Financial Literacy

An annual percentage rate, or APR, is the yearly rate charged for a loan or earned by an investment. It is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan or income earned on an investment. Lenders must disclose the APR they charge to borrowers.

An emergency fund acts as a financial safety net that you use in times of financial hardship. Often stored in a savings account, the funds are used to meet unanticipated expenses, such as an illness or major home repairs. The amount of money within your emergency fund depends on several factors, including your financial situation, expenses, lifestyle, and debts.

An exchange-traded fund (ETF) is a type of investment that is a basket of securities traded on an exchange, much like how a stock is traded. Because there are multiple assets within a single ETF, they are often a popular choice for diversification within one’s portfolio. Unlike mutual funds which only trade once a day once the market closes, ETF share prices fluctuate all day as the ETF is bought and sold.

An index fund is a type of mutual fund or exchange-traded fund that aims to mimic the composition and performance of a market index, such as the S&P 500. Generally, index funds have lower expenses and fees than actively managed funds. Most experts agree that index funds are considered ideal core portfolio holdings for retirement accounts, like 401(k) accounts or IRAs.

Finance can be broadly defined as the management, creation, and study of money and investments. It is often split into three categories: public, corporate, and personal finance. Personal finance specifically focuses on all financial decisions of an individual or household, including saving, financial planning, budgeting, and retirement planning.

Debt is something—usually money—that a person, organization, or government owes to another person, organization, or government. Generally, the person who borrows the money must pay back the given amount with interest by a specific, agreed-upon time. The most common forms of debt are loans, such as mortgages, auto loans, personal loans, and credit card debt.

Credit is an agreement you make with a lender that enables you to pay for goods or services. In return for the good or service, you agree to pay the lender back, usually with interest, but specific terms will vary depending on the borrower and the lender. Common forms of credit include credit cards, student loans, and mortgages.

The price-to-earnings (P/E) ratio relates a company's share price to its earnings per share. It’s a way for investors and analysts to gauge whether the stock price of a company is high or low compared to its past performance or other companies. The ratio is calculated by dividing the current stock price by the current earnings per share.

Amortization is used in two different ways. First, it can be used when paying off debt. Many borrowers can be put on an amortization schedule where they will pay off a loan with regular payments so that the amount they owe goes down with each payment. Amortization can also refer to the practice of spreading out capital expenses related to intangible assets over a specific duration—usually over the asset’s useful life—for accounting and tax purposes.

A small saver certificate (SSC) is a deposit savings account that has a small minimum requirement balance, or sometimes, no minimum balance requirement at all. The most common investors in SSCs are children or young adults. SSCs are not that common or popular, as investors usually choose to invest in certificates of deposit (CDs), a similar financial instrument.

Student debt is money owed on a loan by an attending, formerly withdrawn, or graduated student of higher education. Due to the rapidly increasing prices of higher education in the United States, student debt is a popular (and sometimes the only) option for many students to pay for college.

Financial literacy is the capacity, based on knowledge, skills, and access, to manage financial resources and information effectively. It includes the ability to effectively use and understand basic financial skills like budgeting, and investing. Financial literacy is seen as the foundation of one’s relationship with money.

A guardian IRA is a custodial IRA, meaning it is held in the name of a legal guardian or parent on behalf of their child or minor who is under the age of 18 or 21 (depending on the state). It can also be held on behalf of someone who is incapable of handling their finances due to a physical or mental disability. Once the minor turns 18 or 21, depending on the state, they will gain control over their account.