Glossary
User:
Adam Gore
Activity:
The Individual Consumer
Curriculum:
Economics
Date:
Thu, Oct 2 13:49:21 GM
32 items printed.
Thu, Oct 2 13:49:21 GM
Page 1 of 7
Glossary
benefits - employer-provided compensation that is not included in wages or salaries. Benefits
can commonly include health insurance coverage for you and your family, life insurance, child
care, employee discounts, a retirement savings plan, and paid vacation, sick, and personal time.
Other benefits may take the form of flexible working hours or the ability to telecommute.
Better Business Bureau {BBB) - a national nonprofit organization (with local offices) that was
founded in 1912. It is funded by the membership fees of its business members and attempts to
resolve consumer problems with producers and providers by acting as a neutral party to disputes.
Consumers can file complaints with the BBB against any business -- not just a BBB member.
Thus, the BBB is a source of information for consumers wanting to find out about a company
before making a purchase or contracting for a service. The BBB can tell the consumer how
cooperative a company is in settling problems as well as whether or not it has unresolved
complaints against it. The BBB will also work to resolve any complaints or issues filed with them.
bias - the tendency to see things from a certain point of view that prevents the unprejudiced
consideration of an issue.
budget - a financial plan for a person, family, business, government, or other organization. A
budget includes both estimated income and expenses over a specific period of time (such as a
year).
closing costs - costs that are incurred as part of transferring real estate from one owner to
another, such as fees to attorneys and appraisers, sales commissions to real estate agents,
credit report and land survey costs, taxes, the process fee charged by the financial institution
issuing the mortgage, and premiums on different types of insurance (title, flood, and mortgage).
Exactly what fees are incurred can vary by lender and the local governments involved. For
instance, some localities may require termite inspections or water inspections (if the property has
a well). If one is refinancing a loan, closing costs still are part of the process, but are usually less,
as, for instance, real estate transfer taxes would not be owed.
collateral - property that is tied to a loan as insurance that the lender will not lose money on the
loan. The lender and the borrower usually sign an agreement that allows the lender to claim the
property if the borrower defaults on the loan. Collateral in most cases is the property that is being
purchased with the money provided by the loan, but theoretically can be any asset, including
stocks and bonds.
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Glossary
compound interest - interest that is calculated on an account's balance, including any
previously calculated interest (as opposed to "simple interest"). Calculations of compound interest
can vary -- for instance, how often interest is calculated and when it is included in new interest
calculations. These differences can make a big difference. If interest is compounded daily,
interest would be calculated on the account balance the first night and placed in an accrued
interest balance. The second night, the interest would be calculated on the account balance
AND the accrued interest balance and the new interest would be added to the accrued interest
balance. Thus, the interest constantly increases and accumulates .
consumer rights - those rights that consumers have as a matter of law. In the United States,
consumers have many protections granted by federal, state, and local governments -- for
example, the right to safety, the right to be informed, the right to choose, and the right to be heard.
cover letter - a letter sent with a resume indicating interest in a job with a particular employer.
The resume is a listing of a person's education and work experience. The cover letter should
indicate how this background qualifies this person for a job with this particular employer and what
particular skills and strengths would make this person a better employee than another person with
a similar background.
credit - an arrangement consumers make with banks, credit card companies, or stores. It
involves borrowing money to pay for goods or services the consumer wants to have now and
paying the amount owed later. Consumers can use bank loans to purchase cars or mortgages to
purchase homes. Credit cards from credit card companies or stores are available to purchase
less expensive items.
credit bureau - a company that gathers, analyzes, and reports on the credit history and financial
worthiness of individuals. Thus, a credit bureau gathers information on debts, amount of available
credit and balances, payment history, and employment and salary history. They make
assessments about credit worthiness based on this information. They then provide a report of this
information (for a fee) to businesses who are considering making credit available. Errors can
occur in the process of gathering and analyzing the information, so many consumer advocates
advise that people check their own credit reports on an annual basis.
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Glossary
credit card - a card (usually plastic) issued by a credit card company or a retail store to a person
or business so that purchases may be made without using cash or checks. The cardholder signs
an agreement to pay the balance in the future . Usually, bills are issued monthly listing the
purchases made. Most credit card companies allow the cardholder to pay a minimum payment
(which varies based on the balance), instead of the full balance owed. However, interest is
charged on any balance carried over -- frequently as high as 18-24%. This can cause the amount
owed to increase fairly rapidly if the entire balance is not paid when the bill arrives.
credit rating - the result of an evaluation that has been done (usually by a credit bureau) of the
ability of the borrower to repay debts based on factors such as their income and past payment
history on other debts. The better the consumer's credit rating is, the more willing banks and
other companies will be to loan money. A poor credit rating will result in loan applications being
refused or, if the applications are accepted, increased interest costs.
debit card - a card (usually plastic) that provides access to money that a person already has
deposited in an account at a financial institution. Debit cards can be used in retail establishments
in the same manner as credit cards and also can be used to withdraw money from the account
using an ATM. Since this is the consumer's money, there is no loan involved and, thus, no
interest charged. Some financial institutions charge a transaction fee every time that the card is
used at a retail establishment. Depending on the type of account, many financial institutions will
pay a small amount of interest on any unused money left on deposit in the account. A debit card
is sometimes called a check card.
deed of trust - a document used in place of a mortgage for the purchase of real estate (such as
a house, a commercial or office building, or a piece of land). Some states use deeds of trust in
place of mortgage legal documents. If the loan holder is unable to pay at some point, if a
mortgage is involved, then the lender has to go to court in order to seize the property used as
collateral. However, if a deed of trust is involved, the lender can just seize the property without
having to go to court.
discretionary income - the amount of money available to a person after the necessities have
been purchased. Thus, it is net income minus the cost of expenses such as housing and food.
