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Adjustable Rate Mortgage (ARM)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 IncomeAllowable deductions from gross income that include certain employee and personal retirement, insurance, and support expenses.
Affinity CardsA 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.
AnnuityAn 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 CertainAn annuity that provides a specified monthly income for a stated number of years, without consideration of any life contingency.
Asset AllocationA plan for dividing a portfolio among different classes of securities in order to preserve capital buy protecting the portfolio against negative market development.
AssetsItems 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.
Back End LoadA commission charged for redeeming mutual fund shares
Balance SheetA key financial statement that summarizes a person's assets, liabilities, and net worth, measured at a specified point in time.
Bear MarketA condition of the market typically associated with investor pessimism and economic slowdown; characterized by generally falling securities prices.
BeneficiaryIn life insurance, the person who receives the proceeds of the insurance policy upon the insured's death.
Blue Chip StockA 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 PriceThe price at which one can sell a security.
BudgetA 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 MarketA condition of the Market normally associated with investor optimism, economic recovery and expansion; characterized by generally rising securities prices.
Cash DeficitAn 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 SurplusAn 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 ValueThe 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 LeaseThe 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.
CollateralAn item of value that is used to secure the principal portion of a loan.
Collision InsuranceAutomobile insurance that pays for collision damage to an insured automobile regardless of who was at fault.
Commercial BankA 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 PropertyA 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.
CompoundingWhen 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 PlanA 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.
ConsumptionThe using up of goods or services in the satisfaction of wants.
Conventional MortgageA 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.
ConvertibilityA 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 BondA bond issued by a corporation; categories include industrials, public utilities, railroad and transportation bonds and financial issues.
CouponThat feature on a bond that defines the annual interest income that the issuer will pay the bondholder.
Credit BureauAn organization that collects and stores credit information about individual borrowers and for a specified fee, supplies tit to financial institutions that request it.
Debit CardsSpecially 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 RatiosThe proportion of total monthly consumer credit obligations to monthly take-home pay.
Debt Service RatioTotal 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 PolicyA term insurance policy in which the protection decreases over the policy's life.
DeductibleThe initial amount not covered by an insurance policy and therefore the responsibility of the insured.
Deferred AnnuityAn annuity in which benefit payments are deferred for a certain number of years; purchased with either a lump-sum payment or in installments.
Demand DepositAn 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 PlanA 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 PlanA 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.
DepreciationThe 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 InsuranceInsurance 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.
DiscountingThe process of finding present value; the inverse of compounding to find future value.
DiversificationThe 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.
Elimination Period (Waiting Period) The period of time, after the insured meets the eligibility requirements of his/her policy, during which no benefits are paid.
EquityThe actual ownership interest in a specific asset or group of assets.
Estate PlanningA 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 TaxA 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.
ExemptionsDeductions from adjusted gross income based on the number of persons supported by the taxpayer's income.
Federal Withholding TaxTaxes 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 AssetsIntangible assets, such as savings accounts and securities that are acquired for some anticipated future return
Financial GoalsShort 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 MortgageThe 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 ValueThe 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.
Gift TaxA tax levied by the federal government on the value of certain types of gifts made during the giver's lifetime.
GrantorA party in a trust relationship who transfers property to a second party for the benefit of third parties.
Gross EstateAll property subject to federal estate taxes at a person's death.
Gross IncomeThe 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 StockA stock whose earnings and market price have increased over time at a rate that is well above average.
Guaranteed RenewabilityPolicy 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.
Health Maintenance Organization (HMO) 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 LineA line of credit issued against the existing equity in a home.
Homeowner's InsuranceInsurance required by mortgage lenders that typically covers the replacement value of a home and its contents.
Income StockA 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) PlansHealth 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.
InflationA 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 loanA loan that is repaid in a series of fixed scheduled payments rather than a lump sum.
IntestacyThe situation that exists when a person dies without a valid will.
