Glossary of terms

Here you’ll find explanations of the many financial terms used throughout Sorted Kids & Money’s content, games and activities. Use this glossary to help you explain financial terms to your children or students.

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Advertising
Informing and persuading buyers to purchase a product or service. Banks advertise their services and the cost of those services.

Alternatives
Alternatives provide the range of choices people consider before making a decision. Comparing the value of alternatives allows people to make better choices. For example, banks provide a range of alternative choices for their customers. The customer needs to decide which is the best choice for them.

Bank
A business that offers financial services such as deposit accounts, cheque and savings accounts, and opportunities for customers to borrow money.

Bank Fee
Payments made to the bank for looking after your account and recording the transactions you make.

Buyer
People, when purchasing, make choices then pay money for what they are buying.

Cheque
A written instruction to the bank to pay the payee (named on the cheque) the stated amount of money, taking funds from the payer’s account.

Choices
A choice is an option from a range of alternatives an individual or groups of individuals have. For example, people choose which shoe shop they go to or which bank they go to, from all the choices available.

Competition
More than one seller or buyer in the marketplace. Competition influences the price at which goods and services can be sold. For example, banks compete against each other and sellers of shoes compete against each other.

Consumer
A person who purchases a product or service. For example, when you buy a birthday present you are a consumer, when you buy shoes you are a consumer.

Contract
An agreement between two parties, whether verbal or written. Offer and acceptance are the two key components of the contract. When you buy and sell things you have a legally binding contract.

Credit buying
Buying goods and services now with an agreement with the seller to pay at a later date.

Creditor
A person or organisation that you owe money to. This might be you bank if you have a loan.

Debtor
A person or organisation that owes money to you. When you deposit your savings in the bank, the bank is your Debtor.

Decision making
The process of making a choice from a range of alternatives.

Decision at the margin
Most decisions are not ‘all or nothing’ decisions. They are about... a little bit more, e.g. 4 instead of 3, or a little bit less, e.g. 10 instead of 11.

Demand
The quantities of goods or services consumers are willing and able to purchase at any given price, over a specified time.

Exchange (Voluntary exchange)
The transfer of property rights, for example, from seller to buyer. Money is often used in exchange to complete the transaction. People exchange when they believe each will be better off, otherwise there would be no agreement between the parties.

Incentives
Anything that influences the choices people make. There are both monetary and non monetary influences.

Income
The amount earned by people. Personal income can include wages, interest, rent and profit. Interest is earned from savings held in a bank.

Interest
An amount charged for the use of someone else’s money, or the amount earned by lending someone else money. A bank charges interest on loans.

Investment
Putting off consumption or production now to increase consumption for the future, e.g. a business that retains profit to purchase new machinery

Loan
Money given to people for use over a set period of time. A payment, interest, is exchanged for this use. The money (loan amount) is also paid back.

Market (marketplace)
A place or mechanism where buyers and sellers can communicate and complete an exchange for goods or services if they agree on the price and terms and conditions of sale. Market places can be a local shop, an international place, Trade Me via the internet, etc.

Medium of exchange
Money, the medium of exchange, is used to help the exchange of goods and services. The money used must be acceptable to people in the community.

Money
Anything generally accepted in exchange for other things, it becomes the medium by which things are exchanged between buyers and sellers. Money allows people who hold it to make purchases in the future.

Money in circulation
The amount of money that is available to members of the community to spend. It may be held in bank accounts or held directly by members of the community. Money circulates between, buyers, sellers and banks.

Offer and acceptance
The offer comes from the buyer, the acceptance from the seller. The price ticket is not an offer, just an invitation to make an offer. Offer and acceptance establish a contract between the two parties whether it is verbal or written.

Opportunity cost
When a decision is made from a range of choices, the second best choice not taken is the opportunity lost. Opportunity lost = opportunity cost. Limited resources require people to make choices between alternatives.

Price
The value of an exchange (a purchase), usually indicated by the price ticket. Price can also be negotiated between the buyer and the seller.

Price ticket
An amount a seller displays on goods and services and seeks for the sale. It is an invitation to the buyer to make an offer.

Property rights
The right to ownership, as given by custom and/or law. For example, when a pair of shoes is purchased by yourself, you have legal title to those goods.

Savings
An amount allocated from income to be used in the future. Banks are a safe place to keep savings and they pay savers interest.

Services
Services bring benefits to the buyer in a non-tangible form. For example, a movie, a hair cut.

Store of value
Money acts as a ‘store of value’. Money enables people to postpone a purchasing decision to a future time. Savings is a ‘store of value’.

Supply
The quantities of goods or services sellers are willing to offer to sell at any given price, for a given period of time. These offers are displayed as price tickets in shops.

Taxes
Taxes are paid from the income we earn. Government collects them from people in the community to pay for the goods and services provided collectively by government, e.g. Education and Health.

Trade off
Since our income is limited and we make choices, we ‘give up’ some things in order to get others, i.e. we trade one for another. In order to get the birthday present for a friend we may have to give up a McDonald’s meal for ourselves.

Unit of account
Money acts as a unit to place value on the goods and services we offer for sale. The sale price records that value. Accounting, the system of recording transactions, uses that ‘unit of account’. In NZ we use dollars ($) to record that value.

Wages
An amount paid to workers, generally on an hourly basis. Wages are a worker’s income (Salary is priced on an annual basis).

Wants
What we desire. Our wants most times exceed our income and therefore we make decisions about how to spend it. If something is too expensive, or not available, we look at alternatives.

Work
The things we do to make goods and services. Generally we earn an income from work. Work, too, can be voluntary. Before spending we need to work and earn and income.