A mortgage on which the rate of interest, and therefore the size of the monthly payment, is adjusted up and down in line with movements in interest rates.
Adjusted Gross Income (AGI)
The amount of income remaining after subtracting adjustments to income from gross income.
Adjustments to Gross Income
Allowable deductions from gross income that include certain employee and personal retirement, insurance, and support expenses.
Affinity Cards
A standard bank credit card issued in conjunction with some charitable, political, or other sponsoring non-profit organization; these cares are a source of revenue to the sponsoring group since they normally earn a small percentage of all retail transactions.
Annual Percentage Rate (APR)
The actual or true rate of interest paid over the life of a loan.
Annuity
An equal cash flow that occurs annually; or an investment product created by a life insurance company that provides a series of payments over time.
Annuity Certain
An annuity that provides a specified monthly income for a stated number of years, without consideration of any life contingency.
Asset Allocation
A plan for dividing a portfolio among different classes of securities in order to preserve capital buy protecting the portfolio against negative market development.
Assets
Items that one owns.
Average Daily Balance Method (ADB)
A method of computing finance charges by applying interest charges to the average daily balance of the account over the billing period.
A commission charged for redeeming mutual fund shares
Balance Sheet
A key financial statement that summarizes a person's assets, liabilities, and net worth, measured at a specified point in time.
Bear Market
A condition of the market typically associated with investor pessimism and economic slowdown; characterized by generally falling securities prices.
Beneficiary
In life insurance, the person who receives the proceeds of the insurance policy upon the insured's death.
Blue Chip Stock
A stock that is known to provide a safe and stable return; generally issued by companies that are expected to provide an uninterrupted stream of dividends and have good long term growth prospects.
Bid Price
The price at which one can sell a security.
Budget
A detailed financial forecast used to monitor and control expenditures and purchases; it provides a mechanism for carrying out financial plan to achieve short-term financial goals.
Bull Market
A condition of the Market normally associated with investor optimism, economic recovery and expansion; characterized by generally rising securities prices.
An excess amount of expenditures over income resulting in insufficient funds that must be made up either by drawing down savings or investments, reducing assets, or through borrowing. Results in decreased net worth.
Cash Surplus
An excess amount of income over expenditures that can be sued for savings or investments and to acquire assets or reduce debts. Results in increased net worth.
Cash Value
The accumulated refundable value of an insurance policy that is based on insurance premiums paid and investment earnings; can be used as a source of loan collateral.
Certificate of Deposit (CD)
A type of savings instrument that is issued by certain financial institutions in exchange for a deposit; typically requires a minimum deposit and has a maturity ranging from seven days to as long as seven or more year.
Closed End Lease
The most popular form of automobile lease, often called a "walk away lease" because at the end of its term the lessee simply turns in the car, assuming the present mileage limit has not been exceeded and the car hasn't been abused.
Collateral
An item of value that is used to secure the principal portion of a loan.
Collision Insurance
Automobile insurance that pays for collision damage to an insured automobile regardless of who was at fault.
Commercial Bank
A financial institution that offers checking and savings accounts and a full range of financial products and services, including several types of consumer loans it's the only institution that can offer non-interest paying checking accounts (demand deposits).
Community Property
A form of joint ownership wherein all property acquired by the effort of either or both spouses during marriage while they are domiciled in a community property state is automatically owned equally by both spouses.
Compounding
When interest earned each year is left in the account and becomes part of the principal on which interest is earned in subsequent years.
Comprehensive Personal Financial Plan
A set of detailed plans and recommendations for achieving specific financial goals, as compiled from a family profile; information on current income, expenses, and financial condition; tax returns; insurance coverages; retirement programs; and estate plans.
Consumption
The using up of goods or services in the satisfaction of wants.
Conventional Mortgage
A mortgage offered by a lender who assumes all the risk of loss; typically requires a down payment of at least 20 per cent of the value of the mortgaged property.
Convertibility
A provision in term policies that allows the insured to convert the policy to a whole life policy providing the same death benefit, without proof of insurability.
Corporate Bond
A bond issued by a corporation; categories include industrials, public utilities, railroad and transportation bonds and financial issues.
Coupon
That feature on a bond that defines the annual interest income that the issuer will pay the bondholder.
Credit Bureau
An organization that collects and stores credit information about individual borrowers and for a specified fee, supplies tit to financial institutions that request it.
Specially coded plastic cards used to withdraw cash or transfer funds from a customer's bank account to the recipient's account to pay for goods or services.
