Gnomenclature

Flood insurance provides homeowners with protection against flooding. However, flood damage is not covered by most homeowners’ insurance policies so this coverage typically must be obtained separately.

Foreclosure is a legal process through which a lender claims a property which has been held as collateral for a mortgage loan. This may be triggered by persistent failure on the part of the borrower to meet the terms of the loan.

Garnishment puts a legal claim on your wages or other income so that a portion is paid directly to a creditor. This may happen when you fail to meet your debt repayment obligations voluntarily, so the creditor has to take legal action to force the repayment of what you owe.

Grant is a very valuable form of student aid because, unlike a loan, it does not have to be paid back. Grants are generally based on financial need.

Greater fool theory describes the logic behind buying a security simply because its price is rising rapidly. It entails no fundamental analysis of the security’s actual value. It implies being willing to pay a foolishly high price on the assumption that a greater fool will later pay an even higher price.

Gross Domestic Product measures the value of a nation’s total economic activity. Changes in the GDP are used to measure the strength of the economy. In the U.S., GDP is reported quarterly. The numbers for each quarter are reported as an annual rate of change (i.e., the change that would result if that quarter’s pace of change were continued for a full year) adjusted for inflation.

A Health Savings Account (HSA) is a tax-exempt plan that helps you save money for future medical expenses. HSAs are available to employees who participate in a High-Deductible Health Plan or HDHP. Contributions to HSAs are tax deductible, subject to certain limits. Money can be withdrawn from an HSA at any time without taxes or penalties as long as it is used for eligible medical expenses.

Homeowners insurance covers your home and personal property within the home to certain types of damage and theft. Homeowners insurance can protect you from catastrophic loss and may be required if you have a mortgage on your home. Note that the types of coverage, limits and deductibles will be described in the policy and should be reviewed carefully to make sure you are receiving the right type of coverage.

Inflation is a period of rising prices. A moderate amount of price increases is considered healthy; but when the inflation rate is high or accelerating quickly, it tends to be disruptive to consumers and businesses. Inflation in the United States is commonly measured by the Consumer Price Index (CPI), though the Federal Reserve uses a measure known as the Personal Consumption Expenditures Price Index.

Insurance coverage cap specifies the upper limit of the amount covered. The amount the insurance company will pay will be based on the assessed cost of damage or loss, but only up to the coverage cap specified by the policy. You should know the potential cost involved in repairing or replacing any insured policy before signing on to a coverage cap. A lower cap might make the policy cheaper, but it may leave you with unexpected expenses far in excess of that cap.

Insurance deductible refers to the portion of any covered expense that you must pay out of pocket before the insurance kicks in. Having a higher deductible will typically make an insurance policy cheaper, but it will also leave you on the hook for a greater amount of the cost if you experience damage or loss to covered property.

Interest is money paid on borrowed funds in addition to repayment of the borrowed principal. Interest is assessed as a percentage of the amount owed. You may pay interest when you borrow money or earn interest when you invest in a savings account, certificate of deposit, or a bond.

Liability insurance is a type of auto or home insurance that covers you for a certain amount of harm done to others or their property. However, it does not cover expenses for harm done to yourself or your property.

Life expectancy is the length of time you are expected to live. It is important for retirement planning purposes because it indicates how long your financial resources will have to last.

Note that life expectancy for retirement planning is not an exact estimate and the older you get, the older your age of death is expected to be.

Liquidity refers to how easily an asset can be converted into cash without losing value. Cash is the most liquid asset. Assets with less liquidity take longer to sell and may lose value when converted into cash. Cars, real estate, fine art, and collectibles are examples of assets that are considered to have less liquidity.

Loan is an amount of money borrowed with specific terms as to how it will be paid back and what interest and fees will be charged for the loan. Student loans are available as part of federal programs as well as from private lenders.

Loan term is the length of time over which your loan must be repaid. A shorter loan term will result in higher monthly payments. However, it will also allow you to pay the loan off sooner and pay less interest over the life of the loan.

Loose monetary policy makes funds easily available to borrowers. It is primarily associated with the Fed setting low interest rate targets. This promotes spending and investment; but if carried too far, it can lead to excessive speculation and inflation.

Mania is an expression that describes a self-reinforcing group psychology that affects market behavior. Manias are triggered when investors feel they have to have a particular investment because everybody else seems to be buying it. Historically, this type of behavior has affected everything from tulip bulbs to cryptocurrencies.

Market cycle is a term used to describe a period which contains both a rising and a falling phase of financial market prices. It is commonly used in connection with the stock market. While market prices may go up or down each day, a market cycle generally describes a period when the market has gone through both a sustained rise and a sustained decline.

Minimum monthly payment is the least amount required to be paid each month on a credit card balance or similar debt. While this amount is often relatively low, you can reduce interest charges by paying more than the minimum amount due.

Monetary policy comprises a variety of tools the Federal Reserve uses to try to control inflation and promote full employment. The most prominent of these tools is the ability to raise and lower certain interest rates.

Monetary policy can also include providing liquidity to banks and businesses and buying or selling income securities to influence long-term interest rates.

Mortgage is a loan which uses the home as collateral for repayment. A mortgage may be used to finance the purchase of a home or to borrow against equity in a home you already own.

Mortgage insurance protects lenders in case a borrower fails to meet their mortgage obligations. It covers the lender in case the value of the home after foreclosure fails to meet the full amount owed. Mortgage insurance is often a requirement for mortgages with a low down payment. It is not to be confused with homeowners insurance.

Mortgage points are a percentage of a mortgage which is paid up front by the buyer. Origination points serve as a fee for initiating the mortgage. Discount points are paid in return for lowering the interest rate on the mortgage.

Net worth is the total value of all your assets minus the amount of debt you owe. It is widely used as a measure of wealth, though some assets may be more available for spending and payments than others.

Overdraft is when you take out or spend more money than you had in a bank account. An overdraft is a negative balance, and it is as if you’ve borrowed money from the bank without permission. An overdraft may incur fees and/or the forced closure of your account.

Panic buying is a condition that leads investors to neglect due diligence in their haste to buy into investments. It can apply to a particular hot stock or the market in general. It can be summed up as fear of missing out (FOMO). When the price of an investment rises rapidly, investors may believe that they will never have an opportunity to get in if they don’t act immediately.

Panic selling is a condition that leads investors to sell investments as quickly as possible, regardless of what they think they are worth. This behavior can cause price declines to accelerate, either for a particular security or the market as a whole.

A pawn loan is a form of secured loan provided by pawn shops. They allow you to obtain a loan with no formal credit check, but you must provide an item of value as collateral. They often charge high interest and require repayment within a short period. If you don’t repay your loan, you forfeit the item you provided as collateral.