Money 101

This lesson explains what the words mean. It isn’t financial advice.

Earning

• Gross pay: what you earn before anything is taken out.
• Net pay (take-home pay): what’s left after taxes and other deductions.
• Budget: a plan for where your money goes each month.

Prices and interest

• Inflation: prices rising over time, so the same money buys less.
• Interest: the cost of borrowing money, or the reward for saving it.
• Compound interest: interest on your interest. $100 at 10% a year becomes $110, then $121, then $133.10. It works the same way on debt, which is why debt can grow fast.
• APR: the yearly cost of borrowing, including interest and fees.

Cards and credit

• Debit card: spends money that’s already in your account.
• Credit card: borrows money you pay back later. Carry a balance past the due date and you pay interest.
• Credit score: a number (in the US, usually between 300 and 850) that tells lenders how reliably you’ve paid back money before.

Investing words

• Stock (share): a small piece of ownership in a company.
• Bond: a loan you make to a company or government, which pays you interest.
• Index fund: a fund that holds many stocks at once to follow a market index, like the S&P 500.
• Crypto: digital currencies like Bitcoin that run without a central bank. Prices can swing wildly.
• Diversification: spreading money across different things instead of betting on one.

Red flags

Scams often promise guaranteed high returns, pressure you to act right now, or ask for payment in gift cards or crypto.