Debt Safety Ratios
The proportion of total monthly consumer credit obligations to monthly take-home pay.
Debt Service Ratio
Total monthly loan payments divided by monthly gross (before-tax) income; provides a measure of ability to pay monthly loan payments in a prompt and timely fashion.
Decreasing Term Policy
A term insurance policy in which the protection decreases over the policy's life.
Deductible
The initial amount not covered by an insurance policy and therefore the responsibility of the insured.
Deferred Annuity
An annuity in which benefit payments are deferred for a certain number of years; purchased with either a lump-sum payment or in installments.
Demand Deposit
An account held at a financial institution from which funds can be withdrawn (in check or cash) upon demand by the account holder; same as a checking account.
Defined Benefit Plan
A pension play in which the formula for computing benefits is stipulated in its provisions. Thus allowing the employee to determine prior to retirement how much his/her retirement income will be.
Defined Contribution Plan
A pension plan that specifies the amount of contributions that both employer and employee must make; it makes no promises concerning the size of benefits at retirement.
Depreciation
The loss in the value of an asset such as an automobile that occurs over its period of use; calculated as the difference between the price initially paid and the subsequent sales price.
Disability Income Insurance
Insurance that provides families with weekly or monthly payments to replace income when the insured is unable to work as a result of a covered illness injury or disease.
Discounting
The process of finding present value; the inverse of compounding to find future value.
Diversification
The process of choosing securities having dissimilar risk-return characteristics in order to create a portfolio that will provide an acceptable level of return and in acceptable exposure to risk.
The period of time, after the insured meets the eligibility requirements of his/her policy, during which no benefits are paid.
Equity
The actual ownership interest in a specific asset or group of assets.
Estate Planning
A goal-oriented activity that uses tax-minimization t3echniques to provide the greatest possible financial security for an individual and his/her heirs or beneficiaries.
Estate Tax
A tax levied by the federal and/or state governments on the value of certain types of gifts (or an estate) made upon the giver's death.
Exemptions
Deductions from adjusted gross income based on the number of persons supported by the taxpayer's income.
Taxes based on the level of earnings and the number of withholding allowances claimed that are deducted by an employer from the employee's gross earnings each pay period.
Financial Assets
Intangible assets, such as savings accounts and securities that are acquired for some anticipated future return
Financial Goals
Short and long term results that an individual wants to attain, such as controlling living expenses, managing one's tax burden, establishing savings and investment programs and meeting retirement needs.
Fixed Rate Mortgage
The traditional type of mortgage in which both the rate of interest and the monthly mortgage payment are fixed over the full term of the loan.
Future Value
The value to which an amount today will grow if it earns a specific rate of interest over a given period of time. It can be used to find the yearly savings needed to accumulate a given future amount of money.
A tax levied by the federal government on the value of certain types of gifts made during the giver's lifetime.
Grantor
A party in a trust relationship who transfers property to a second party for the benefit of third parties.
Gross Estate
All property subject to federal estate taxes at a person's death.
Gross Income
The total of all a taxpayer's income (before any adjustments, deductions, and/or exemptions) that is subject to federal taxes; it includes active, portfolio and passive income.
Growth Stock
A stock whose earnings and market price have increased over time at a rate that is well above average.
Guaranteed Renewability
Policy provision assuring continued insurance coverage for the insured's lifetime as long as he/she continues to pay premiums. The insurer may raise premiums in the future; however, if the claims experience for the insured's peer group of policyholders is unfavorable.
An organization consisting of hospitals, physicians, and other health care personnel who have joined together in an central facility to provide necessary health care services to its subscribers.
Home Equity Credit Line
A line of credit issued against the existing equity in a home.
Homeowner's Insurance
Insurance required by mortgage lenders that typically covers the replacement value of a home and its contents.
A stock whose chief appeal is the dividends it pays out; typically offers dividend payments that can be expected to increase over time.
Indemnity (Fee-For-Service) Plans
Health care insurance plan in which the person or organization from which you get the health care services is separate from the insurer, who pays the provider or reimburses you for a percentage of expenses after a deductible. These plans provide unlimited choice of doctors and hospitals.
Individual Retirement Account (IRA)
A retirement plan, open to any working American, to which a person may contribute a specified amount each year (up to $2000 per person); while annual contributions to IRAs may or may not be tax deductible the earnings from all IRAs do accrue on a tax-deferred basis.
