Resources


Terms Your Kids Should Know

Bank
A financial institution that accepts deposits and withdrawals of money. There are two kinds of banks:

• Commercial Bank: A traditional bank that provides services such as checking and savings accounts, credit cards, and home and auto loans.

• Investment Bank: A bank that specializes in services for companies rather than individuals. An investment bank sells and manages stocks and bonds. It also assists when two companies merge, or join together.

Bonds
Certificates sold by companies or governments in order to raise money. Bonds are issued for a specific amount of time. The government or company that sold the bond must pay interest to the buyer during that time. Here’s an example: Let’s say a city needs to raise money to build a new bridge. It decides to sell ten-year bonds to the public to get the necessary cash. If you were buying one of those bonds, you would pay a price known as the face value. The city would promise to pay you back in ten years. Every year for ten years, the city would pay you interest on the bond. When the ten years were up, you would get back the face value you spent at the very beginning.

Checking Account
A bank account where money is kept so the owner can write checks. A check is a piece of paper that tells a bank to pay the holder a certain amount of money. If your aunt gives you a check for $10 for your birthday, you would bring the check to bank to cash it in. The bank would take $10 from your aunt’s account and give it to you.

Credit
The ability of a person to obtain goods or services before payment based on the trust that payment will be made in the future. Examples of credit are bank loans or credit cards. When a person uses credit, they must also pay a fee called interest (see “Interest”).

Credit Report
A credit report is a detailed report of an individual’s credit history. Credit bureaus collect information and create credit reports based on that information, and lenders use the reports along with other details to determine whether an applicant is worthy of the loan.

Individuals will not have a credit report until at least one credit account (card or loan) has been opened.

Credit Score
Lenders use credit scores to determine who qualifies for a loan, at what interest rate, and what credit limits. Scores range from 300 to 850, and the higher the score, the better chance you have at getting a loan at a good interest rate.

Debt
Money owed, usually as a result of borrowing. If someone borrows money to buy a new car, that person now has debt.

Debt Card
Issued from a bank and is used similar to a credit card. The big differences are that money is automatically removed from a bank account with every use and no interest is charged.

Gift Card
A prepaid money card usually issued by a store or bank. A gift card is used as an alternative to cash for purchases within a particular store. Most cards can now be used in stores or online.

Interest
The fee for using money from someone else. For example, if a person borrows money from a bank to pay for college, he or she pays back the amount borrowed plus interest.

Interest Rate
The percentage at which interest is charged or paid. While it is often paid back yearly, sometimes it’s added on every day or every month.

Investment
Anything that is purchased with the hope that it will generate income or be more valuable at a future date. Examples of some investments are gold, a savings bond, old cars, land, homes and stocks.

Loan
Money borrowed from a bank or person. Loans will be taken for new homes, new cars, college tuition, home improvements, and other things. Companies often take loans in order to expand their business. Banks are willing to lend money to people and businesses because they expect to get back the amount of the loan plus interest.

Payroll Deductions
Once you have a job, you will required to have taxes deducted from your paycheck. Typically your employer will do this and your check will be for less than you think.

The taxes removed will be Federal Income Tax (11%), State Income Tax (rate depends where you live), Social Security tax (6.2%) and Medicare Tax (1.45%).

Savings Account
A bank account where money is kept so it can grow through interest from the bank. When a person opens a savings account, he or she can deposit money into the account or withdraw money from the account.

Stock
An ownership interest in a company. Stocks are sold by companies to raise money. When a person buys stock in a company, he or she owns a tiny part of that company. When a company is doing well the value of the company goes up, and so does the price of the company’s stock.

Stockholder
A person who owns stock in one or more companies. A stockholder will be interested in buying stock at the lowest price possible and selling it at the highest price possible. Stockholders can sell his or her stock at any time.

Stock Market
A place where stocks are bought and sold. In the US, stocks are bought and sold through the New York Stock Exchange (NYSE) or National Association of Securities Dealers Automated Quotations (NASDAQ).

Student Loans
A student loan is a type of loan designed to help students pay for post-secondary education and the associated fees, such as tuition, books and supplies, and living expenses. There are basically four types of loans available:

– Direct Subsidized Loans are loans made to eligible undergraduate students who demonstrate financial need to help cover the costs of higher education at a college or career school.

– Direct Unsubsidized Loans are loans made to eligible undergraduate, graduate, and professional students, but in this case, the student does not have to demonstrate financial need to be eligible for the loan.

– Direct PLUS Loans are loans made to graduate or professional students and parents of dependent undergraduate students to help pay for education expenses not covered by other financial aid.

– Direct Consolidation Loans allow you to combine all of your eligible federal student loans into a single loan with a single loan servicer.

As of March 2017, there are more than 44 million borrowers with $1.3 trillion in student loan debt in the U.S. alone. The average student in the Class of 2016 has $37,172 in student loan debt. (Forbes)

If you have a student preparing for college, you can find out more about student loans and other financial aid here.

Taxes
Taxes are the main way people pay for their government, roads, schools and military. In the US, there are many different taxes including federal and state taxes on income, sales of products, property and alcohol.

Other Resources To Trust