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Financial Terms and Definitions

Annual Percentage Rate (APR) - This is how much you are charged to borrow money each year. It is made up of interest (what you pay for the use of borrowed money) and fees. Using APRs to help compare the cost of credit is simple - paid back over the same period, a loan with a low APR is cheaper than one with a higher APR.

Bankrupt - Bankruptcy is a way of clearing debts you can’t pay (sequestration is the Scottish legal term). Bankruptcy has

a number of consequences. It is costly and obtaining credit  will become very difficult.  The person who has been declared bankrupt hands over the things they own (their financial assets) to an appointed trustee, who then sells off whatever they are allowed to, to pay off the debts.

Benefits - You may be eligible to receive financial and other support from the State if you are on a low income or have certain costs to meet because of your personal situation.

‘Cash-in-hand’ - This is a method of payment usually for goods or services the aim of which is to defraud the government from Income Tax, National Insurance or VAT (see ‘through the books’).

Charity - This refers to ‘a good cause’ usually funded by contributions from individual or groups of people.

Cash flow - Cash flow is a business term that refers to the movement of money in and out of an organisation.

Credit - Buying on credit is a form of borrowing. It includes paying by credit card or store card, hire purchase, and other credit agreements including interest-free credit where you ‘buy now pay later’.

Credit card - A plastic card used instead of cash as a method  of payment for goods and services. You buy, and then pay later when you receive a statement from the credit card provider showing what you owe. Any balance that is not paid off at the end of the month will have interest added. If you do not pay the amount owed on the statement each month this can be an expensive way to borrow money.

Co-op stamps - This was the way that dividends were paid through being a member of a not-for-profit organisation. These were seen as a loyalty payment; an idea picked up and developed by other organisations such as Tesco Clubcard and Boots Advantage Card.

Council Tax - Council Tax helps pay for local services like policing and rubbish collection. It applies to all domestic properties, whether they are owned or rented.

Credit Union - This is a financial organisation that lets you save and borrow money. They are owned and run by their members, for their members. Membership depends on people having a common bond based on a geographical area or a place of work.

Debt – In money terms this is an amount owed to a person or organisation for funds borrowed. There is usually a cost to debt in terms of interest and charges so the amount owed can grow, sometimes very rapidly. If debt cannot be repaid there are a range of consequences. But if you are in debt you can get help, so DON’T PANIC – see ‘Kelli’s guide to debt’.

Door-step-lender – Not all doorstep lending is illegal. If you request someone working for a company to visit your home and the lender has a proper licence they can legally lend you money. Even if a loan is legal it can be very expensive. If you borrow money from someone who doesn’t have a licence, you haven’t broken the law – they have. See also ‘loan shark’.

Earnings - These are normally payments for work and are usually taxable (depending how much is earned). There is also ‘unearned income’ from things like savings and property, which is also taxable.

Interest - Interest refers to both what you pay to borrow money and the amount earned on savings. Interest can be variable (goes up or down) or fixed (stays the same).

Invest - The act of putting money aside for the long term, which will hopefully grow in value (see also ‘savings’).

‘Kitty’ - This is a type of savings club where each member contributes a fixed sum for a stated period. The total sum contributed by the members of the ‘kitty’ is then distributed to individuals in the ‘kitty’ according to the original agreement drawn up.

Lender – A person or organisation that you can borrow money from such as a bank or a credit union.

Lottery - A lottery is a form of gambling which involves the drawing of lots for a prize. In the UK there is a national lottery for a cash prize. The term lottery can be used to suggest someone is taking a chance/running a risk on something.

Loans – A loan is a set amount of money that a person or organisation has agreed to lend you for a set period of time. Payments and whether there is a fixed or variable interest rate are agreed at the time of the loan. Loans can be secured against a big possession such as a car or house. The cost of such a  loan is usually cheaper than one secured against nothing (an unsecured loan). But if a secured loan is not paid back then  the possession can be taken away i.e. ‘repossessed’.

Loan shark – If someone is not licensed to lend money it is illegal for them to do so. Such people are often known as loan sharks. They charge very high interest rates and provide you with little or no paperwork to confirm the arrangements they have made with you. Sometimes, loan sharks will take other illegal actions to collect the money they have lent you, such as threatening violence or taking away your credit cards, benefit books/cards or valuables. Borrowing from a loan shark is NOT illegal but should be reported. Help is available through the police or the Illegal Money Lending Team.

Minimum wage - The UK has a national minimum wage which legally sets the minimum amount an individual can be paid for an hour’s work, this varies upon age.

Money lenders – See ‘door-step-lenders’ and ‘loan sharks’.

National Insurance contributions (NICs) - You pay NICs from your earnings, if your earnings are more than a certain amount per week, to qualify for certain benefits including the State Pension.

Odds - This is the term used to express the chances of winning a bet or a prize on the lottery.

Repossessed – When the possession that a secured loan is secured upon is taken away (see ‘loans’).

Repayments - The amount you have to pay back to a person or organisation (usually monthly) when you borrow money.

Roll-over - Takes place when the ‘jackpot’ is not won on the national lottery. Money lenders may also offer to ‘roll over’ small loans, but may charge you extra. This can be a very expensive way to borrow.

Savings – Putting money to one side (in a jar or bank account  or with a credit union) for use later. You will usually get interest on your savings if you save with a bank or a ‘dividend’ with a credit union. If you need to get at your money quickly you are likely to get less interest than if you do not need the money quickly. See also ‘investments’.

Share profits - In the story this refers to sharing the ‘kitty’. Businesses also share profits between those with a financial stake in the business and call this share profits.

Student loans - Loans and grants are available to students  going into higher education (and for some students over sixteen in Wales and Northern Ireland) to help meet their tuition fees (where these are charged) and living costs. There is interest charged on the amount you borrow but it is less than a normal lender would charge you. You don’t have to repay your loan until your income reaches a certain level, but interest keeps being added until you pay it all back.

Tax - A charge you pay to the government either centrally or locally – there are different types of tax. The main ones are Income Tax, VAT and Council Tax. Income Tax is what you pay on your earnings (if they are high enough). Value-Added Tax (VAT) is a charge on certain goods and services. When you are buying something make sure it is clear whether the price on the internet etc includes VAT. See also ‘Council Tax’.

‘Through the books’ – This is a term used for ‘legitimate’ payments for goods and services that will be eligible for Income Tax, National Insurance or VAT (see - ‘cash-in-hand’).