Inflation
A state of the economy in which the general price level is rising due to excessive demand or rapidly rising production costs; usually occurs during the recovery and expansion phases of the economic cycle.
Installment loan
A loan that is repaid in a series of fixed scheduled payments rather than a lump sum.
Intestacy
The situation that exists when a person dies without a valid will.
Investments
Assets like stocks, bonds and mutual funds that are acquired for the purpose of earning a return rather than providing a service.
Irrevocable Trust
A trust in which the grantor relinquishes title to the property placed in it as well as the right to revoke or terminate it.
A type of ownership by two or more parties, with the survivors continuing to hold all property on the death of one or more of the tenants. Each joint tenant can unilaterally sever the tenancy.
An account to which self-employed persons may make payments, up to the lesser of $30,000 or 20 percent of earned income per year, that may be taken as deductibles from taxable income; the earnings on such accounts also accrue on a tax-deferred basis.
An arrangement in which the lessee receives the use of a car (or other asset) in exchange for making monthly lease payments for a specified period of time.
Liabilities
Debts, such as credit card charges, installment loan balances, and real estate mortgages.
Liability Insurance
Insurance that protects against financial losses arising from the insured's responsibility for property losses or injuries to others.
Liquid Assets
Assets that are held in the form of cash or can be readily converted to cash with minimal or no loss in value; used to meet living expenses, make purchases, pay bills and loans, and provide for emergencies and unexpected opportunities.
Liquidity Ratio
Liquid assets divided by total current debts; measures ability to pay current debts.
Living Trust
A trust created during the grantor's lifetime.
Living Will
A document that states, in very precise terms the treatment that a person wants and to what degree he/she wishes them continued if he/she becomes terminally ill.
Loan to Value Ratio
The maximum percentage of value of a property that the lender is willing to loan.
Long Term Care
The delivery of medical and personal care, other than hospital care, to persons with chronic medical conditions resulting from either illness or frailty.
Health care plans in which subscribers contract directly with the provider organization, which furnishes comprehensive health care services for a fixed fee from a designated group of providers who meet stringent selection criteria. These plans emphasize cost control and preventative treatment.
Money Market Deposit Account (MMDA)
A savings account, offered by banks and other depository institutions, that is meant to be competitive with a money market mutual fund.
Money Market Mutual Fund
A mutual fund that pools the funds of many small investors and purchases high return short term marketable securities offered by the U.S. Treasury, major corporations, large commercial banks, and various government organizations.
Mortgage Insurance
A type of insurance policy that protects the mortgage lender from loss in the event the borrower defaults on the loan; typically required by lenders when the down payment is less than 20 percent.
An individual's or family's actual wealth, determined by subtracting total liabilities from total assets.
Negotiable Order of Withdrawal Accounts (NOWs)
A checking account on which the financial institution can pay whatever rate of interest it deems appropriate.
Net Asset Value (NAV)
The price at which a mutual fund will buy back its own shares; NAV represents the current market value of all securities the fund owns less any liabilities.
A form of credit extended to a consumer in advance of any transactions; type of credit that accompanies charge accounts and credit cards.
Open Account Credit Obligations
Current liabilities that represent the balances outstanding against pre-established credit lines, which are used to purchase various types of goods and services.
Open End Lease
An automobile lease under which the estimated residual value of the car is used to determine lease payments; if the car is actually worth less than this value at the end of the lease, the lessee must pay the difference.
A comprehensive automobile insurance policy developed to in the 1970s to be easily understood by the "typical" insurance purchaser.
Personal Financial Planning
Planning that covers the key elements of an individual's financial affairs and is aimed at achievement of his/her financial goals.
Personal Property
Tangible assets that are movable and used to provide the general comforts of life; includes automobiles, household furnishings, and jewelry.
Preferred Provider Organizations (PPOs)
Health care providers that provide comprehensive health care services to its subscribers within a network of physicians and hospitals.
Prepaid Card
A plastic card with a magnetic strip or microchip that stores the amount of money the purchaser has to spend and deducts the value of each purchase; eliminates the need to carry cash.
Prestige card
A type of bankcard that offers higher credit limits; has stricture requirements for qualifications, and generally offers more features than its regular counterpart.
Price-Earnings Ratio ("P/E")
This is the market price of the stock divided by the current per share earnings of the corporation. More on P/E
Prime Rate
The rate of interest a bank uses as a base for loans to individuals and small to midsize business.
