Glossary Terms:

A Penny Saved

Glossary terms from:
http://www.econedlink.org/e1029


Bank

A financial institution that provides various products and services to its customers, including checking and savings accounts, loans and currency exchange.

Banking

The industry involved with conducting financial transactions. Also, conducting business with a bank, e.g., maintaining a checking or savings account or obtaining a loan.

Borrow

To receive and use something belonging to somebody else, with the intention of returning or repaying it--often with interest in the case of borrowed money.

Business

Any activity or organization that produces or exchanges goods or services for a profit.

Capital

Resources and goods made and used to produce other goods and services. Examples include buildings, machinery, tools and equipment. In the context of credit transactions, capital is one of the Three Cs of Credit. It is an indicator of how creditworthy a prospective borrower is likely to be as determined by the borrower's current financial assets and net worth.

Choice

Decision made or course of action taken when faced with a set of alternatives.

Compound Interest

Interest that is earned not only on the principal but also on the interest already earned.

Compounding

Paying interest on the principal and on interest already earned. For example, if someone deposits $2,000 in an account that pays interest at 8 percent, he or she will earn $160 in interest after one year, for a balance of $2,160. If the depositor leaves this sum in the account for another year, however, he or she will earn $172.80 in interest because the 8 percent rate will apply to the new balance of $2,160, not the original $2,000 deposit. The longer the money is left in the account, the more dramatic the compounding effect.

Disposable Income

The amount of money a person has left to save or spend after income taxes, Social Security taxes and other required deductions have been taken out of his or her pay.

Economic Growth

An increase in real output as measured by real GDP or per capita real GDP.

Federal Reserve

The central bank of the United States. Its main function is controlling the money supply through monetary policy. The Federal Reserve System divides the country into 12 districts, each with its own Federal Reserve bank. Each district bank is directed by its nine-person board of directors. The Board of Governors, which is made up of seven members appointed by the President and confirmed by the Senate to 14-year terms, directs the nation's monetary policy and the overall activities of the Federal Reserve. The Federal Open Market Committee is the official policy-making body; it is made up of the members of the Board of Governors and five of the district bank presidents.

Households

Individuals and family units that buy goods and services (as consumers) and sell or rent productive resources (as resource owners).

Income

Payments earned by households for selling or renting their productive resources. May include salaries, wages, interest and dividends.

Inflation

A rise in the general or average price level of all the goods and services produced in an economy. Can be caused by pressure from the demand side of the market (demand-pull inflation) or pressure from the supply side of the market (cost-push inflation).

Interest

Money paid regularly, at a particular rate, for the use of borrowed money.

Interest Rate

The price paid for using someone else's money, expressed as a percentage of the amount borrowed.

Investing

The process of putting money someplace with the intention of making a financial gain. Investment possibilities include stocks, bonds, mutual funds, real estate, and other financial instruments or ventures.

Investment

The purchase of capital goods (including machinery, technology or new buildings) that are used to produce goods and services. In personal finance, the amount of money invested in stocks, bonds, mutual funds and other investment instruments.

Markets

Places, institutions or technological arrangements where or by means of which goods or services are exchanged. Also, the set of all sale and purchase transactions that affect the price of some good or service.

Money

Anything that is generally accepted as final payment for goods and services; serves as a medium of exchange, a store of value and a standard of value. Characteristics of money are portability, stability in value, uniformity, durability and acceptance.

Production

A process of manufacturing, growing, designing, or otherwise using productive resources to create goods or services used to to satisfy a want.

Recession

A decline in the rate of national economic activity, usually measured by a decline in real GDP for at least two consecutive quarters (i.e., six months).

Required Reserves

The minimum amount of cash reserves (a percentage of the deposits) in dollars that a bank is required by law to keep on hand or with the Federal Reserve.

Return

Earnings from an investment, usually expressed as an annual percentage.

Rule of 72

A mathematical rule for determining the number of years it will take for an investment to double in value. The number of years is determined by dividing 72 by the annual rate of return. Thus, an investment expected to earn interest at a rate of 8 percent will double an investor's funds in 72/8, or nine years. Dividing 72 by the number of years in which an investor wishes to double his or her return will yield the necessary rate.

Save

To keep money for future use; to divert money from current spending to a savings account or another form of investment.

Saving

Disposable income (income after taxes) minus consumption spending.

Savings

Money set aside for a future use that is held in easily-accessed accounts, such as savings accounts and certificates of deposit (CDs).

Spend

Use money now to buy goods and services.

Standard of Living

The level of subsistence of a nation, social class or individual with reference to the adequacy of necessities and comforts of daily life.

Stock

An ownership share or shares of ownership in a corporation.

Stock Market

A market in which the public trades stock that someone already owns; the buying and selling of stock.

Unemployment

The number of people without jobs who are actively seeking work.

Work

Effort applied to achieve a purpose or result, often for pay; skills and knowledge put to use to get something done; employment at a job or in a position; occupation, profession, business, trade, craft, etc.