We’ve Broken Down a Bunch of Tricky Finance Terms for You

The more you know, the further you'll go.

Once you graduate high school and enter the real world, you start to realise that perhaps you weren’t taught everything you needed to know to be a boss at life.

Don’t get us wrong, school is great, but real talk: you’re not taught the financial skills you need to know to in school to understand everything the outside world throws at ya.

We even asked our members what new subject should be taught in high school and one of the most common responses was financial literacy.

Turns out, according to the Australian Government, only 55 per cent of Aussies are financially literate.

That's not great.

So, to help improve your fin-lit skills, we’ve created a list of some of the most common (and boring) financial words and broken down what they mean for you and your dollar billz (you can check out the SE team testing each other on tricky financial terms in the short video below).

Otherwise, here's the rull rundown:

Asset: An asset is a resource owned by an individual or business that has value. Your crappy car, stocks, money in the bank, and houses are assets.

Bank Statement: A bank statement is a record of all transactions in your bank account during a certain period (usually monthly).

The statement will show the opening balance (amount) in the account at the start of the month, list any withdrawals or deposits, and then a final balance at the end of the month.

Capital Gains Tax (CGT): Remember assets? Well, if you sell one of those (ie: stocks) for more than you paid for them, that profit is considered a capital gain.

Where does tax come in? Well, not all that profit is yours. The government wants its share, so you’ll need to pay tax on those gains you made. Boomers aren’t big fans of CGT.

You can learn way more about tax here.

Cost of Living: This one is self-explanatory. Cost of living is the amount of money you need to pay for basic needs like housing, transportation, food, and entertainment. Some countries are more expensive to live than others.

Debit Card: Essentially, this is digital money. A debit card takes money straight from your bank account to pay for a purchase, eliminating the need to carry cash around. Because who uses cash anymore?

Dividend: A dividend is when a company shares amongst the shareholders some of their earnings. Think of it as reward they pay you for investing in their company.

Equity (home ownership): Equity is the difference between the current value of your home, and what you still owe on your mortgage.

If your home is valued at $300,000 and you still owe $250,000 on your mortgage, you have $50,000 of equity in your home.

Man, it’s really hard to make equity sound fun.

Fixed/Variable Rate Loan: A fixed rate loan is not impacted by rising interest rates because banks allow you to lock in an agreed rate for a period. It's available for home loans and personal loans, with a period of roughly 1 – 5 years.

Variable rate loans on the other hand are not fixed at an agreed price and will rise and fall depending on the cash rate set by the Reserve Bank of Australia.

Inflation: Over time, the price of goods and services will increase, in effect decreasing the purchasing power of money.

Why? Supply and demand. A PlayStation 5 costs $750. There is huge demand for the PS5, but not enough supply (stupid Sony), so some people are re-selling their PS5 at an inflated price of $1,500.

$750 used to get you a PS5, but now it only buys you half of one.

Lenders Mortgage Insurance (LMI): LMI is a sneaky way for banks to charge you more when you get a home loan.

Generally, banks want you to have a cash deposit of 20 per cent of a home loan value. If you don’t, you still can get the loan, but they will charge you LMI as you are seen as a risk to loan too.

The less money you have in your deposit, the more LMI you’ll pay.

Mortgage: A mortgage is a loan taken out from a bank to buy a house or land. Most home loans last from 25 – 30 years. Chances are you’ve heard your parents talk about this a bunch.

Shares: If you want to own a piece of a company, like GameStop, because you believe its value will grow over time, you can purchase shares in that company.

The more shares you own, the more of the company you own.

Superannuation: Got a part-time job? You’ve probably already got super.

Super is your retirement plan. Each pay cycle, a percentage of your pay is put away into a super account by your employer.

The super account is managed by a company who invest that money overtime to give you a nice sum of money when you call it a day. You can find out everything you need to know about how superannuation works in Australia here.