InvestmentsAssets like stocks, bonds and mutual funds that are acquired for the purpose of earning a return rather than providing a service.
Irrevocable TrustA trust in which the grantor relinquishes title to the property placed in it as well as the right to revoke or terminate it.
Joint Tenancy With Right of SurvivorshipA 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.
Keogh PlanAn 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.
LeaseAn 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.
LiabilitiesDebts, such as credit card charges, installment loan balances, and real estate mortgages.
Liability InsuranceInsurance that protects against financial losses arising from the insured's responsibility for property losses or injuries to others.
Liquid AssetsAssets 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 RatioLiquid assets divided by total current debts; measures ability to pay current debts.
Living TrustA trust created during the grantor's lifetime.
Living WillA 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 RatioThe maximum percentage of value of a property that the lender is willing to loan.
Long Term CareThe delivery of medical and personal care, other than hospital care, to persons with chronic medical conditions resulting from either illness or frailty.
Managed Care PlansHealth 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 FundA 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 InsuranceA 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.
Net WorthAn 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.
Open Account CreditA 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 ObligationsCurrent liabilities that represent the balances outstanding against pre-established credit lines, which are used to purchase various types of goods and services.
Open End LeaseAn 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.
Personal Auto Policy (PAP)A comprehensive automobile insurance policy developed to in the 1970s to be easily understood by the "typical" insurance purchaser.
Personal Financial PlanningPlanning that covers the key elements of an individual's financial affairs and is aimed at achievement of his/her financial goals.
Personal PropertyTangible 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 CardA 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 cardA 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 RateThe rate of interest a bank uses as a base for loans to individuals and small to midsize business.
ProbateThe 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 EstateThe 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 PlansAn arrangement in which the employees of a firm participate in the company's earnings.
Property InsuranceInsurance coverage that protects real and personal property from catastrophic losses caused by a variety of perils.
Qualified Pension PlanAn arrangement in which the employees of a firm participate in the company's earnings.
Real PropertyTangible assets that are immovable, such as land and anything fixed to it. such as a house; generally have relatively long lives and high costs.
RenewabilityA 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 ValueThe remaining value of a leased car at the end of the lease term.
Revocable Living TrustA trust in which the grantor reserves the right to revoke it and to regain control of the trust property.
Revolving Line of CreditA 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.
Risk AssumptionThe choice to bear or accept risk.
Risk AvoidanceAvoidance of an act that would create a risk.
Salary Reduction (401k Plan)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 RatioCash surplus divided by after-tax income; indicates relative amount of cash surplus achieved.
Secured (Collateralized) Credit CardsA 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 InterestInterest that is paid on only the initial amount of the deposit.
Standard DeductionA 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 RatioTotal net worth divided by total assets; measures the degree of exposure to insolvency.
Survivorship Life InsuranceLife insurance that covers two persons, but only pays when the second one dies, also know as "second to die" insurance.
Tangible AssetsPhysical assets such as real estate and automobiles that can be held for either consumption or investment purposes.
Tax-DeferredIncome that is not subject to taxes immediately but which will be subject to taxes at a later date.
Tenancy by EntiretyA 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 CommonA 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 InsuranceInsurance 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 MoneyThe 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.
TrustA relationship created when one party, the grantor, transfers property to a second party, the trustee, for the benefit of third party(ies), the beneficiaries.
TrusteeAn organization or individual hired by the grantor to manage and conserve his/her property for the benefit of the beneficiaries.
Umbrella Personal Liability PolicyAn 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 CreditThe 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.
Variable Life InsuranceLife insurance in which the benefits payable and the cash value accrual are related to the return being generated on the investments selected .
Waiting Period (Elimination Period)The period of time, after the insured meets the eligibility requirements of his/her policy, during which no benefits are paid.
Whole Life InsuranceLife 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.
WillA written and legally enforceable document that expresses how a person's property should be distributed upon his/her death
Workers Compensation InsuranceA 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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