Glossary Terms:

The Benefits of Investing Early

Glossary terms from:
http://www.econedlink.org/e603


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.

Consumption

Spending by households on goods and services. The process of buying and using goods and services.

Costs

An amount that must be paid or spent to buy or obtain something. The effort, loss or sacrifice necessary to achieve or obtain something.

Goods

Tangible objects that satisfy economic wants.

Income

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

Interest

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

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.

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.

Opportunity Cost

The second-best alternative (or the value of that alternative) that must be given up when scarce resources are used for one purpose instead of another.

Rate of Return

Earnings from an investment, stated as a percentage of the amount invested; usually calculated on an annual basis.

Resources

The basic kinds of resources used to produce goods and services: land or natural resources, human resources (including labor and entrepreneurship), and capital.

Return

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

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).

Services

Activities performed by people, firms or government agencies to satisfy economic wants.

Simple Interest

Interest paid on the initial investment (the principal) only. Calculated by multiplying the investment principal times the annual rate of return times the number of years involved.

Spend

Use money now to buy goods and services.

Stock

An ownership share or shares of ownership in a corporation.

Value of Money

The ability of money to buy goods and services. A wide variety of items has been used as money. Money need not have any intrinsic value. It is people's willingness to accept it that gives it value.

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.