The financial world is full of terms that kids often don’t understand. It’s why it helps to explain and break down some of the most common terms to further their financial education. Here are the 20 financial words worth explaining to your kids.
APR stands for Annual Percentage Rate. This is the yearly cost of borrowing money. For example, a credit card with a 15% APR means it's cheaper to borrow money than one with a 26.5% APR (though check the small print).
A budget is a way to keep track of money. Demonstrate how it works with pocket money. Put a part of your child's money aside each week into savings for Christmas and special items. Then show them what is left for spending and explain this is budgeting.
3. Compound interest
Compound interest, also known as compounding, is when you earn interest (money) on both the money you save and the interest you earn on that saving.
To explain this:
- Give your child a sweet.
- Offer to provide an extra sweet if they keep the first sweet uneaten by the end of the day. If by the next day they manage to keep both sweets uneaten you will double the sweets they get, so two sweets become four, and four sweets become eight.
- See how long you can keep them going.
4. Credit score
A credit score is a number based on your financial history. A higher credit score makes lenders amore confident when deciding whether or not to let you borrow money. Get children to think of it this way – they are more likely to lend items to friends who they know will give things back.
Credit is when you borrow money from a lender (person or bank). Usually people borrow credit to buy a car or a house.
6. Credit card
A credit card is used to access money borrowed from a bank or other financial companies. You can then buy things with this card and pay it back at a later date.
7. Debit card
A debit card is a payment card that can be used to withdraw cash at an ATM or when you need to pay directly for items in-store or online. A good example is the GoHenry prepaid debit card.
A debt is money you owe someone that needs to be paid back. If your child borrows money from a sibling or friend, then explain that this is a debt that needs to be paid back.
A deposit involves transferring money to another party, usually a bank for safekeeping—for example, the savings pot on the GoHenry app.
A donation is a gift of money given to a specific cause, such as a charity or fundraiser.
11. Exchange rate
Exchange rates are the price of one country's currency in relation to another country's currency. So when you go on holiday and change pounds to Euros, you will use the exchange rate.
Inflation is the increase in prices. Think of a balloon being inflated; when it gets bigger, prices go up, and when it gets smaller when prices go down.
Interest is something you pay when someone lends you money or something that you earn when you lend money to someone else. Show your child how this works by setting up parent-paid interest on your child's savings on the GoHenry app. The more they save the more interest they will get.
An investment is something that you spend money on because you believe it will earn you a profit (more money) in the future. So this could be stocks and shares, an ISA, and items like artwork, gold and even vintage cars.
A loan is something that is borrowed, often money, which then has to be paid back with interest. If your kids have lent a friend something at one time or another, and expected to get it back, explain that’s the same as borrowing a loan from the bank.
Savings are money you put aside for things like pensions, special items and Christmas. Methods of saving include putting money in a savings account, an investment fund such as an ISA, or cash in a piggy bank.
Stocks are parts of a company. When you invest in stock in companies like Nike or Netflix, you own a small piece of it.. Every stock has a price, which can go up or down depending on the economy.
Taxes are a compulsory financial charge on products and earnings imposed by governments to fund government spending on things like healthcare, education, roads and more.
19. Wants vs needs
A need is something you must have to survive, like food, water and a home. A want is something you'd like but can actually live without. For example, you may want a new gaming console, but you don't need it to survive.
20. Stock Market
A stock market is a place where people buy and sell shares. Think of it like eBay but for companies.
To help your child get to grips with these terms, Money Missions on the GoHenry app are a fun way to build financial confidence and curiosity in your child. Our bite-sized lessons contain fun quizzes and videos on everything from saving habits to spending wisely, investing and budgets.