Financial Literacy: Terms You Need to Know Now

Financial Literacy: Terms You Need to Know Now

  1. 401(k): An optional retirement account funded by your employer and yourself; money is deducted pre-tax from each paycheck, which also means that you’ll pay less in taxes
  2. APR: The interest rate charged by a creditor when you carry a balance month to month; cards often offer low APRs for new accounts, but these rates can rise sharply after a single missed or late payment
  3. Credit History: A formal record of your borrowing, past and present; shows every account opened and closed, full payment history, and available credit limits; you get (and absolutely should review!) a free credit report each year from AnnualCreditReport.com
  4. Credit Score: Rating based on your credit history used to determine interest rates and eligibility for future loans (including apartment leases); a “good” credit score starts around 670
  5. Credit Union: A banking institution funded and controlled by its own members; they offer low fees, competitive loan rates, and excellent customer service
  6. Gross vs Net Income: Gross income is the total you have earned before taxes and payroll deductions like insurance and retirement contributions; net income is your actual take-home pay
  7. Interest: The cost of borrowing money; can be good (savings accounts and investments earn interest for you) or bad (creditors and lenders charge you for carrying a balance); you want bank accounts with high rates and credit cards with low rates
  8. Minimum Payment: Lowest amount a credit card will accept as monthly payment; paying only minimums will dramatically increase the total amount you owe (see interest, above) and the time it takes to pay off the card
  9. Snowball: Popular and efficient way to pay down debt with multiple creditors; while paying all minimums, you send extra money to your lowest balance until it’s paid in full, then add that payment to the minimum for the next lowest balance, and so on
  10. Withholding: The amount held back from your paycheck by the federal government (Florida has no state income tax) for Medicare and Social Security; increasing your withholding results in smaller paychecks but a potentially larger tax refund, while decreasing it puts more in your pocket throughout the year but may result in more tax owed

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