Financial Terms Glossary

By Nicole Young on June 10, 2024

A guide of important financial terms for everyone to know

401(K) PLAN – An employer-sponsored retirement savings plan in which an employee contributes part of their pay toward retirement.
403(B) PLAN – A type of tax-deferred retirement savings plan for employees of public schools, certain non-profits, and some members of the clergy.
529 PLAN – A tax-advantaged savings plan geared to help families save for their children’s future educational costs.
AMORTIZATION – An accounting technique that spreads out payments over a specified period.
ANNUAL PERCENTAGE RATE (APR) – The total cost of borrowing money each year, formulated as a percentage rate.
ANNUAL RETURN – The profit or loss of an investment over one year
ANNUITY CONTRACT – A written agreement between an insurance company and a customer that outlines each party’s obligation in an annuity agreement.
APPRAISAL FEE – A fee charged when estimating the value of a property. This is typically done for insurance, investment, or mortgage contracts.
APPRECIATION – The rise in the value of an asset, such as currency or real estate.
ASSET – An item that has economic value, such as stock or real estate
ASSET ALLOCATION – An investment strategy that balances risk and reward by dividing investment among different assets.
ASSET CLASS – The grouping of investments that have similar financial characteristics and are subject to the same laws and regulations.
BENCHMARK – A standard that is used to measure changes in an asset’s value over time.
BENEFICIARY – A person named to receive proceeds or benefits.
BOND – An interest-bearing security that requires the issuers to pay a specified amount of interest over a set period.
BORROWER – Anyone who obtains funds or an asset under that condition that they must repay.
CAPITAL – Wealth in the form of money or other assets owned by an individual or institution.
CAPITAL GAIN (OR LOSS) – The profit or loss that comes from selling and investment.
CERTIFICATE OF DEPOSIT – A type of savings account offered by a bank or credit union that has a fixed maturity date and a fixed interest rate.
CLAIM – An insurer’s request of payment following a financial loss that has occurred and is covered under the insurance policy.
COLLATERAL – An asset that secures a loan or other debt that a lender is allowed to take if you do not repay the money you have borrowed.
COMMISSION – An amount of money someone earns for selling something.
COMPOUND INTEREST – When additional interest is earned on interest.
COPAY – A fixed amount you pay on health care services in addition to the amount your insurer pays.
COSIGNER – An individual who signs a loan, credit account, or promissory note of another person (primary signer) who is taking out the debt. The consigner then becomes responsible for the debt.
CRYPTO ASSET – A decentralized digital currency that can be exchanged. Its ownership records are available via blockchain technology.
DEBT – Money you owe to another person or business.
DEBT CONSOLIDATION – The consolidation of various debts into one monthly payment on one account.
DEFAULT – When a borrower fails to repay a debt owed. At this point, a borrower may be required to pay the entire loan balance in full.
DEFERMENT – A temporary pause or reduction of a student loan balance. Deferment may also stop interest from accruing.
DELINQUENCY – When a borrower is late or overdue on a debt payment. Extended delinquency can lead to default.
DEPRECIATION – The opposite of appreciation where the value of an asset decreases.
DIVERSIFICATION – A strategy used to balance risk by investing in different securities to maximize return and lower the risk of one particular asset.
DIVIDEND – A portion of a public or private company’s profit paid to shareholders.
EARNINGS – Profit a company has earned.
EQUITY – Ownership interest in an asset after liabilities are deducted.
EXCHANGE TRADED FUND (ETF) – SEC-registered investment companies that offer investors a way to pool their money in a fund that invests in stocks, bonks, or other assets.
FIDUCIARY – A person who legally manages the money or property of someone else.
FINANCIAL PLANNER – A person who creates financial plans for their clients based on the clients’ needs.
FIXED ANNUITY – An insurance product that promises a minimum rate of interest while your account is growing.
FIXED INCOME – A broad term that refers to different types of investment security that pay investors fixed interest or dividend payments until their maturity date.
FORBEARANCE – When borrowers are temporarily permitted to not make payments, though interest will still accrue.
FORECLOSURE – A process instituted by a creditor to take collateral, such as property away from the borrower to be sold again to repay debt.
GRACE PERIOD – A period immediately after the due date for a loan payment in which payment can still be made without penalty.
GROSS INCOME – The amount earned before taxes and other deductions.
HEALTH SAVINGS ACCOUNT (HSA) – A tax-advantaged account to help individuals save no medical expenses that are not reimbursed by health plans.
HEDGE FUND – When an investor’s money and investments are pooled in an effort to make a positive return.
INCOME DRIVEN REPAYMENT PLAN (IDR) – A plan that bases a monthly student loan payment balance on the borrower’s income or family size.
INDEX – A group or basket of securities, derivatives, or other financial instruments that represents and measures the performance of a specific market, asset class, market sector, or investment strategy. The S&P 500 and the Dow Jones are examples of stock market indexes.
