Financial terms that are good for your family to know

Here is your chance to test your own financial knowledge.

By: The Family Money Team

06.15.2021

Knowledge is power. Here are some key financial terms everyone should know. Power up!

Amortization

Paying off of debt regularly over a period of time.

APR (Annual Percentage Rate)

The cost of a loan for one year; including all fees and interest.  Expressed as a percentage of the whole.

ARM

An adjustable-rate mortgage where interest payments can go up or down.

Assets

Anything of value a person or business owns, including: products in inventory, buildings, land, supplies, furniture, and intangible things like trademarks, patents or other intellectual property.

Balance Sheet

A financial snapshot of a business that includes assets, liabilities, and capitol.

Bankruptcy

A legal proceeding where a debtor seeks to have certain kinds of debt reduced or officially canceled. There are several different kinds, Chapter 7, 11 and 13 are the most common.

Bottom line

The total money earned or lost at the end of the month.

Capitol

The money a person or business has in its accounts, assets, and investments.

Cash Flow

The money that goes in and out each month.

Credit report

A summary of a person’s credit history, such as: bankruptcies, loans, late payments, and recent credit inquiries.

Credit score

A number representing a person’s credit-worthiness based on their credit report.  One of the most common scores used in the U.S. is Fair Isaac Corporation’s FICO® score, which ranges from 300 - 850. It’s based on things like: payment history, length of credit history, and total owed. A higher score means a better credit rating.

Compound interest

Interest calculated on the original amount of money as well as the interest it has already earned.

Debt

An amount of money owed to a person or business.

Delinquency

When a borrower fails to pay a debt on time.

Depreciation

The decrease in value of assets over time.

Inflation

The rise in the prices of goods and services over time.

Interest

The cost of borrowing money.

Liability

An obligation to repay debt, like: bank loans, mortgages, credit card debt, and money owed to suppliers and vendors*.

Liquidity

The ability of an asset to be sold quickly without a loss or discount.

Net worth

The assets of a person or business minus liabilities.

Prime rate

The lowest interest rate banks will charge their customers, tied to the interest rates set by the Federal Reserve bank.

Principal

The amount of money loaned or borrowed that interest is paid on.

Recession

A decline in GDP (gross domestic product) for 2 or more consecutive quarters, where usually the stock market and housing markets decline and unemployment rises.

Transaction

An exchange or transfer of goods, services, and money.

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