Money

Terms Illustrations Definitions

Affordability Discussing if you can afford an item e.g.

• You have 5p, the apple is 8p, can you buy it?
• The toy is £2.50 and the tshirt is £4.30. You have
£10. Can you afford it?
Taking account of any other important factors e.g.
spending money needed for a trip, is it an essential buy?
Is there a better offer?

ATM Stands for ‘Automated Teller Machine’.

Electronic bank machine which allows cash withdrawals.
Sometimes referred to as a ‘hole in the wall’ or cash
machine.
Some ATM’s charge to use their machines. It will usually
let you know this on the screen prior to using.

Available This is the amount of money you are able to withdraw,

balance which includes any overdraft amounts. It usually sits
underneath the main balance on the account.
Some stores can take 3-5 working days to debit your
account but the available balance will usually include
these pending payments whereas the first balance may
not.
The example shown here illustrates that the available
balance is £1340. However, there is a £300 overdraft on
the account so the account actually has £1040 of the
account holder’s own money, even though the first
balance states £1140. There is £100 deduction pending
(yet to be debited).

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BACS BACS is an electronic system to make payments directly

from one bank account to another.
It stands for Bankers' Automated Clearing Services.
It may appear on a bank statement.

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Balance The difference between credits and debits in an account

e.g. the money you have deposited and the money you
have spent.
You can also request to check your available balance at
a given time at an ATM or online.

Bank Banks are companies. They are usually listed on the

stock market. This means that people and organisations
can buy shares in banks.

The shareholders own the banks but don’t necessarily

have accounts with them or use any of the other services
that banks offer. Instead, the shares they have in banks
are an investment. If the bank makes lots of money, the
shareholders will benefit from this success because the
bank will pay them a share of the earnings made.

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Bank An online or printed summary of a bank accounts balance

statement at a point in time. It gives details of all transactions
including money paid in out as well as any interest
earned, depending on the type of account.
The closing balance is the amount of money within the
account at the point of time of the statement.

Benefit Payments made by the government to those who are

entitled to it. You can receive benefits for lots of things
e.g. social security, sick pay, pensions etc.

Best value Making comparisons between different websites, shops

Shop A Shop B and online savings accounts e.g. by comparing the unit
cost i.e. the cost of one item or measure.
In this example:
Wonder Water Wonder Water Shop A and shop B both sell the same bottles of water.
Pack of 8 Shop A sells the water in packs of 6 and shop B sells the
Pack of 6
water in packs of 8.
£4.50 £6.40
In shop A, 6 bottles of water costs £4.80 and so one
bottle of water will cost £4.50 ÷ 6 = £0.75

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In shop B, 8 bottles of water costs £6.40 and so one

bottle of water will cost £6.40 ÷ 8 = £0.80
In this example shop A provides better value for money.

Budgeting Budgeting is an important process for individuals,

families, organisations and government when making
financial decisions.

Building Offers financial services such as savings and mortgages

society but differs from a bank, as building societies are owned
by its members.
Building societies don’t have shareholders like banks, so
they aren’t under the same pressure to make lots of
money to pass on to them.
Each person who has savings or mortgages with a
building society is a member of it and has the right to give
opinions and vote on key areas of business.

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Compound Where interest is calculated on both the amount

interest borrowed and any previous interest. Usually calculated
one or more times per year.

Contactless Being able to make a payment quickly with a device e.g.

technologies a card or smartphone, by scanning payment machines
without having to enter a pin.
See the illustration for the contactless sign highlighted in
red.

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Contract A legally binding agreement between two people for

payment e.g. mobile phone contract, electricity and gas
contract etc.
The example shown here is a monthly bill sent as part of
a contract with an internet service provider.

Credit Money available to a person before buying goods or

services.
“In credit” – this is the amount of money or credit
available at that point in time.
In this example of an energy bill, a monthly direct debit
has been set up. Over 3 months, the money builds up
and makes the account ‘in credit’. However, the 3
monthly bill has been issued and the credit has not
covered the amount, so the account becomes ‘in debit’ –
meaning it owes money.

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Credit card A card issued by a lender e.g. bank to allow for

goods/services to be paid for on credit (which needs to
be paid back).
Credit cards often have charges associated with them.
Credit cards can be used to transfer debt.
They are an example of a ‘finance’ deal.

Credit Union A non-profit making union which is owned by its

members. Money can be borrowed from the collection of
deposits made by the members at competitive interest
rates.
Credit unions don’t have shareholders like banks, so
they aren’t under the same pressure to make lots of
money to pass on to them.

Currency The system of money generally used in a particular

country.
For example, in the UK, the currency is Pounds Sterling.

Current A current account is probably the most important account

account you will have, as it enables you to make all the day-to-day
banking transactions that you need to.
You can pay in money whenever you want and set up
standing orders and direct debits to cover any expenses,
such as your mortgage, rent, utility bills, council tax etc.
You can also go overdrawn if you don’t have sufficient
funds to pay these expenses, although you should always
agree this in advance with your bank first, as fees for
unauthorised borrowing are much higher than for
authorised overdrafts.
Most current accounts come with a debit card, so that

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you can withdraw cash from an automatic teller

machine (ATM) and pay for goods and services. You
also usually get a chequebook with your current account.

