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For most young adults at the beginning of their financial wellness journey, the phrase “start right now” can be intimidating and can leave you wondering, “Where do I start?”

Before you jump into a world of potentially unfamiliar financial products and plans, let’s look at the most relevant terms you’ll need to know before you kickstart your financial independence.

Your Financial Education Dictionary

401(k)

A type of retirement savings and investing plan that employers offer their employees. Contributions are automatically withdrawn from paychecks and invested in selected funds, both of which can be changed, and employees can receive a tax break on money they contribute.

Annual Percentage Rate (APR)

The percentage that represents the yearly cost of funds over loan’s term or the income earned on an investment.

Annual Percentage Yield (APY)

The rate of return, or interest you gain, from keeping money in an account in a year, which does include compounding interest.

Certificate of Deposit (Certificate)

A savings tool with a fixed maturity date, or end date, and a fixed interest rate. These accounts are usually tied to a debit card and/or checks to make direct payments or transactions from this account as a convivence for you.

Checking Account/Share Draft Account

An account at your financial institution that allows you to make deposits, withdrawals, and pay bills.

Collateral

The assets connected to a secured loan or other debt that a lender could take if the money borrowed is not repaid. For example, your car or house can be used as collateral for a loan.

Compounding Interest

Interest on principle plus interest. 

Credit Cards

Allows you to purchase something as a charge made against a line of credit instead of your available cash balances. You receive monthly statements for your credit card purchases and though there is no fixed time to repay the loan, you are required to pay at least the minimum balance expected for that carrier. While credit cards can be a safer way to pay compared to debit cards, it’s important to use them responsibly to maintain good credit and avoid credit card debt. They are also a great tool to start building your credit history!

Credit Score

A score based on specific aspects of your credit history. Credit scores range typically between 300 and 850 and are designed to represent your credit risk and the likelihood you will pay your bills on time. Learning more about how to build credit early on can help establish good financial habits for the future.

Debit Card

A type of payment card used to make purchases using the money in your checking account. The funds are immediately taken out of that account at the time of purchase, unlike credit cards where you must make the card payment separately.

Debt

Something you owe. In finances, debt is usually the amount of money owed to your financial institution through a loan.

Debt Consolidation

Combing various debts, like credit card bills or loan payments, into a new loan with one monthly payment. Consolidation may be a way to simplify your various payments and can even lower payments. Debt consolidation does not erase your debt.

Direct Deposit

Money that is deposited or transferred electronically from the payer’s account, such as an employer, to your selected account, instead of having to deposit a paper check. This allows for more immediate access to your funds.

Federal Income Tax

The amount taken by the federal government based on your earnings. The federal income tax pays for various national programs and is taken from each paycheck.

Fraud

Any illegal activity on your accounts or cards that occurs or potentially occurs when someone is trying to steal your personal information and/or money. The best way to avoid fraud is to be proactive and know what to look for.

Grant

A type of financial aid that does not have to be repaid.

Identity theft

Someone who uses your personal information, like your name, Social Security number, or credit card number, without your permission.

Income tax

Includes the federal, state, and local taxes on both your earned (salaries, wages, tips) and unearned (interest, dividends) income. It’s important to know that not all states and cities have income taxes.

Inflation

The estimated increase of the prices of goods and services over time.

Interest

An established amount that you will either owe when you are lent money, like a loan, or you will earn when you lend money, like with savings account or certificate. 

Individual Retirement Account (IRA)

A tax-deferred investment account meant to help you save for your retirement. Your contributions may be tax-deductible, or your withdrawals may be tax-free. It Is important to learn about the key differences between a Roth IRA and a Traditional IRA to decide which is best for you.

Loan

Borrowed money from a financial institution that must be paid back, usually a mutually agreed upon timeframe. There are two main loans types, secured and unsecured, as well as additional borrowing terms you should know before applying for any loan type.

Net income

The amount of money you bring home in your paycheck after taxes and other deductions such as health insurance.

Overdraft

A transaction that costs more than the available balance in your account, but the financial institution allows the transaction anyway. An overdraft can result in added fees on your account.

Principal

The amount of money you originally received from a lender or financial institution that you agreed to pay back over time. The principal is separate from the interest owed.

Routing Number

The specific nine-digit number that identifies your financial institution. This can be found on the institution’s website. American Heritage's routing number is 236082944.

Savings/Savings Account

Setting aside money, usually in a designated savings account, for later. These accounts can vary on the amount of interest earned each month.

Secured Loans

A loan that is secured using collateral which would be collected if you are not able to pay back the lender.

Share

A unit of ownership, like stock or a share in the credit union.

Share-Draft

A type of account, equivalent to a checking account, that credit unions use that allow members to access their funds. This account is federally insured by the National Credit Union Administration (NCUA) and ensures your unit of ownership in the credit union.

Tax Deduction

An amount that reduces income subject to tax. Examples include paid interest on mortgages or student loans, charitable donations, retirement plan contributions, and more.

Tax Refund

The amount of money owed to a taxpayer when the total tax payments made are greater than the total tax. Refunds are received from the government.

Taxes

The payments that are required to governments that are meant to be used to provide public goods and services. The tax filing process can feel a little overwhelming, so having a preparation list or plan can help ease that stress.

Term

A fixed or limited period of time that something, like a loan or Certificate, will last. For example, you may have a 5-year loan, which means the total amount of the loan plus interest should be paid off by the end of those five years.

Unsecured Loans

A loan that does not use collateral, like most credit cards, and can be considered riskier by lenders. These loans can have higher interest rate for that reason.

This is Only the Beginning

This may be a lot of information for those just starting out in their financial education, but you do not have to know everything all at once. It is, however, important to identify resources in your life that can help you along the way.

Our Learning Center aims to be one of those resources for you. The Learning Center offers additional blogs, webinars, calculators and more for you to reference as you continue your journey to financial success.