Lots has been written about how the various generations handle money. Millennials have been traumatized by economic disaster; Gen X isn’t saving for retirement; boomers are spending their kids’ inheritance. Maybe these things are true and maybe they aren’t, but it comes down to this: Everyone needs to manage debt, save money and plan for the future. Without an understanding of common financial terms, you can’t do any of that, regardless of what year you were born. Get started with our glossary of common financial terms below:
An annuity is a fixed payment for a specific time period, commonly paid by insurance companies on life insurance policies or settlements, retirement accounts when a participant retires, or by lotteries to winners. Those who receive regular payments from an annuity may be able to sell their future payments for a lump sum of money to help take care of a large expense. For more information about selling your future payments, visit the J.G. Wentworth Facebook page.
Annual percentage rate is the rate of interest charged on loans or credit and is highly variable from lender to lender. Some lenders offer 0 percent APR for a limited time to entice buyers, such as 0 percent financing offered on some car loans. It’s important to pay attention to APR on credit cards and loans to get the lowest rate possible.
ARMs are adjustable-rate mortgages. The rates are adjustable and can go up or down, usually based on another rate such as the U.S. Treasury rate. To learn more about ARMs vs. fixed-rate mortgages, visit our learning center here!
Assets are real or personal property that can be sold or otherwise converted to cash, such as cars, jewelry or investments like a 401(k).
Credit scores are determined by payment history, credit use, types of credit, length of credit history and applications for credit. Your credit score affects your ability to get a car loan or a mortgage. Paying credit and loans on time is important for a good credit score. For the other factors that affect your credit score, visit Investopedia.com.
DTI is debt-to-income ratio, and it’s an important factor in qualifying for mortgages. Lenders look at how much of your income is available to meet mortgage obligations.
An IRA, or individual retirement account, is a retirement plan not sponsored by an employer. Most IRAs are tax-deductible investment vehicles that help save money on income taxes.
Liabilities are anything you owe money on, including student loans, credit cards and auto loans. Your liabilities are used along with your assets to determine net worth.
Net worth is an individual’s value of what is left if all assets were sold and all debts paid. It is calculated by subtracting total debt from total assets. If you have more debts than income, you have a negative net worth.
Have any more that you’d like to add? Let us know in the comments below!