In this guide, I have gathered together some common (and sometimes confusing) financial words and phrases that you may come across and provide an easy explanation.
Assets: An object or property that somebody (or a business) owns and is usually of high value or importance. These can be sold or used as part of a guarantee (see below).
Bond: A loan to the government or business for a set period of time with repayments made with interest.
Credit: When you receive credit you receive cash or something else of value upfront and agree to repay the lender at a later date.
Credit Card: A card provided by a bank or financial services company allowing people to make purchases on credit (without having cash). You will need to pay some or all of the money back on a monthly basis.
Debit Card: A card that allows you to make payments directly from your bank account i.e when shopping.
Estate: A person’s estate is all of their money, property and possessions.
Grant: A sum of money provided to you that does not need to be paid back however there may be some other conditions attached.
Guarantee: When another person accepts responsibility for another person’s debts if they are unable to make payments.
Inheritance: Money, property or other possessions that are passed on to someone else when a person passes away. This is usually done in accordance with their wishes which they will have written down in a document called a will.
Insurance: A contract in which an organisation or the state agrees to provide financial protection against losses, damage, illness or even death in return for a specified monthly or annual payment.
Interest: A charge for borrowing money usually expressed as a percentage. When you deposit money in a bank account you earn interest as you will have loaned your money to the bank.
Investment: A sum of money given to a person or business in return for future income. For example, someone can invest money in a business in exchange for a percentage of the profits.
Loan: When a person or organisation lends you a sum of money that will need to be paid back. There may be interest added to the repayments.
Loan Agreement: This is an agreement between you and the person/organisation that provided you with the loan. It will set out the terms and conditions of the loan including when it is to be paid back and any interest.
Mortgage: A type of loan used to purchase a property. The borrower will receive a lump sum to purchase property and make repayments to the lender (typically a bank) over a set time period and usually with interest added.
Pension:Â A sum of money that a person makes payments to during their employment which will be used to provide income to them when they retire (you need to be over 55 to access your pension). Most organisations offer a pension plan to employees or you can set up a pension with a private pension provider.
Pension Provider:Â A company that provides pension services to people. Any money you pay in will be invested in assets, bonds, property etc which will impact the value of your pension.Â
Tax: Money that is deducted from your wages (or a business’ revenue) as contributions to the state. This is used to fund government spending on public services such as education, health, defence and transport.
