Before stepping into adulthood, I started to learn a lot of new financial terms that were confusing to me. I started to hear about 401(k)s, investments, the stock market, bonds, etc.—a bunch of terms that I did not know but apparently needed to know by the time I turned 18.
When I first ventured into learning about finances (mainly investing), I found a video by Elena Taber incredibly helpful. She did a fantastic job breaking down financial terms and guiding beginners through the basics. I used to get lost in the sauce, so I understand how confusing it can be.
To make things easier, I have compiled a list of important financial terms from the video and created a Quizlet to help you grasp these basic concepts. This way, you will not feel left out when you hear financial discussions, whether from your parents or elsewhere. More importantly, you will understand what these terms mean when you are learning what to do with your own money.
I will link the video for those interested, but if you prefer not to watch it, I will also provide some notes from the video. Elena Taber’s definitions are in black, mine are simplified definitions in pink.
Before getting into the terms, I just want to remind you not to let this overwhelm you. You may not understand it all today (or ever), but practicing and taking the steps to learn these things makes it all better.
Terms
401(k) Retirement Account
A company-sponsored retirement account that employees can contribute to on a tax-deferred basis. Employers may also make matching contributions.
When you work for a company, they often offer a retirement plan called a 401(k). In this plan, you can contribute a portion of your salary, and the company might also make contributions or match your contributions up to a certain amount. The money in the 401(k) grows over time and can be used for retirement.
Roth IRA Retirement Account
An individual retirement account allowing a person to set aside after-tax income up to a specified amount.
An account that you put money into that can be used once you retire.
Stock
An investment that represents a share in a company.
This means you own a small part of the company. If the company does well, the value of your share can go up, and you might earn some money from it.
Stock Market
The collection of markets and exchanges where shares of publicly listed companies are traded and sold.
Just like in a real market where you buy things, in the stock market, you buy shares, which are like tiny pieces of a company. People can also sell their shares to others within the market.
Risk vs. Reward
The prospective reward an investor can earn for every dollar you risk on an investment.
This means putting money into a stock with the possibility of earning more than you put in if the company is successful. But if the company is not successful, you could lose money.
Bond
A loan to a company or government that pays investors a fixed rate of return over a specified timeframe.
This means lending your money to a company or the government with the promise that you will get your money back plus a little extra over a set period.
Investment Fund
A supply of capital belonging to numerous investors used to collectively purchase securities while each investor retains ownership of his/her own share.
An investment fund is like a big jar where lots of people put their money together. The money is used to buy things like pieces of companies. Everyone still owns their own part of the jar and shares in any extra money made.
Index Funds
A portfolio of stocks or bonds designed to track a particular market index.
It is like a mutual fund, but instead of being managed by a person, it follows a set formula to pick investments based on a specific list or index.
Mutual Funds
A type of investment vehicle consisting of a portfolio of stocks, bonds, or other securities operated by a professional money manager.
A professional chooses the best places for your money to go in the stock market to try to help it grow.
S&P 500 Index Fund
A stock market index that measures the stock performance of the 500 large companies listed on stock exchanges in the U.S.
The S&P 500 Index Fund is like a list that tracks the performance of 500 of the biggest and most important companies in the stock market. It helps people see how these top companies are doing overall.
