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The most common words/terms used within financial capability

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APR
APR stands for ‘annual percentage rate’. It aims to give people a more accurate idea of how much they are being charged when they borrow money. It allows people to compare the total cost of borrowing money for different types of loan, and lengths of time.
Bonds
A bond is a contract of repayment terms stating that the issuer owes the holder a debt. The issuer can be the state, a bank, a company or a mortgage provider, which, depending on the terms of the bond, is obliged to repay the borrowed money to the holder with interest at fixed intervals.
Credit card
A credit card is a means of payment. The holder of a credit card can use it to buy consumer goods, and the issuer of the card will refund the retailer. The issuer will then claim the amount from the card holder – typically on a monthly basis. Interest terms can vary on credit cards depending on the issuer and the usage. This card is not directly linked to the consumer's bank account which means that the consumer is allowed to buy products and pay later. The card can be used worldwide. You can use this card to buy goods in shops, by phone and online. If you don't pay the total amount in full by the due date you will be charged interest on the outstanding balance. You must be at least 18 years old before you can have a credit card.
Debit card
A debit card is a means of payment. The holder of a debit card can use it to buy consumer goods, and the issuer of the card will refund the retailer and afterwards claim the amount from the cardholder. A debit card is directly linked to a bank account. The amount will be claimed from the card holder’s account immediately after the card has been used.
Savings account
A savings account is a bank account where customers can deposit their savings for short or long periods of time. Interest rates vary and depend on the market situation, account restrictions and time span.
Fixed costs
For customers, fixed expenses are those expenses which, in the short term, cannot be influenced significantly. Examples are mortgage payments, rent, electricity and insurance.
Gross income
Gross income is the amount of a person’s or company’s income (money received) prior to tax deductions and other payments.
Interest
The rate at which you will be charged by a financial institution for every £1 borrowed or earn for every £1 saved.
Investment
A financial investment is the act of purchasing a financial product or other valuable assets with the expectation of possible future returns. In other words, to invest means to use money in the hope of making even more money. Investment involves risk – high returns almost always equal high risk.
Loan
A loan is a contractual agreement between a creditor and a borrower in which the creditor agrees to provide a sum of money to a borrower, who, in return, promises to repay the money. The loan is usually repaid with interest, and typically the loan must be repaid within a given time frame agreed in advance.
Net income
Net income is the amount of money earned after tax deductions and National Insurance contributions.
Overdraft
An overdraft is a credit facility available on a current account. In simple terms, an overdraft is when you are able to withdraw more money from your current account than you have available to spend. The account holder may use the facility to spend up to an agreed credit limit for a short term until funds are received i.e. salary. The account holder must pay interest on the amount they spend within their credit facility, which is calculated on a daily basis according to terms agreed. A credit facility should always be agreed with your lender in advance of requiring to withdraw more money than you have in your current account. Going overdrawn without permission could affect your credit rating and you may incur additional fees and service charges .
Stock
A stock is a share of ownership in a corporation. A stock represents a claim on the corporation’s equity capital.
Tax
Tax is a fee charged by the government on an individual’s products, income and activities. The charged fee finances government expenditure. Tax is not a voluntary payment but an enforced contribution by law.
Variable expenses
Variable expenses are expenses that you can influence significantly within a short time span without making major changes to your living conditions such as having to move or selling your car. Variable expenses can be clothes, groceries, fuel, etc.
Appreciation
Appreciation is a term normally used in book-keeping (accounting). The term describes the increase in value of a product over time. Appreciation is most commonly used in relation to the property market.
Cost price
Cost price is the exact price of producing a product or service before the profit margin is added. The cost price includes all variable and fixed expenses.
Fees
A fee is an extra expense added to the total charge for a product or service. Examples of fees are restaurant service charges in lieu of tips, delivery fees etc.
Instalment
Instalments are repayments made in a given period to pay back money owed on a product/service or loan.
National Insurance contribution
In addition to income tax, National Insurance contributions are also payable on salaries, bonuses etc. in the UK.
Profit
Profit is the amount of money left from the total income when all expenses have been subtracted.
Sales Price
Sales price is the cost price including the profit margin (the marginal profit per unit sale).
VAT (value added tax)
VAT is a consumption tax added to the cost price of a product or service. In most countries the VAT is already added in the sales price mentioned in stores, however, in some countries, such as, Canada consumers need to calculate the VAT themselves to know the exact price of a product or service.
Foreign currency
Foreign currency is the money used in a foreign country, and not in your own country. The price between two currencies is known as the exchange rate. However some countries in Europe all use the same currency - the Euro.