Financial Terminology for Teenagers

Financial terminology for teenagers can be challenging to understand. Yet they are responsible for managing their own money. Teens need to understand the basics. They are becoming financially savvy at an early age. This financial literacy helps prepare them for making financial decisions when they get older. However, they don’t always get the knowledge they need from their schools.

APR

The annual percentage rate (APR) is the cost of credit per year expressed as a percentage. The APR is used to calculate payments for loans that are fixed-rate, which means that they are charged the same interest rate throughout the term of the loan. They always contain a numerical interest rate and, in some but not all instances, a finance charge. APR is the annual cost of credit, expressed as a percentage. For example, let’s say you borrowed $10,000 at a standard annual percentage rate of 7.5%. Your monthly payments would be $373.25 for 36 months, plus $138 in interest added to the principal.

APR is the annual percentage rate, the ratio between the principal amount and the amount the creditor charges you to borrow that money. With APR, the payments you make are spread out over the entire length of the loan. A 15-year loan has an APR of 3.10%, whereas a 30-year loan has an APR of 5.44%. It is also sometimes called the effective interest rate because it takes into account compounding interest. Compound interest is the interest earned on the principal (plus any accrued interest), which is added to the principal. This is what makes APR higher than the amount your monthly payment is.

Budget

A budget is the amount of money you have available to spend on a particular event or expense. Budgeting is the act of planning how much money you have available to spend on a particular event or expense, like a family vacation or a new house. It’s especially important when you have a family or are starting a new job, since you often have new expenses, like rent or car insurance, and may have to cut back a bit on your current expenses, like eating out and shopping.

Credit

Credit is money assets or money owed that an individual can use to pay for future expenditures, which the creditor agrees to repay at a later date with interest. It’s a loan that you earn back over time. This can come in handy when unexpected expenses pop up (like car repairs, medical bills, etc.), and you may be strapped for cash. It can also improve your credit rating (if it’s managed well), which can help you qualify for better interest rates on loans, mortgages, etc.

Debt

Debt is money you owe. It’s money you owe to a creditor or group of creditors. Some examples of debts include credit cards, loans, mortgages, and car loans. You’re probably familiar with debt if you carry a credit card, a mortgage, or you have financed a car. It can become a major problem when people are unable to pay it back. Additionally, it can become a problem when it’s tied to a high-interest rate.

Investment

Investments are assets or cash that you purchase for a specific purpose, and the expectation is that they will appreciate in value over time. The catch is that you must hold onto the investment for a specific time. Otherwise, the IRS considers it a short-term capital gain. That all adds up to make investing in stocks riskier than some other investments, such as bonds or real estate.

Interest

Interest is the amount that your money grows or shrinks in value over time. It is calculated on the principal amount, which is the amount that you borrow. Common types of interest are compounding interest, where interest is added to the principal amount and is calculated on a daily basis. Simple interest, where interest is calculated the day it is paid.

Loan

Many people seek personal loans for a variety of reasons. They may be used to buy a car, cover unforeseen medical bills, or pay security deposits for apartments. Personal loans also allow you to consolidate your debts into one monthly payment. Banks, credit unions, online lenders, and online moneylenders are a few different ways that you may obtain a personal loan.

Savings

Savings is the money set aside for specific reasons, like bills or emergencies. It is the amount that you save by avoiding buying things you don’t need or by cutting back on things you spend money on that you don’t need. You save money by paying off your debt and living within your means. planning ahead for the future, saving, and investing. Make sure your money is working for you and you know where to go to find what you need.