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Money Terms YOU Should Know

Meghan Hatalla

Benovate’s Expert Blogger

Money Terms

You learn a lot of things of varying importance at school, but that doesn’t typically include a lot about money. Unless you major in finance or business, college usually doesn’t help you out either. But as an adult who pays taxes, receives a paycheck, and (hopefully) has a savings and retirement account, you can’t live in ignorance forever.

Money can be a stressful subject for those who don’t have their finances under control. Luckily the first step in financial literacy is learning more about the subject. Forbes put together a list of the top 25 money terms people need to know. Here are the highlights:

Here are 6 Money Terms You Should Know:

1. Compound Interest

Think of it as interest on interest, and it’s a good thing to see when shopping for savings and/or retirement accounts. Most accounts allow you to accrue interest based on the amount deposited in the account. Compound interest allows you accrue interest on the deposits AND the interest. This adds up to a not-inconsequential amount over time.

2. FICO Score

When people talk about their credit, they’re usually framing it with their FICO score–an acronym from the Fair Isaac Corp (they formulated the methodology that delivers your score). Your FICO score takes into account any outstanding debts, if payments have been made on time, length of credit history, etc. Scores can range from 300 to 850; a technically *okay* score is over 620.

3. Amortization

This is the process of paying off debt over time, like a conventional mortgage. Payments are divided into equal amounts for the duration of the loan making it the simplest repayment model — Helping you pay down the interest, principle and the balance.

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4. Escrow

An account held by an impartial third party in a transaction–typically used in relation to home-buying. A buyer may put money into an account which the seller can’t access until certain terms have been met. Escrow accounts can also be used to pay property tax and insurance premiums for a home. For many, it’s rolled right into the mortgage.

5. Defined-Benefit Plan

These are employer-sponsored retirement plans in which a benefit is promised to the employee based on length of employment, earnings, etc. These are increasingly uncommon (expensive for employers), so #6 is becoming more popular.

6. Defined-Contribution Plan

A retirement plan that companies may offer to workers. The 401(k) is the most common. The money that goes into these accounts is pre-tax (so you don’t pay taxes on amounts deposited). The money is then invested, which means you, as the investor, are the one weathering economic fluctuations.

Take Away…

As you go through life, chances are you’ll hear these terms and be expected to know what they are and to make decisions regarding them (like filling out paperwork for a new job and seeing that you have to enter an amount for a defined-contribution plan). With these six terms, you’ll increase your financial literacy and be slightly better equipped to handle those situations!

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