Money Dictionary

• How to beat the financial jargon
   
• How to understand and speak with financial specialists 

We try our best to explain money without all the confusing financial jargon, but even so, there's a still keyword or two that you might need to know. To help you remember them, we've put together this money dictionary

Absolute wealth:

Reflects the total amount of savings and assets you have at that given period of time.

Aggressive investor:

An investor who tends to be market savvy, using their knowledge to target maximum returns with maximum risk.

Annual Equivalent Rate (AER):

The rate of interest that your savings will earn over a year.

Assets:

The economic resources that a person or company owns.

Budget:

A financial plan for how you will use your money, and can be made to suit short, medium, or long-term money goals.

'Bad' debt: 

Comes from spending money you don't have on items you don't need, and which aren't going to increase your net worth in the long run. 

Bankruptcy:

A legal status that usually lasts for a year and can be a way to clear debts you can't pay.

Bonds:

A fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental).

Capital gains:

The difference between how much something is worth now vs. how much it was originally purchased for. 

Compound interest:

Interest on a loan based on the initial or accumulated interest - simply put, this means you are earning or paying interest on pre-existing interest.

Conservative investor:

An investor who is wary of any type of risk that could jeopardise their savings.

Credit score:

A number that shows your credit history, and how trustworthy you are with money. A bad score can mean a bank refuses to lend you money or set up a mortgage.

Crowdfunding:

Businesses can raise money by asking for a large number of people to invest (or donate) a relatively small amount each. Smaller investors may be offered a more tangible reward or experience as opposed to traditional monetary returns.

Debt avalanche:

A debt repayment strategy whereby you pay back the minimum payment on all debts each month, and dedicate extra funding towards the debt with the highest interest rate. This strategy allows you to chip away at all existing debts each month.

Debt snowball: 

A debt repayment method whereby you pay back as much of your smallest debt each month, and only pay the minimum amount for all other debts. This strategy allows you to pay off the smallest debts more quickly, and provides motivation in the long-term.

Diversification:

A risk management strategy where you combine a variety of assets to reduce the overall risk of your investment portfolio.

Equities:

The value of shares issued by a company - this is what allows you to invest in companies.

Exchange Traded Funds (ETFs): 

A type of investment fund that makes it easier to diversify your portfolio. ETFs are traded on the stock exchange.

Financial health:

Someone's personal financial situation, including their savings, their retirement accounts, and their spending. Everyone has a different financial health, because we all have different financial needs.

Financial lifecycle:

A life cycle is a series of stages that people pass through on their life’s journey. Depending on which stage we are in during our life course, our financial requirements and earnings keep on changing. This ever-changing ability to earn income and our ever-changing wants and needs can be described as a financial life cycle.

Financial literacy:

Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.

Fixed expenses:

These are costs that largely remain constant, such as your monthly rent.

Gender-lens investing:

Investing which targets areas that empower women and girls - including rewarding gender diversity in companies and helping women to get a foothold in business.

Gender pay gap:

An equality measure which shows the difference between average earnings for men and women. This indicates the gender inequalities that still exist in all areas of life.

'Good' debt:

Occurs when you borrow money that will increase your net worth or value over time - for example, many consider student loans to be a form of ‘good debt’, because your earning power should increase with a degree.

Impact investing:

An investing approach which targets companies, organisations, and investment funds that claim to have clear and measurable benefits for society (as well as financial returns).

Inflation:

An economic term referring to a general increase in prices, meaning that the purchase value of money has fallen (the opposite term is deflation).

Individual Savings Account (ISA):

Similar to the savings accounts you use everyday, except it offers tax-free interest payments, which means you have the opportunity to earn more money. You might choose to keep some of your pension available through an ISA.

Liability:

Something a person or company owes, usually a sum of money. Liabilities are settled over time through the transfer of economic benefits including money, goods, or services.

Life insurance:

If you have any dependents or debts, it’s important that you take out life insurance. This will protect your family by paying out a sum of money in the event of your death.

Moderate (or 'balanced') investor:

An investor who will often choose a 50/50 portfolio, with half going into a dividend-paying growth fund, and the other half being medium-term, high-risk assets.

Net worth:

The financial value of a person or company, calculated by subtracting 'everything you owe' (liabilities) from 'everything you own' (assets).

Recession:

A significant decline of economic activity, which effectively means that consumers and businesses spend less money.

Relative wealth:

Measures your holding in relation to other members of society, weighing it against the current standards of the day.

Risk:

The measure of how much loss an investor is willing to endure with their portfolio.

Safety Net:

A savings account that you should only use in an emergency, like when you're evicted or your car falls apart. When you're in a sticky situation like that, these funds will provide interim financial security.

Shares:

Represents an interest in a public company. The returns you receive from your shares are 'dividends'. The more shares you hold in a product, the greater risk you take.

Sustainable investing:

Investing in progress, and recognising that companies solving the world’s biggest challenges can be best positioned to grow. It is about pioneering better ways of doing business, and creating the momentum to encourage more and more people to opt into the future we’re working to create.

Variable expenses:

These are costs that vary or are unpredictable, such as dining out or car repairs.

Wealth cycle:

The relationship between the flow of money and a person's life. The main two stages are the accumulation and dissimulation stages. 

Wealth Gap:

Refers to the total amount of assets of an individual or household. This may include financial assets, such as bonds and stocks, property and private pension rights. The wealth gap, therefore, refers to the gap of the asset holdings in a group of people.

Will:

A legally enforceable declaration of how a person wants their property and assets distributed after death.