Essential Financial Terms for Financial Literacy Month
Andrew Cooper

April is Financial Literacy Month

April marks Financial Literacy Month—a key opportunity to improve your understanding of crucial financial concepts. Grasping these terms is vital for making informed financial decisions and ultimately taking control of your future. This blog highlights six essential financial terms across three categories: savings, credit, and lending, to empower you on your journey to financial literacy.

Lending Terms

Understanding lending terms can significantly impact your financial decisions. Collateral is an asset used to secure a loan. For example, a car or home can be collateral. If you default on the loan, the lender can seize the collateral. Recognizing this risk helps you make informed borrowing decisions.

Equity is the difference between your asset’s value and what you owe on it. In homeownership, it's important as it increases as you pay down the mortgage or as the property value rises. Equity can be leveraged for loans, making it a powerful financial tool.

Credit Terms

Delving into credit terms is essential for anyone using loans or credit cards. Annual Percentage Rate (APR) represents the yearly cost of borrowing, including interest and fees. It's vital in comparing different loan or credit card offers because it reflects the real borrowing cost.

The Annual Fee is a charge by some credit card issuers. Knowing when an annual fee is justified can be beneficial, especially if the card offers rewards or perks that outweigh the cost. Evaluating this can save money in the long run.

Savings Terms

Savings terms help maximize your financial growth. Compound Interest allows your savings to grow faster as interest is earned on both the initial principal and the accumulated interest. For example, a $1,000 savings account with a 5% annual interest rate can grow to approximately $1,628 after 10 years, illustrating its power over time.

Pay Yourself First (PYF) is a budgeting strategy that encourages setting aside a portion of your income for savings before paying bills. By treating savings as a non-negotiable expense, you prioritize financial security and build a strong financial foundation.

Understanding these financial terms is a crucial step toward independence and smarter decisions. Small efforts, like learning these terms, can significantly impact your financial journey and future.