Boost your money lingo this savings month

Mark Lapedus, Divisional Director, Innovate at Liberty.

Have a haircut every six weeks and you’ll be well groomed. Give your money a haircut every six weeks and you’ll be broke pretty quickly.

Confused? Why should it be good for you to get a haircut, but bad for your money? Put it down to the lingo. Money has a language all of its own. Knowing a few money terms and what they mean can give you more confidence when making important financial decisions.

How much financial lingo do you need to know? After all, when you step onto an aeroplane you don’t need to know how to fly to get to your destination. There’s a pilot for that. Do you need to know all the terms to be a smart and successful investor?

Leading insurer Liberty wanted to know the answer. They conducted research to find out if financial terms were understood, and if they were not understood did this prevent people from buying insurance and investment policies.

“We asked people to correctly match commonly used investment terms with the relevant definitions,” says Mark Lapedus, Divisional Director: Innovate at Liberty. “Less than 45% could match the terms with the definitions.”

“This isn’t a fail of consumers, but it does highlight that the financial jargon used in the industry isn’t widely understood.” Despite the finding, Lapedus says many still invest, save and take out policies because they appreciate the need to take care of their money today and in the future.

Nevertheless, there is still a great need for better education around money matters. “There are people who stay away from financial services because they don’t completely understand what we do and the language we speak,” Lapedus points out. A 2015 Bankrate survey in the US found that one in five said they did not invest because they did not understand enough about the investment.

Lapedus says National Savings Month is a good time to start learning a few financial terms.

Liberty has an ongoing focus on building and enhancing financial knowledge for South Africans and this Savings month has identified 26 common financial terms –and given easy to understand definitions.

“We know times are tough and costs are going up. Don’t let this stop you from looking for better ways to manage your money and better ways to save. Start with learning a few more money terms, and you’ll be better equipped to identify the right products and ask the right questions.”

And the money haircut? Think of it as loss. When you have a haircut, you get rid of some hair. When your money has a haircut – someone who owed you money – say R1 000 – has a problem and can only repay R800. You accept R800 as payment in full. Your money has had a haircut – and it won’t grow back.

Financial jargon terms

1. Arbitration - A form of dispute resolution outside the official judicial system where the parties agree to make their cases before an impartial person or panel. The parties in arbitration agree to allow the decision to binding and to forego the right to an appeal.

2. Beneficiary - A person who will receive proceeds from a policy or investment if you die.

3. Claims - The benefits payable in terms of a long-term or a short-term insurance policy.

4. Compound Interest - Interest paid on the sum of previously earned interest and the amount originally borrowed or lent (that is interest on interest).

5. Cover - To protect from loss.

6. Dependant - A person who relies on another, especially a family member, for financial support.

7. Hair-cut - In debt restructuring agreements, a reduction in the amount of debt to be repaid to creditors.

8. High-flyer - High-priced and highly speculative stock that moves up and down sharply over a short period. Generally glamorous in nature due to the capital gains potential associated with them. Also used to describe any high-priced stock.

9. Invalidate - To make a contract, agreement, document etc., invalid, e.g. failure to follow the instructions correctly could invalidate the guarantee.

10. Interest - What it costs to borrow money and what is earned from lending it or placing on deposit.

11. Investment - The growth of savings to acquire more savings that is wealth. There are two kinds of investments:

• Direct investment that involves investing one’s capital into specific fixed assets such as property, factories, buildings etc.
• Indirect investment that involves investing in securities, unit trusts or other assets that are traded on financial markets.

12. Life Cycle - The different stages a financial product goes through, from inception through to growth, maturity, saturation and decline.

13. Life Insurance - Insurance policy issued by a long-term insurer that pays out a specified sum of money to the owner/policyholder or nominated beneficiaries on the death of the insured.

14. Loading - An extra amount you may need to pay for insurance in addition to a normal premium. For example you have heart disease but want life insurance. The Insurance company will assess you to be a high risk, and charge you a higher premium made up of the basic rate plus a loading.

15. Market - The stock market = the place where shares of companies are bought and sold, and there are other markets such as bond markets, where bonds (forms of loans) are traded.

16. Nest Egg - An amount of money that you save to use later, especially for your retirement.

17. Overheating - When a company has been growing too rapidly, leading to supply shortages and rising prices as production fails to keep up with demand.

18. Policy - A course or principle of action adopted or proposed by an organisation or individual, but long-term and short-term insurers also issue “policies of insurance” which are contracts between insurers and policyholders.

19. Premium - The amount payable to an insurer to provide cover for an agreed insured event, such as death.

20. Return - The gain on investment.

21. True and Fair View - Words used in a company’s accounts by auditors to show that they think the accounts give correct and complete information about a company’s financial situation.

22. Umbrella Fund - An umbrella fund is a collective investment scheme or a retirement fund that exists as a single legal entity but has several distinct sub-funds, which, in effect, are traded as individual investment funds.

23. Underwrite - To guarantee against financial risk by assuming that risk, as insurers do when they offer (underwrite) an insurance policy, or where a financial institution buys a new securities issue from the issuer for re-sale to the public.

24. Quote - An estimation of the cost you will pay for a policy, and/or the value of that policy in future years.

25. Risk - The chance that something unexpected will happen at an unexpected time.