Did You Know These Finance Terms?
- youngfinanciallite
- Nov 22, 2021
- 2 min read
One of the most important parts of financial literacy is understanding terminology. In this post, I will talk about some different finance terms and give you resources to do your own research. Let's get started, shall we?
Credit - Young Financial Literacy
These are just a few of the common terms you hear in the world of finance. Only 1/3 of adults around the world understand basic financial concepts and only 4 out of 7 Americans are totally financially illiterate! This is why it's so important to learn this financial vocabulary. When you're looking at your paycheck or your insurance paperwork you don't want to be overwhelmed by the complex vocabulary and by taking the time to learn some of the terminologies makes these scary topics more approachable. Above are a few different basic vocabulary words that have to do with investment insurance and credit so let's take a deeper look into some of these vocabulary terms.
Diversification
Diversification is a term commonly used in investments and it is defined as the investment into a variety of different asset classes. Think about it like don't put all your eggs into one basket. If you put all the money you have into buying real estate and the real estate market crashes or goes down in value so does your entire portfolio but if you spread your money out among real estate the stock market as well as other asset classes you are less likely to incur risk. To be more straightforward you are less likely to lose money.
Credit Score
Your credit score is a quantifiable value of how trustworthy you are when you borrow money. In layman’s terms, it is how much a bank trusts you to pay them back. A credit score is comprised of many different things some of which include the amount of credit you use per month, and the amount of time you have been utilizing your credit. Your goal is to get your credit score to be as high as possible. For some tips on this, I would recommend going to the credit and debt page on the website.
Time Value Of Money
The time value of money is an extremely important principle in the world of commerce. the principle states that it is better to have money now than that same amount of money later. More specifically I would rather spend $1000 now than $1000 in 10 years as the value of that $1000 will decrease over time. Have you ever heard your grandparents say they used to go to the movies for 25 cents? This is the time value of money at play. Your grandparents would much rather have had that quarterback then where they could go to the movies than now where you genuinely can't buy much.
What Now?
These are just some of the terms that you will hear when talking about finance but again there are thousands upon thousands more. Linked below are a few different resources of finance dictionaries that you may want to consult the next time you are reading through a document that is relief vocab dense or you are skimming across a word that you just don't understand. Additionally, every Wednesday on the @youngfinancialliteracy’s Instagram page we post about different financial vocabulary!
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