Discretionary income can be used to purchase extras (electronics, sports or entertainment tickets,
and restaurant dinners), be deposited in a savings account, or invested. Discretionary income is
also called expendable income.
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Glossary
down payment - a payment made to a financial institution at the time a loan is taken out. The
down payment is used to reduce the amount of the loan. For instance, if a person wants to take
out a loan to buy a $15,000 car, the amount of the down payment reduces the loan involved. If
the person has $5,000 to use as a down payment, then the amount loaned is $10,000. If the
down payment is $7,500, then the loan amount is $7,500.
home equity - the difference in the current value of a house and the mortgage debt still owed on
that home. As one pays for a home, the home equity acquired gradually increases as both the
amount of remaining debt diminishes and the value of the home increases.
intern - a person who has an internship.
internship - a low-level job that is available at many companies and governmental agencies.
Internships may be paid or unpaid. For instance, Congressional pages are interns that work
primarily as messengers carrying documents. They are paid and are provided food and housing
at a cost deducted from their pay. In return, they get to observe the workings of government at
close quarters to determine if they might be interested in a career as an elected official, a lobbyist,
government official, or an aide to an elected official.
investing - financing business activity with the expectation of receiving more money in return
than was invested. Investing involves some assumption of risk.
money market account - an interest-earning savings account with limited transaction privileges.
Although access to funds in the account is limited to a few withdrawals a month, the money is
easily accessible. Money left in the account continues to draw interest and is insured by the
Federal Deposit Insurance Corporation (FDIC). A possible disadvantage to a money market
account is the minimum balance requirement.
mortgage - term used for both a loan for the purchase of real estate (such as a house, a
commercial or office building, or a piece of land) and the legal document that indicates that a debt
exists on a piece of property. In reference to the legal document, some states use deeds of trust
in place of mortgages (see "deed of trust"). Mortgage loans can be fixed (the interest rate and
payments are fixed for the life of the loan) or variable (the interest rate and payments may vary for
the life of the loan according to market conditions).
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Glossary
mortgage insurance - an insurance policy issued by an insurance company that ensures that
the mortgage's balance will be paid if the mortgage holder should be unable to make payments at
some point. Many lenders require a person who wants a mortgage to take mortgage insurance if
the down payment is less than a certain percentage of the value of the property (less than 20% of
the property's value, for instance).
net income - total income minus taxes and any other deductions. For an individual, this amount
is also called disposable income. Disposable income is the amount of money available to
acquire life's necessities -- food, clothing, housing, and utilities. After the necessities are
purchased, the amount remaining is called discretionary income.
resume - a listing of a person's education and work experience. Typically, one prepares a
resume when one is going to be looking for a new job . However, many job consultants advocate
always keeping a resume up-to-date because it is very easy to forget job accomplishments over
time and layoffs can occur suddenly.
saving - setting aside current income in a safe place for future consumption.
savings bond - a type of bond issued by the United States government that cannot be sold in a
financial market. There are different kinds of savings bonds offered. Each has different interest
rates and payment terms. There is a penalty involved if the bond is cashed before it matures.
simple interest - interest that is calculated on an account's balance, and does NOT include any
previously calculated interest (as opposed to "compound interest"). In practice accounts rarely
rely solely on simple interest, and details about how different financial institutions calculate
interest can vary -- for instance, how often interest is calculated and when it is included in new
interest calculations. These differences can make a big difference in the amount accumulated in
a savings account or owed on a loan. When you have a choice, you want compound interest
when you are earning the interest (such as on a savings account) and simple interest when you
are paying the interest (such as on a loan).
title - a legal deed issued by a government agency that certifies ownership of property, such as
real estate and cars.
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Glossary
title insurance - an insurance policy issued by a title insurance company. Title insurance
ensures the purchaser of real estate against loss in case the title search was defective. That is, if
the title search turned up no debts tied to the property, but later one was found, the title insurance
would handle any losses incurred.
title search - a process done by a title insurance company when real estate changes ownership.
The current owner of the property may have a loan that is secured by the property as collateral.
It is also possible that the current owner may have another creditor that filed legal documents
establishing that a debt was owed and must be paid. For instance, the current owner may have
been sued in court, lost the suit, been ordered to pay, but refused to pay. This creditor could file
legal documents showing the amount owed and tie the debt to the property. All such claims
should be resolved before the property is sold to a new owner. Thus, the title search is supposed
to find all claims that anyone may have on the property.
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