Research Guides: Financial Literacy WashU: Glossary

Glossary

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50/30/20 rule - budgeting rule recommending 50% of income going towards needs, 30% on wants and 20% to savings or debts.

Annual percentage rate (APR) - APR allows you to evaluate the cost of the loan in terms of a percentage. If your loan has a 10% rate, you'll pay $10 per $100 you borrow annually.
Annual percentage yield (APY) - The effective, or true, annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the effect of compounding. The APY is calculated by taking one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% (.01) per month rate has an APY of 1 + .01 = 1.01 --> 1.01^12 =12.68%.
- Confused about APR vs. APY? View this video from Investopedia to help further explain these two concepts.
Annual Fee - The amount that credit card companies charge for the use of a credit card.
Asset - Any possession that has value in an exchange. For example, cash, stocks, bonds, real estate and personal possessions.
Authorized user - someone who is able to make purchases on a credit card but is not held legally liable for the credit card balance.

Bank - A for-profit company that is owned by its stockholders and provides saving and checking accounts and other financial services to its customers.
Budget - A plan for managing money, dividing up expected income and expenses among spending and saving options based on personal financial goals during a given time period.

Capitalization - When interest is capitalized, the outstanding (unpaid) interest on your student loan account is added to the principal balance. When this happens, you are essentially paying interest on top of interest.
Certificate of Deposit (CD) - An account in which you deposit funds for a set term (e.g., six months or one, two, or five years), with a financial institution, with the promise of a set interest rate. For most CDs you cannot make deposits or withdrawals to the account during this term.
Collateral: When you apply for a loan, you may offer your lender property or money as collateral, which the lender can use to recoup its costs if you default on the loan. This type of loan is considered a secured loan, which is commonly used in home mortgages and auto loans.
Credit - Amount of money a creditor is willing to loan another to purchase goods and services, based the expectation that the money will be repaid as promised with interest.
Credit Card - Amount of money a creditor is willing to loan another to purchase goods and services, based the expectation that the money will be repaid as promised with interest.
Credit Limit - The maximum amount of credit a lender will extend to a customer.
Creditworthiness - A measure of one's ability and willingness to repay a loan.
Credit rating/score - A measure of creditworthiness based on an analysis of the consumer's financial history, often computed as a numerical score, using the FICO or other scoring systems to analyze the consumer's credit. A creditor's evaluation of a person's willingness and ability to pay debts as judged by character, capacity, and capital; a mathematical model used by lenders to predict the likelihood that bills will be paid as promised.
- Worried about your credit score? Learn more about the effects of credit inquiries on your credit score
Credit Union - A financial institution owned by its members that provides savings and checking accounts and other services to its membership at low fees.

Debit Card - A card used to pay for goods and services directly from a checking account by transferring funds electronically from one's checking account to the store's account to pay for a purchase; also called check cards.
Debt - The entire amount of money owed to lenders.
Deferment - A temporary postponement on federal student loan payment, deferments are granted if you meet the specific criteria. (For example, Unemployment or Economic Hardship).

Earned Interest - The payment you receive for allowing a financial institution or corporation to use your money.
Electronic Transfer Account (ETA) - A low-cost savings account that provides federal payment recipients with the opportunity to receive their federal payments through direct deposit.

Federal Student Loans - Loans that are guaranteed by the federal government, includes Stafford, Direct, Parent PLUS, and Grad PLUS loans. These loans have a fixed interest rate, as well as deferment and forbearance options.
FICO Score - A three-digit number (300 - 850) estimating your credit risk. It can influence whether you get credit and the interest rates you pay. It's the most common credit score.
FICO 8 score - widely used in lending decisions. It’s especially sensitive to high credit card utilization but is generally more forgiving of isolated late payments than previous versions.
Fixed Expenses - Expenses that cost the same amount every time.

Grace Period - The length of time you have before you start accumulating interest on an unpaid balance.
Gross Income - The total amount of income from wages before any payroll deductions.

Individual Development Account (IDA) - A matched savings account in which another organization (e.g., a foundation, corporation, or government entity) agrees to add money to your account to match the money you save in it.
Identity Theft - When someone uses your name, Social Security number, credit card number, and other personal information without your permission.
Income - Any money an individual receives.
Interest - Interest is the additional amount you will pay to a lending institution to borrow money. In terms of savings, interest is the additional amount you will earn for having your money in a bank account or other savings vehicle.
Simple Interest
- Simple interest is interest paid only on the "principal" or the amount originally borrowed, and not on the interest owed on the loan.
Compound Interest
- Interest credited daily, monthly, quarterly, semi-annually, or annually on both principal and preciously credited interest.
Investment - Setting aside money for future income, benefit, or profit to meet long-term goal; using savings to earn a financial return.

Late Fee - A penalty on all types of credit for making a payment after its due date.
Loan Term - The length of time you have to pay off a loan.

Needs - Essentials or basics necessary for maintaining physical life, including food, clothing, water, and shelter, sometimes called material well-being
Net Income - Also called "take-home pay"; it's the amount of income left after payroll deductions

Payroll deductions - Amounts subtracted from gross income that are withheld by an employer for items such as taxes and employee benefits.
Promissory Note - A legally binding document signed when you take out a student or parent loan. The promissory note (sometimes referred to as a "prom note") lists the conditions under which you're borrowing and the terms under which you agree to pay back the loan. It will include information on how interest is calculated and what deferment and cancellation provisions are available to the borrower.

Retirement Investments - Money you invest over a long period of time so that you will have money to live on when you are no longer working.
Roth Individual Retirement Arrangements (IRAs) - Contributions to a Roth IRA are not tax deductible while contributions to a traditional IRA may be deductible. The distributions (including earnings) from a Roth IRA are not included in income.

Statement Savings Account - An account that earns interest. You will usually receive a quarterly statement that lists all your transactions–withdrawals, deposits, fees, and interest earned.
Subsidized - The federal government pays the interest that accrues on the subsidized portion of federal loans during the in school period, grace period, and periods of deferment.
Saving - The process of setting income aside for future spending. Saving provides ready cash for emergencies and short-term goals, and funds for investing.
Secured Credit Cards: require an upfront security deposit to open. Your deposit will equal your credit limit. The deposit is used as collateral.

Traditional Individual Retirement Arrangements (IRAs) - Contributions to a traditional IRA may be tax deductible, based on the amount of your contribution and your income. The earnings on the amounts in your IRA are not taxed until they are distributed.

Unsecured credit cards - the most common type of credit cards. They are not secured by collateral, meaning they are not directly connected to property that a lender can seize if the cardholder fails to pay.
Unsubsidized - A loan in which the borrower is responsible for interest that accrues on any unsubsidized loan.
U.S. Savings Bonds - A long-term investment option backed by the full faith and credit of the U.S. Government. Savings bonds can be purchased at a financial institution for as little as $25 or through payroll deductions.

Vantage Score - a credit score calculation method created by the three Credit bureaus: Experian, TransUnion and Equifax.

Source: Worcester Polytechnic Institute, Tuition & Financial Aid

https://www.wpi.edu/student-experience/resources/financial-literacy/terms