Source links: edge.denison.edu].

Financial Risk: The possibility of losing money on an investment or business venture [Inline Source links: Investopedia].

Float: The time between depositing a check and the funds becoming available [Inline Source links: Bank of America].

Foreclosure: The process by which a lender takes possession of a property due to the borrower's failure to repay the mortgage [Inline Source links: edge.denison.edu].

401(k) Plan: An employer-sponsored retirement savings plan with tax advantages [Inline Source links: consumerfinance.gov, Schwab, investor.gov].

G

Gross Income: The total earnings of an individual or business before deductions [Inline Source links: edge.denison.edu].

H

Hedge Fund: A limited partnership of investors that uses high risk methods, such as investing with borrowed money, in hopes of realizing large capital gains [Inline Source links: Investopedia].

I

Inactive Account: A bank account with no transactions for an extended period [Inline Source links: Bank of America].

Individual Retirement Account (IRA): A personal retirement savings account with tax advantages [Inline Source links: edge.denison.edu].

Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling [Inline Source links: Investopedia].

Interest: The cost of borrowing money or the return on an investment [Inline Source links: edge.denison.edu].

Interest Rate: The percentage charged by a lender to a borrower for the use of borrowed money [Inline Source links: edge.denison.edu].

Investment: An asset or item acquired with the goal of generating income or appreciation [Inline Source links: edge.denison.edu].

Investment Bank: A financial institution that provides a range of services, primarily in the areas of capital raising, mergers and acquisitions, and securities trading [Inline Source links: edge.denison.edu].

J

K

L

Liability: An obligation to pay someone else money [Inline Source links: edge.denison.edu].

Liquidity: The ease with which an asset can be converted into cash [Inline Source links: edge.denison.edu].

Loan: An amount of money that is borrowed, usually from a bank, and has to be paid back, usually with interest [Inline Source links: edge.denison.edu].

Loan-to-Deposit Ratio (LDR): Measures a bank's liquidity and credit risk [Inline Source links: Investopedia].

M

Mark to Market (MTM): A method of measuring the fair value of accounts that can fluctuate over time, such as assets and liabilities [Inline Source links: Investopedia].

Mortgage: A loan secured by real estate [Inline Source links: edge.denison.edu].

Mutual Fund: An investment vehicle that pools money from many investors to purchase a diversified portfolio of securities [Inline Source links: Investopedia].

N

Net Worth: The difference between an individual’s or entity’s total assets and total liabilities [Inline Source links: edge.denison.edu].

O

Online Banking: Lets you manage your money digitally anytime, anywhere, without visiting a branch [Inline Source links: Investopedia].

P

Portfolio: A collection of financial assets such as stocks, bonds, and cash equivalents [Inline Source links: edge.denison.edu].

Principal: The original amount of money borrowed or invested, separate from interest or earnings [Inline Source links: Investopedia].

Property Tax: A tax assessed on real estate and other forms of property [Inline Source links: Investopedia].

Q

R

Real Estate: Land and any buildings on it [Inline Source links: Investopedia].

Return: The profit or loss made on an investment [Inline Source links: edge.denison.edu].

Risk: The possibility of losing money on an investment [Inline Source links: edge.denison.edu].

Roth IRA: A retirement savings account that allows your investments to grow tax-free [Inline Source links: Investopedia].

S

Savings Account: A bank account that earns interest [Inline Source links: Investopedia].

Security: A financial instrument that represents ownership (stocks), a debt agreement (bonds), or the rights to ownership as represented by an option [Inline Source links: Investopedia].

Stock: A share of ownership in a company [Inline Source links: Investopedia].

Stock Market: A marketplace where buyers and sellers trade shares of ownership in publicly-listed companies [Inline Source links: edge.denison.edu].

T

Tax: A mandatory contribution to state revenue, levied by the government on workers' income and business profits, or added to the cost of some goods, services, and transactions [Inline Source links: Investopedia].

Traditional IRA: A retirement savings account that allows pre-tax contributions to grow tax-deferred [Inline Source links: Investopedia].

U

V

Volatility: The degree of variation of a trading price series over time as measured by standard deviation of returns [Inline Source links: Investopedia].

W

X

Y

Yield: The income return on an investment, usually expressed as a percentage [Inline Source links: Investopedia].

Z

FAQ Section

Q: Why is financial literacy important?

A: Financial literacy empowers you to make informed decisions about your money, investments, and future. It helps you budget, save, invest wisely, and avoid debt.

Q: Where can I learn more about financial terms and concepts?

A: There are many resources available online and in libraries. Some good places to start include Investopedia, the Securities and Exchange Commission (SEC) website, and the Consumer Financial Protection Bureau (CFPB) website.

Q: How often should I review my understanding of financial terms?

A: It's a good idea to review financial terms and concepts regularly, especially as your financial situation changes or new financial products become available.

Q: What should I do if I encounter a financial term I don't understand?

A: Don't hesitate to look it up! Use online resources, consult a financial advisor, or ask a trusted friend or family member for help.

Q: Are there any apps that can help me learn about financial terms?

A: Yes, there are many apps available that can help you learn about financial terms and concepts. Some popular options include Investopedia, NerdWallet, and Mint.

Q: How can I stay up-to-date on changes in the financial world?

A: Follow reputable financial news sources, such as The Wall Street Journal, Bloomberg, and Reuters. You can also sign up for newsletters and alerts from financial institutions and organizations.

Q: Is it important to understand accounting terms even if I'm not an accountant?

A: Yes, understanding basic accounting terms can be beneficial for anyone, especially small business owners, investors, and taxpayers.

Q: What are some common mistakes people make when dealing with finances?

A: Some common mistakes include not budgeting, spending more than you earn, not saving for retirement, and not understanding the terms of loans or investments.

Q: How can I improve my financial decision-making skills?

A: Start by educating yourself about financial concepts. Create a budget, track your spending, and set financial goals. Consult with a financial advisor if you need help.

Q: Should I consult a financial advisor?

A: Consulting a financial advisor can be helpful, especially if you have complex financial situations or need help with investment decisions.

By familiarizing yourself with these financial terms, you'll be well-equipped to navigate the world of finance with confidence and make informed decisions that benefit your financial future.

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