Debit A record of money being removed from an account.

When checking a bank statement, the word ‘debit’ is
usually next to the amounts which have been removed
from your account.
“In debit” – This term is usually seen on utility bills such
as gas and electricity. It is a record of the amount of
money your account is in ‘debt’.

Debit card Allows the cardholder to transfer money electronically

from their bank account when making a purchase. These
are usually used with bank current accounts.

Debt Money that is owed, through having a bank overdraft,

loans, mortgages and credit card or store card
balances or other financial agreement or contract.

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Deductions An amount taken away from gross income to give net

pay. Deductions can include national insurance,
income tax or pensions.

Deposit You can ‘deposit’ money in to a savings or current

account e.g. bank or credit union. This means putting
money in to it.
Money that a buyer gives to a seller as a first payment to
prove that they intend to complete a transaction, e.g.
when buying a house or a vehicle.

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Direct debit An agreement set up to take money from your account

regularly to pay for goods or services, usually bills.

E.g. You may have a direct debit set up to pay your

phone bill where an amount is taken each month to pay
for it. The bill amount may differ each month depending
how many extra charges you have.

Usually abbreviated to DD on a bank statement.

Earnings Money gained in exchange for working, providing goods

or services or from other income such as investments.

Exchange Changing coins or notes for other coins or notes of the

same value e.g.
• swap 5p for 5 lots of 1p.
• swap £10 for £5 and 5 £1 coins.

Exchange The amount you multiply your own currency by to

rates change it in to a different currency.
For example, the exchange rate for changing pound
sterling (£) to American dollars ($) may be 1.39. You
would multiply the total of your pound sterling by 1.39 to
work out the amount of American dollars you will receive.

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Expenditure The amount of money spent on goods or services.

Expenditure needs to be carefully considered when
budgeting.

Expenses The amount spent on something e.g. the expenses for a

weekend trip to London would include travel costs, food
and drinks, local attraction costs, accommodation etc.
Some businesses and organisations will pay for an
employee’s expenses if costs, such as those listed
above, are incurred as part of the employee’s work. See
an example of a business expenses claim.

Finance Money provided to a person or business, which usually

needs to be paid back e.g. car finance loan

Foreign Changing one currency to another using exchange

exchange rates. There may be charges for this service.

Gambling To stake or risk money, or anything of value, on an

outcome involving chance, in the hope of gaining
something of more value or benefit.
For example;
• Playing the National Lottery – you risk £2 each
week on the chance that your numbers will be
drawn in order to win a lot more money
• Sports – you may bet an amount of money on the
chance of an outcome such as your favourite
team winning a football game, in the hope that
they will win, earning you more money than you
had risked.
Online gambling is a form of gambling where bets are
placed on websites or apps on the internet once an

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account has been set up.

Gross pay/ The money earned in wages before deductions have

Gross profit been made.
The profit a business makes before taking away the total
expenses from total income.
Gross Profit minus Expenses = Net Profit.

Identity theft Identity fraud is the use of a person’s stolen identity in

criminal activity to obtain money, goods or services
through deception (pretending to be that person).
Fraudsters can use your identity details to:
• Open bank accounts.
• Obtain credit cards, loans and state benefits.
• Order goods in your name.
• Take over your existing accounts.
• Take out mobile phone contracts.
• Obtain genuine documents such as passports and
driving licences in your name.

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Income Money received, usually on a regular basis, from

providing goods or services or through investments e.g.
wages from a job, pensions, social security payments.

Income Tax A tax you pay on your income such as wages, some
savings, pensions etc. The amount of tax you pay
depends on how much income you receive. Some
income is tax free such as lottery wins. Everyone gets a
personal allowance which they do not have to pay tax
on.

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Insurance A formal contract or certificate which promises to cover

the cost of items (can include money) lost, damaged
and/or stolen in return for a monthly or yearly payment.
For example, phone insurance can be taken out on a
mobile phone. Depending on the terms and conditions of
the insurance certificate, it may replace a lost, damaged
or stolen phone.
Some companies may charge a fee for making an
insurance claim, sometimes known as an ‘excess’ e.g. to
claim for a new phone, there may be a £50 excess
charge to pay before it will be replaced.
Here is an example of a house insurance certificate.

Interest Money charged for borrowing money, or money earned

for saving money, usually stated as a percentage e.g.
4.95%

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Investment Putting money in to a project, business or account with

the aim of making a profit back, including making money
through interest, e.g. investing through shares in a
company or saving money in a high-interest account.

Lender A person, business or organisation who provides funds to

those who need it, but needs to be paid back.

Loan Something that is borrowed (usually money) and needs to

be paid back, usually with interest on top.
Loans are an example of a ‘finance’ deal.

Loss The amount of money lost by a business or organisation.

Mortgage Amount of money borrowed to purchase a home, building

or business which needs to be paid back with interest on
top.
Mortgages are an example of a ‘finance’ deal.

