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Understanding financial literacy is crucial for couples looking to strengthen their financial security and plan for the future. Whether you’re newly married, nearing retirement, or building wealth together, knowing key financial terms can empower you to make informed decisions. In this comprehensive guide, we’ve compiled 50 essential financial literacy terms, listed alphabetically, that every couple should understand to manage money effectively, plan for retirement, and protect your legacy.
1. 401(k)
A retirement plan offered by employers that allows employees to contribute a portion of their salary on a tax-deferred basis, often with employer matching.
2. 403(b)
A retirement plan for employees of non-profit organizations, schools, and certain government entities, similar to a 401(k).
3. 529 Plan
A tax-advantaged savings plan designed to help families save for future educational expenses, such as college tuition and books.
4. Asset Allocation
The distribution of investments among different asset categories, such as stocks, bonds, and cash, to manage risk and return.
5. Beneficiary
A person or entity designated to receive assets from a life insurance policy, retirement account, or estate after the policyholder’s death.
6. Budget
A financial plan that helps you allocate your income to various expenses and savings goals, ensuring that you live within your means.
7. Capital Gains
Profits made from the sale of an asset, such as stocks or real estate. The tax rate depends on the length of time the asset was held.
8. Credit Card Balance
The amount of money owed on a credit card. Interest charges accrue if the balance isn’t paid off in full by the due date.
9. Credit Report
A detailed record of your credit history, including loans, credit cards, payment history, and any negative marks, such as late payments.
10. Credit Score
A numerical representation of your creditworthiness based on your credit history. It impacts your ability to secure loans and the interest rates you receive.
11. Debt Consolidation
Combining multiple debts into one loan with a single payment, often at a lower interest rate, to simplify repayment.
12. Debt-to-Income Ratio (DTI)
The percentage of your monthly gross income that goes toward debt payments. Lenders use this ratio to evaluate your ability to repay loans.
13. Dividend
A payment made by a corporation to its shareholders, typically from profits, often paid out in cash or as additional shares of stock.
14. Emergency Fund
A savings account set aside for unexpected expenses, such as medical bills or job loss. It is recommended to have three to six months’ worth of living expenses.
15. Estate Planning
The process of organizing and arranging for the management and distribution of assets after death, including creating a will and establishing trusts.
16. Fixed Expenses
Regular, predictable expenses that do not change month-to-month, such as rent, mortgage payments, and insurance premiums.
17. FICO Score
A specific type of credit score created by the Fair Isaac Corporation, used by lenders to determine an individual’s creditworthiness.
18. Gross Income
The total income earned before taxes and other deductions, including wages, salaries, and bonuses.
19. Interest Rate
The percentage charged by a lender for borrowing money or paid by a financial institution for keeping funds in an account.
20. Individual Retirement Account (IRA)
A personal retirement account that allows you to save for retirement with tax advantages. Types include Traditional IRA and Roth IRA.
21. Inflation
The rate at which the general level of prices for goods and services rises, leading to a decrease in the purchasing power of money.
22. Insurance Premium
The amount paid periodically to an insurance company for coverage under an insurance policy.
23. Interest
The cost of borrowing money or the return on investment for funds held in a savings account, bonds, or other investment vehicles.
24. Investment Portfolio
A collection of investments held by an individual or institution, including stocks, bonds, real estate, and other assets.
25. IRA (Individual Retirement Account)
A retirement savings account that offers tax advantages, including Traditional IRAs (tax-deferred) and Roth IRAs (tax-free withdrawals).
26. Joint Account
A financial account shared by two or more individuals, such as a checking or savings account, where all account holders have equal access and responsibility.
27. Life Insurance
A policy that pays out a death benefit to beneficiaries when the insured person passes away, providing financial security to survivors.
28. Liquid Assets
Assets that can be quickly converted into cash without significant loss of value, such as savings accounts, stocks, or bonds.
29. Long-Term Care Insurance
Insurance designed to cover the cost of long-term care services, including nursing home care, assisted living, and in-home care.
30. Mortgage
A loan taken to purchase property, where the property serves as collateral. It is typically repaid over a long period, such as 15 or 30 years.
31. Net Worth
The difference between your total assets (what you own) and your liabilities (what you owe). A key indicator of your financial health.
32. Operating Expenses
Ongoing costs incurred from running a business or household, such as utilities, salaries, and maintenance.
33. Portfolio Diversification
The practice of spreading investments across various asset types and markets to reduce risk and improve the potential for returns.
34. Preferred Stock
A class of stock that provides dividends to shareholders before common stock dividends are paid, but usually without voting rights.
35. Probate
The legal process by which a deceased person’s will is validated, and their estate is administered, including paying debts and distributing assets.
36. RMD (Required Minimum Distribution)
The minimum amount you must withdraw from certain retirement accounts, like 401(k)s and IRAs, once you reach the age of 72.
37. Roth IRA
A retirement account that allows you to make contributions with after-tax dollars. Earnings and withdrawals are tax-free if certain conditions are met.
38. Secured Debt
Debt backed by collateral, such as a mortgage or car loan. If the borrower defaults, the lender can seize the asset used as collateral.
39. Short-Term Goals
Financial goals that are typically achievable within one year or less, such as saving for a vacation, paying off small debts, or purchasing a new appliance.
40. Social Security
A government program providing financial assistance to retirees, the disabled, and survivors of deceased workers. Benefits are based on lifetime earnings.
41. Stocks
Shares of ownership in a company. Stockholders may earn dividends and benefit from the company’s success through price appreciation.
42. Tax-Deferred
Income or investments that are not taxed until they are withdrawn, such as in a 401(k) or Traditional IRA.
43. Taxable Account
An investment account where earnings (interest, dividends, and capital gains) are subject to taxation in the year they are realized.
44. Term Life Insurance
A type of life insurance that provides coverage for a specific period, typically 10, 20, or 30 years, and pays a death benefit if the insured dies during the term.
45. Total Return
The overall return on an investment, including capital gains, dividends, and interest, expressed as a percentage of the initial investment.
46. Trust
A legal arrangement in which one party (the trustee) holds and manages assets on behalf of another party (the beneficiary).
47. Unsecured Debt
Debt not backed by collateral, such as credit card debt or medical bills. Lenders rely on the borrower’s ability to repay, not an asset, to secure the loan.
48. Will
A legal document that outlines how a person’s assets should be distributed after their death and may include instructions for care of dependents and funeral arrangements.
49. Whole Life Insurance
A type of permanent life insurance that provides lifelong coverage and includes a savings component that builds cash value over time.
50. Yield
The income generated by an investment, usually expressed as a percentage of the investment’s cost or market value. Yield can come from dividends, interest, or capital gains.
Conclusion
Mastering these 50 financial literacy terms is an essential step for spouses looking to strengthen their financial health and plan for the future. Whether you’re managing household expenses, planning for retirement, or building your legacy, understanding these concepts will help you make informed decisions and work together as a team. By developing a shared financial vocabulary, couples can navigate the complexities of personal finance with confidence and achieve long-term financial stability.
For more financial terms and in-depth explanations, explore our larger glossary of financial literacy terms.