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15 Financial Terms Every Adult Should Understand

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Kristina ByasGuest Blogger
October 13, 2016 · 2.6k Views

financial terms

As an adult, there are certain things that you should know and fully understand. When it comes to finances, things can be quite tricky. Not only to have difficulty managing money, paying bills on time and building savings, but they also have trouble understanding some of the terms associated with various financial topics. Although you don't have all of the money in the world and may be struggling to make ends meet, that doesn't mean you can't be a financially savvy individual.

Take a look at our finance articles for the best personal finance apps, how to budget, manage your credit cards and much more!


  1. Premium cards
    This term is associated with insurance. Your premium refers to the money you pay to your insurance company for protection. People often pay them monthly, semi-annually and annually.
  2. AGI calculator
    AGI stands for adjusted gross income and is a term associated with your taxes. This amount includes your job earnings, interest from investments, pension and more. The IRS uses this amount to determine your taxable income.
  3. Dependent abc
    Another term often associated with taxes is dependent. A dependent is someone who you are financially responsible for and can claim on your taxes. Ultimately, claiming a dependent can reduce the amount of taxes you owe because it decreases your taxable income.
  4. Net worth net worth
    This term refers to your overall financial health. It can be determined by looking at various things, but specifically your assets and liabilities and debts.  
  5. Compound interest money
    When putting your money in savings, the amount of money you deposit will grow over time. Compound interest is the amount that your money grows plus interest earned on that amount. Many people think of it as "interest on top of interest."
  6. FICO score fico
    FICO score, which is short for Fair Isaac Corporation, is a term that is associated with your creditworthiness. Of course, this score can affect whether or not you are eligible to get a credit card, finance a car and more.
  7. Escrow house
    Buying a home is something a lot of people do. When this happens, you will place money into an account, escrow, that the seller won't have access to until all terms your contract are met and the selling of the home is complete.
  8. Fixed-rate mortgage 
    Your mortgage will have an interest rate attached to it for the entire term of the loan. Interest may rise, but when the rate is fixed, the payments you make cannot increase. It is the same if the interest decreases.
  9. Term life insurance life insurance
    This is insurance with coverage for a limited amount of time. It does payout with you pass away within this set periods, but if it expires and you are still alive, it will have no value. When the term expires, you can renew.
  10. Permanent life insurance 
    Permanent life insurance is similar to term life insurance because it will payout after you have passed. Unlike term life insurance, permanent life insurance will however long you are alive. If necessary, you can borrow against it or withdraw.
  11. Overdraft protection overdraft
    Overdraft protection has caused many people headaches, but it can be very helpful depending on the situation. Basically, when your account goes negative, your bank will allow you to purchase whatever you are buying, but you will have to pay a fee for it. Most fees are about $35, but they can be more or less depending on the bank.
  12. Capital gains 
    It is very likely that you will purchase stock from various companies or own a house or two at some point in your adult life. When a stock of piece of real estate increases in value, this is a capital gain. But this gain is only valid on paper until you have sold the asset.
  13. Itemized deduction donation
    An itemized deduction is used to reduce your taxable income. An example of this type of deduction would be gifted to charity or medical costs.
  14. Standard deduction 
    A standard deduction is also used to reduce your taxable income. This deduction is based on your filing status.
  15. Umbrella insurance 
    This type of insurance offers policyholders additional coverage that goes beyond insurance for your home or car may offer. It usually helps in situations where a person is being sued for property or damage or another person being injured.

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kristinabyas profile picture
Kristina Byas is a Milwaukee native who has written for Female Intel, Shepherd Express, Scandalous Women and more. She suffers from a severe case of wanderlust and has difficulty purchasing items at full price. You can learn more about her by following her on Twitter: @KristinaByas

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