Glossary

ATM: Stands for Automated Teller Machines, which enable consumers to make deposits and withdrawals from their savings and checking accounts electronically 24 hours a day.

Budget: Also known as a spending plan, it is a plan for spending and saving money that balances household income and expenses.

Balance: The amount of money on deposit in a bank account or outstanding on a loan or credit card.

Bank: A profit-making financial institution where customers can access a variety of services such as checking and savings accounts, credit cards, safe deposit boxes, and loans.

Bank statements: A document that indicates the beginning and ending balance of an account and transactions that have taken place during the statement period.

Bankruptcy: The process of petitioning a court to discharge one’s debts. There are two types of personal bankruptcy: Chapter 7 (liquidation of assets) and Chapter 13 (debt repayment plan).

Bond: A debt certificate issued by a corporation or unit of government. Borrowers are promised interest for loaning their money to the bond issuer and the return of their investment at a specified future date.

Cash value: The savings component of a whole life, variable life, or universal life insurance policy.

Certificate of deposit (CD): A fixed amount of money deposited with a financial institution for a specified amount of time. Interest paid on CDs varies with the amount deposited and the length of time the money is invested.

Credit: The receipt of money, goods, or services in exchange for a promise to repay the amount borrowed at a future date.

Credit history: How a person has used credit in the past (for example, paying bills on time vs. late payments).

Credit card: A plastic card issued by a financial institution indicating that an account has been established to make purchases or cash advances in exchange for a future payment and a fee called interest.

Credit card (secured): A credit card backed by a sum of money deposited with the creditor by the account holder to use as security for the loan.

Credit report: A report issued by a credit reporting agency that indicates how a person has used credit in the past. It is generated from information provided by creditors and from public records upon the request of consumers, creditors, and others with a legitimate business reason to check the report.

Credit union: A member-owned financial institution where consumers can access a variety of services such as checking and savings accounts, credit cards, safe deposit boxes, and loans. Members generally have some type of common affiliation such as employment.

Checking account: An account that allows owners to draw upon deposited funds by writing checks.

Check: A note drawn against a checking account that tells how much to take out of the account to pay a person or company.

Debt: General term used to indicate an outstanding balance of money owed for loans, mortgages, credit cards, and other forms of credit.

Debt limit: The maximum amount of debt a person should have, expressed as a percentage (generally no more than 15 percent to 20 percent) of their monthly after-tax income.

Debt reduction: A systematic process of repaying debt to reduce the outstanding balances owed.

Debt recovery: A systematic process of applying the money saved from a paid-off debt to the amount owed to remaining creditors. Debt recovery generally starts by applying freed up cash to the highest interest rate debt first.

Debit: The deduction of money from a financial account.

Deposit: The addition of money to a financial account.

Direct deposit: The process of depositing money electronically into a bank or credit union transaction account. Direct deposit is commonly used for employee paychecks and government benefit checks.

ETA: Stands for Electronic Transfer Accounts. ETAs are used for direct deposit by people who receive regular checks from the federal government, such as Social Security benefit payments.

Expense: Item for which household income is spent, including basic needs, such as housing and utilities, and discretionary purchases, such as entertainment and clothing.

Emergency fund: A sum of money set aside in a readily accessible savings account for unanticipated events such as unemployment, medical bills, and car repairs. A sum of money to cover basic living costs for three months is recommended.

IDA: Stands for Individual Development Account, IDAs are a matched savings account available to help income-eligible participant achieve goals such as starting a business, higher education, and home ownership. IDAs are sponsored by community development, faith-based, and other non-profit organizations and generally provide financial education training as well as matched savings.

IRA: Stands for Individual Retirement Account, IRAs are tax-deferred accounts established by workers with earned income to save for retirement. There are two types of IRAs: Traditional IRAs, which may or may not have a tax write off for the amount contributed (depending upon your income and eligibility for another type of retirement plan), and Roth IRAs. See IRA (Roth).

IRA (Roth): A type of IRA in which contributions are not tax-deductible but earnings on savings are tax-exempt if made more than five years after the Roth IRA was established and after age 59 1/2.

Income: A source of money with which to save and pay household expenses. Common sources of income include salary from a job, self-employment earnings, alimony and child support payments, gifts, tax refunds, and public assistance.

Investing: The process of purchasing assets such as stocks, bonds, real estate, and mutual funds with the expectation of future income and/or capital gains (growth in value).

Interest (borrowing): The cost for borrowing money, generally expressed as a percentage of the amount borrowed, such as 18 percent interest on a credit card balance.

Interest (saving): The return on an investment, such as 5 percent earned on the amount invested in a bond.

Loan: An amount of money borrowed to buy things such as a house, car, or appliance. Loans are typically repaid in equal monthly installments, such as a 36-month loan to buy a car. The longer the repayment period, the lower the monthly payment but the greater the total interest cost.

Mutual fund: An investment company that pools deposits from many shareholders and invests in the stocks, bonds, or cash assets of many companies in order to achieve the specific objectives of the fund.

Spending diary: A written record of the amount of money spent for a period of time (for example, a week) that includes both the type of expense (fast food, gift, etc.) and the actual dollar amount spent.

Savings account: An account established at a bank or credit union as a safe place for storing money. Interest is paid on deposited money and withdrawals can be made by visiting a bank teller or using an ATM card, if one is available. Minimum deposit amounts may be required in order to avoid fees.

Salary: An annual amount of compensation received by workers from an employer that is prorated on a weekly, biweekly, or monthly payment schedule. Salary income is subject to state and federal government income taxes and Social Security tax (FICA), which are generally deducted from a worker’s earnings via payroll withholding.

Stock: A type of investment that represents a unit of ownership of a corporation. This ownership is represented by shares of stock, which are a claim on the corporation’s assets and earnings.

Withdrawal: The process of taking money out of a financial account, resulting in a reduced balance.

Withholding: Deduction of federal and state income taxes, Social Security taxes, and other items, such as union dues and health insurance premiums, from a worker’s paycheck.

Wages: Payment by an employer to a worker for services performed on an hourly, daily, or weekly basis or according to a specified piecework rate. Like a salary, wages are subject to state and federal income taxes and Social Security tax withholding.