INDEX FUND – A type of mutual fund or unit investment trust whose investment objective is typically to achieve the same return as a particular market index
INDIVIDUAL RETIREMENT ACCOUNT (IRA) – A type of retirement savings and investment account that has various tax advantages. There are two different types of IRAs: Traditional and Roth. Traditional IRA contributions are tax-deductible on both state and federal tax returns for the year. A Roth provides no tax deductions but the earnings and withdrawals are typically tax free.
INTEREST – The price paid for borrowing money.
INVESTMENT ADVISOR (IAS) – A person or firm that provides investment advice to others about the value of or about investing in securities.
JOINT AND LAST SURVIVOR ANNUITY – An annuity form that provides lifetime income payments for an annuity owner and their survivor It is designed primarily for retired couples.
LENDER – The party who lends money to a borrower.
LIABILITY – The amount owed to a lender.
LIEN – The legal right to take the property belonging to a borrower until the debt owed is paid
LIQUIDITY – A measure of how easy it is to obtain and use your money.
MATURITY DATE – The date on which an investor’s investment must be paid back in full.
MEDICAID – A joint federal and state program that helps with the medical costs for certain people who have limited income and resources.
MEDICARE – A federal health insurance program for people age 65 or older, younger people with certain disabilities, and people with End-Stage Renal Disease.
MORTGAGE – A loan agreement to borrow money from a bank or other type of lender to purchase a home.
MUTUAL FUND – A professionally managed portfolio of stocks, bonds, and other investments divided up into shares.
NET INCOME – The amount of money received in your paycheck after taxes are other deductions are taken out.
NET WORTH – The value of a person’s assets, not including debts or liabilities.
OPPORTUNITY COST – The cost of the next best use of your money.
OUT-OF-POCKET COST – Expenses paid that are not reimbursed by insurance.
POLICYHOLDER – The person who owns the insurance policy.
PORTFOLIO – The combined holdings of stock, bond, commodity, real estate, and other investments by an individual or institutional investor.
PORTFOLIO MANAGER – A person or group of people responsible for making investment decisions and executing them on behalf of a vested individual or institution
PREMIUM – The amount by which the price of a bond exceeds its principal amount.
PRINCIPAL – For lending: The amount of money that you receive from a lender. For investing: The amount of money you contribute with the expectation of receiving income.
PROPERTY TAX – Taxes on a property such as a house, business, or boat.
RATE OF RETURN – The profit or loss on an investment expressed as a percentage.
REFINANCE – A strategy that replaces a loan with another loan that typically has better terms and interest rates.
RETURN ON INVESTMENT (ROI) – An approximate measure of an investment’s profitability.
RISK – Exposure to loss.
RISK TOLERANCE – An investor’s ability and willingness to lose some or all of an investment with the presumption that greater returns will come.
SECURITIES – An investment instrument such as a stock or bond.
SECURITIES AND EXCHANGE COMMISSION (SEC) – U.S. government agency that oversees securities exchanges, securities brokers and dealers, investment advisors, and mutual funds in order to promote fair dealing and prevent fraud.
SHARE – A unit of ownership.
SHAREHOLDER – A person who owns a share(s) in a company.
SOCIAL SECURITY – A federal program that provides a source of income to retired workers and people with disabilities.
STOCK – A share that represents ownership in the company that issues it.
TARIFF – A tax or duty to be paid on a particular class of imports or exports.
TERMS – The conditions and requirements included in a loan agreement.
UNEARNED INCOME – Any form of income earned passively, e.g., inheritances, rental income from properties, lottery winnings.
U.S. TREASURY BONDS – Fixed-interest bonds issued by the U.S. government with a maturity of more than ten years.
VARIABLE RATE – An interest rate that may go up or down over the life of the loan.
FORM W-2 – A document that employers are required to send at the end of each year to every employee and the Internal Revenue Service (IRS).
FORM W-4 – An IRS form that is filled out by employees to indicate how much tax they want withheld from their paycheck and the number of allowances and dependents.
WRAP ACCOUNT – An investment account where a wrapped fee or fees cover all the management, brokerage, and administrative expenses for the account.
YIELD – The income an investor receives from an investment.

SOURCES:

A-Z index of U.S. government departments and agencies | USAGov. (n.d.). https://www.usa.gov/agency-index

California, S. O. (n.d.). Glossary of Financial Terms | The Department of Financial Protection and Innovation. The Department of Financial Protection and Innovation. https://dfpi.ca.gov/glossary-of-financial-terms/

Financial terms A-Z. (2019, September 10). Investopedia. https://www.investopedia.com/financial-term-dictio- nary-4769738

Financial Terms Glossary | Consumer Financial Protection Bureau. (n.d.). Consumer Financial Protection Bureau. https://www.consumerfinance.gov/consumer-tools/educator-tools/youth-financial-education/glossary/

Glossary | Investor.gov. (n.d.). https://www.investor.gov/introduction-investing/investing-basics/glossary/all

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