Probate
The court-supervised process of liquidation that occurs when a person dies; it consists of collecting money owed the decedent; paying his/her debts; and distributing the remaining assets to the appropriate individuals and organizations.
Probate Estate
The real and personal property owned by a person that is transferred at death according to the terms of a will or under intestate laws in the absence of a valid will.
Profit Sharing Plans
An arrangement in which the employees of a firm participate in the company's earnings.
Property Insurance
Insurance coverage that protects real and personal property from catastrophic losses caused by a variety of perils.
Tangible assets that are immovable, such as land and anything fixed to it. such as a house; generally have relatively long lives and high costs.
Renewability
A provision in term policies that allows the insured to renew his/her policy for another term without proof of insurability. The best type of renewability, from the insured's viewpoint is the "guaranteed renewable provision".
Residual Value
The remaining value of a leased car at the end of the lease term.
Revocable Living Trust
A trust in which the grantor reserves the right to revoke it and to regain control of the trust property.
Revolving Line of Credit
A type of open account credit offered by banks and other financial institutions that can be accessed by writing checks against demand deposit or specially designed credit line accounts.
An agreement under which a portion of a covered employee'' pay is withheld and invested in an annuity or other qualified form of investment. The taxes on both the contributions and the account earnings are deferred until the funds are withdrawn.
Savings and Loan Association (S&L)
A financial institution that channels the savings of its depositors primarily into mortgage loans for purchasing and improving homes. Due to deregulation, however, S & Ls now offer a competitive range of financial products and services.
Savings Ratio
Cash surplus divided by after-tax income; indicates relative amount of cash surplus achieved.
Secured (Collateralized) Credit Cards
A type of credit card that is secured with some form of collateral, like a bank CD. With these cards, the amount of credit you get depends on how much collateral you can put up.
Simple Interest
Interest that is paid on only the initial amount of the deposit.
Standard Deduction
A blanket deduction that depends on the taxpayer's filing status, age, and vision and can be taken by a taxpayer who doesn't have sufficient itemized deductions.
Solvency Ratio
Total net worth divided by total assets; measures the degree of exposure to insolvency.
Survivorship Life Insurance
Life insurance that covers two persons, but only pays when the second one dies, also know as "second to die" insurance.
Physical assets such as real estate and automobiles that can be held for either consumption or investment purposes.
Tax-Deferred
Income that is not subject to taxes immediately but which will be subject to taxes at a later date.
Tenancy by Entirety
A form of ownership by husband and wife recognized in some states in which the property automatically passes to the surviving spouse. Tenancy can be severed only by mutual agreement, divorce, or conveyance by both spouses to a third party.
Tenancy In Common
A form of joint ownership under which there is no right of survivorship, and each co-owner can leave his/her share to whomever he/she desires.
Term Life Insurance
Insurance that provides only death benefits, for a specified period of time, and does not provide for the accumulation of any cash values.
Time Value of Money
The concept that a dollar today is worth more than a dollar received in the future; it exists as long as one can earn a positive rate of return (interest rate) on investments.
Trust
A relationship created when one party, the grantor, transfers property to a second party, the trustee, for the benefit of third party(ies), the beneficiaries.
Trustee
An organization or individual hired by the grantor to manage and conserve his/her property for the benefit of the beneficiaries.
An insurance policy that provides excess liability coverage for both homeowners and automobile insurance as well as coverage in some areas not provided for in either of those policies.
Unified Tax Credit
The credit that can be applied against the tentative gift or estate tax; the credit in 1999 is $211,300 which absorbs all the tentative tax on taxable transfers up to $650,000. The amount of the credit and the amount of the tentative tax absorbed rises and then levels off at $345,800 and $1,000,000, respectively, in 2006 and beyond.
Universal Life Insurance
A type of insurance contract that combines term insurance (death benefits_ with a tax-deferred savings/investment account that pays competitive money market interest rates.
U.S. Treasury Bill (T-Bill)
A short term (three month to one year maturity) debt instrument issued by the U.S. Treasury in the ongoing process of funding the national debt.
The period of time, after the insured meets the eligibility requirements of his/her policy, during which no benefits are paid.
Whole Life Insurance
Life insurance that is designed to offer financial protection for the entire life of the insured; it allows for the accumulation of cash values, along with providing stipulated death benefits.
Will
A written and legally enforceable document that expresses how a person's property should be distributed upon his/her death
Workers Compensation Insurance
A type of health care insurance, required by state and federal governments and paid for by employers that compensates workers for job-related illness or injury.
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