National Compulsory payments by employees and employers to

insurance provide state assistance for people who are unemployed,
sick or retired in the UK.

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Net Pay / Net The remaining amount of an employee's pay after

Profit deductions have been taken, such as tax, National
insurance, pension contributions etc, are made.
This can be known as the ‘take home’ pay as it is the
amount of money you receive and can ‘take home’ to
spend.
Net profit is the total profit a business makes after taking
away the total expenses from total income. It shows
what the company has earned (or lost) in a given period
of time (usually one year).

Overdraft When more money is taken out of a current account

than has been paid in, it will make the account go in to its
overdraft. This needs to be paid back with possible
charges and interest.
The overdraft limit should be agreed with the bank. If not
charges will be made on the account. Some accounts
offer a ‘free’ overdraft facility or ‘planned’ and
‘unplanned’. Each bank differs.

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Pay day loan A payday loan is a short-term loan of money borrowed by

someone who may be struggling for money until their
wages are received (pay-day).
Some payday loan companies allow you to choose the
repayment period, rather than basing it on when you
receive your wages.
The payday loan is usually paid straight into your bank
account, often within 24 hours of your application being
approved. The payday loan repayment, plus interest, is
then taken directly from your bank account on the due
date.
Pay day loans can have very large interest charges.
These should be discussed by the customer and lender
before approval.

Pending Payments which are yet to be debited from your account.

When you shop in a store or online, it can take between
1-5 working days to show on your account. This means
the payment for it is pending.

Personal An amount of money you do not have to pay tax on.

allowance There is a standard Personal Allowance limit decided by
(in tax) the government.

Personal Individuals who join a private pension scheme pay

Pension monthly payments to the scheme in order to have a larger
amount of savings when retired.

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Policy The agreed amount of money which is to be paid in the

excess event of a claim.
For example, if your windscreen was broken on your car,
the insurance policy may require an excess of perhaps
£100 to be paid by you before they will fix it. This excess
would be taken off the total cost of repairing the
windshield.
Some policies have voluntary and compulsory excess
payments.
Compulsory excess means you must pay it in order to
claim and the amount is set by the insurer.
Voluntary excess means you can pay an extra amount of
your choice. This usually brings down the cost of the
monthly insurance premiums but this should be checked
at the time of policy purchase.
If you make a claim, you’ll have to pay both the
compulsory and the voluntary excess.

Profit The difference between the amount earned and the

amount spent in buying, operating, or producing
something.

Recession A period of negative economic growth usually lasting

more than a few months, which can include high
unemployment, reduced trade and industrial activity. This
has also been known as the ‘credit crunch’.

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Revenue The total amount of money made (by a person or

business). All costs are then taken away from this total to
find the gross and net profits.

Salary The total amount of money to be paid to an employee by

an employer for a year, usually paid with fixed regular
payments on a monthly or sometimes weekly basis.

Savings Savings is money that is stored away instead of being

spent. The savings could be from wages or other
income, including from monetary gifts.
Savings can be informal e.g. piggy bank or can be put in
to a savings account in a bank. A savings account is a
safer method and some accounts offer interest to be
earned on savings.
Savings may be for a long term or over a shorter term
while saving up for something of high value, which is not
affordable in a one off payment e.g. savings for a holiday
or wedding.

Scams An illegal and dishonest way of making money or gaining

goods/services, usually through deceiving people.
For example, you may receive a phone call from
someone pretending to be your bank asking for your log
in details and/or password. If given over the phone, the
anonymous person may access your account and take
any money within it.
Genuine bank operators should not ask for such details
over the phone or via email.

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Shareholder Someone who owns a share or shares in a business or

organisation. This may be through buying or inheriting
shares. Shares will be worth different values depending
on the size and financial success of the business or
organisation.
Shareholders can also be people who have a relevant
interest in a business or organisation, but not necessarily
financially. For example, parents and pupils are
important shareholders of their local primary school as
decisions made in the school will directly affect them.

Standing Similar to a direct debit. However, a standing order is

order usually a fixed amount and only you can change the
amount or when it is taken.
Usually abbreviated to SO on a bank statement.

State A regular payment made by the government to people on

Pension or above the official retirement age and to some widows
and disabled people.

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Store card Similar to a credit card, however, they are limited to use
at either a stated store or chain of stores.
For example, a Next storecard can only be used for
purchases at Next stores and online.

Transaction Buying or selling something, where goods, services or

money is passed from one to another

Transfer This is the movement of money from one account to

another. This may be between a current account and a
savings account or you can also transfer money to
another person.
Online banking sites and apps provide a quick and simple
way to transfer money between accounts and to others.
Usually abbreviated to TRF on a bank statement.

VAT VAT stands for value added tax. It is a tax added on to

goods or services that need to be taxed e.g. food,
clothes, cars etc. Some things do not get VAT added to it
like education, health service, postal service. The
government decides on the rate of tax and items to be
taxed.

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Wages A regular payment, usually on an hourly, daily, or weekly

basis, made by an employer to an employee in return for
providing goods or services.

Withdrawal Money removed from an account.

E.g. You can withdraw (take out) money from an ATM
cash machine.

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