Fundamental financial education is essential for students as they transition into adulthood and take on greater monetary responsibilities. Whether managing their student loans, budgeting for daily expenses, or planning future investments, having a solid grasp of essential financial terms builds the foundation for financial independence.
In the modern economy-driven world, financial literacy helps students make sound financial decisions and avoid debt traps. This guide explores the top 10 essential financial terminology and concepts that every pupil should know.
Significant Financial Terms Every Youngster Should Know
Here are the top 10 basic finance terms that every student must be wary of –
1. Savings Account
The first term on this list is the savings account. A savings account is a basic bank account designed to keep or save money securely. After opening a savings account, you can deposit funds as you see fit and keep them safe for future usage. You also earn interest on your deposit, which also grows the money in the account. Savings accounts enable you to deposit and withdraw money whenever you need through ATMs, cheques, and withdrawal slips. However, you must maintain a minimum balance requirement to activate your account. This amount depends on the bank with which you open the savings account.
2. Interest
The concept of interest is one of the basic finance terms that every student should know. The reason is simple: it helps them make better financial decisions. Now, the concept of interest works in two ways –
- If you take a loan, you must pay interest to the bank and other financial institutions.
- If you invest, then you earn interest on that.
The concept of interest is further divided into two categories: simple and compound. Simple interest is calculated using the actual amount each time. On the other hand, compound interest is calculated by adding or subtracting the actual principal amount. So, the concept of compound interest is dynamic.
3. Loan
A loan is a simple financial term referring to a sum of money a person or entity lends to another person or entity. The borrower must repay the debt to the lender within a specific timeframe and pay interest on the borrowed sum as agreed beforehand.
4. Investment
The concept of investment outlines the idea of saving for the future. You invest the money in different investment vehicles to keep the funds safe and earn a return. Now, considering the different investment options available, you can choose depending on your financial goals and risk appetite. Enrolling in a financial management course from a leading institution is the best way to learn about different investment options.
5. Stocks
The next idea you should add to your essential financial vocabulary is stocks or shares. Here, you purchase company shares, which means you have partial ownership of the firm. Now, you can keep those shares and earn dividends or trade them at a higher price when you deem fit. However, buying and selling shares is far more complex than this, and you must clearly understand how it works to avoid losses.
6. Income Statement
It's one of the most significant financial terms, and it indicates a document that incorporates reports about the profit and loss of an organisation within a specific period. Thus, the income statement is also known as the profit and loss statement. It reveals the company's expenses, revenues, and net income. This financial document is essential for evaluating a company's financial performance and growth potential.
7. Balance Sheet
A balance sheet simplifies the financial status of an organisation at a specific time. The accounting team generates this document at the end of a particular financial timeframe. This document primarily includes the liabilities and assets of the firm. Additionally, it helps to forecast growth trends, take expansion plans, analyse financial history, and more. Apart from the accounting team, the management team, investors, and auditors can also gain financial insights from this document.
8. Credit Card
A credit card is one of the most important financial terms every student should know. This payment card works as a short-term loan, which you can use to fulfil certain liabilities. The financial institutions issue this card against your name, which you can use to the prescribed limit. Once that limit is reached, the card will not work. You need to repay the due amount within 30-45 days, depending on your billing date. The dues on a credit card remain interest-free for the given period, after which you have to shell out hefty interest and penalties.
9. Debit Card
A debit card is quite the opposite of a credit card. Here, you use the card to withdraw or utilise the funds available in your account. This card will also stop working once your account has exhausted funds. You can also use this card to withdraw funds from an ATM.
10. Tax
Tax is one of the most valuable financial terms for students to understand early in life. The concept of tax is ancient, and governments impose them to generate revenue for their various operational expenses. Now, the taxes are divided into two categories: direct and indirect.
Examples of direct taxes are income tax, corporate tax, property tax, capital gains tax, etc. Examples of indirect taxes are GST, VAT, sales tax, customs duty, etc.
Conclusion
Financial terms are essential to understanding and managing personal finance. The terms guide everyone, including students, to secure their financial future through knowledgeable decision-making. Thus, everyone should learn some basic financial terms during their student life. Also, if you want to explore the more advanced concepts of finance, then you can enrol in the FAP program from Imarticus Learning. This course will help you to take your finance knowledge to the next level.
