Definitions

What financial terms mean.

Adviser	A person who sells financial advice and/or products. They include financial advisers, insurance agents, planners, sharebrokers, mortgage brokers and bank managers or agents. They may be paid a commission (they get paid a share of what you pay).
Annuity	A type of investment where you pay a lump sum at the start, and receive regular payments for the rest of your life.
Asset	A useful or valuable person or thing. In financial terms it’s an item that can be converted into cash such as bank deposits, shares or property.
Automatic payments (APs)	A way of paying someone a set amount direct from your bank account, usually on a fixed day of the month. Automatic payments are ideal for bills that are the same amount each time, like rent. There is often a penalty fee if you don’t have enough money to cover the payment.
Bankruptcy	The inability of an individual/company to pay their debts. These debts can be wiped, but there will be many effects on a bankrupt’s ability to do things financially. You need financial mentor expert advice to help you make this decision.
Benefit	An advantage. For example, a benefit of buying something out of your savings is that you pay no interest on it.
Capital gain	The profit you make when you sell an investment for more than you paid for it. If you buy a house for $300,000 and sell it for $320,000, your capital gain is $20,000. A capital loss is when you sell an investment for less than you paid for it.
Cash advance	Withdrawing money from your credit card account, usually through an ATM. Cash advances are an expensive option because interest is charged from the day you withdraw the money.
Compound interest	Interest paid on interest. You earn compound interest if you have savings and all the interest you earn is paid back into the savings account, instead of being paid to you. Over time compound interest makes your money grow much faster than the straight interest rate.
Credit	An amount of money that you borrow. This may be a loan, buying goods and paying them off over time (hire purchase) or bank or store credit cards with a pre-approved limit.
Creditor	The company, organisation or person that advances you credit. You are a debtor to them.
Credit card	A bank account that provides you with a card and credit limit so you can buy something now, and pay it off later. Credit cards usually have high interest rates.
Credit contract	The agreement you sign with the creditor. If you use a credit card or buy goods and services on credit, have a loan or overdraft facility or a mortgage, then you’ve probably signed a consumer credit contract. It means that you both have legal rights and responsibilities.
Credit record Credit score	Your credit record is a history about your past borrowing and repayments. A credit score is a number (higher is better) put on you by a credit reporting company that shows how likely you are to repay debts. Businesses use your credit score to decide whether they should lend to you and how risky they believe you’ll be.

Debt	Debt is what you owe, including mortgages, personal loans, credit card balances, hirepurchase agreements and loans from family. Another name for debt is ‘liability’.
Debtor	The person, group or organisation that agrees to take on responsibility for a debt.
Default	Default occurs when you can’t meet the legal obligation of debt repayment. This can be when you don’t pay interest or principal on a loan or security when it’s due.
Default fees	A range of legal and administration costs charged by the lender if you default. Usually these will be added to your debt.
Direct debits	A way to pay someone a variable amount direct from your bank account, usually on a fixed day of the month. Direct debits are ideal for bills that are a different amount each month – like power bills. There is often a penalty fee if you don’t have money to make the payment.
Disclosure	When you borrow or sign up to a hire purchase or any other credit contract, the lender must provide you with accurate information in writing about what the loan will cost you. This is known as the disclosure statement. They must give you this before the contract is made.
Equity	The amount you would get if you sold an asset and paid back any money you owed on it. If you have a house worth $350,000, and a $300,000 mortgage, your equity in your house is $50,000.
Fees	A charge or payment for a service. For example, an ‘establishment fee’ charged for setting up a loan and added to the amount you have to pay back. On a $1000 loan, you may be charged a service fee of $200. You will have to pay back $1200, plus any interest. Also means a penalty fee charged by a lender or creditor to compensate them if you ‘bounce’ or miss a payment or go into overdraft without permission.
Financial capability	‘The ability to make informed judgements and effective decisions regarding the use and management of money.’ (Commission for Financial Capability, 2016)
Financial hardship	‘Having insufficient resources to meet basic needs, and thus being excluded from a minimumacceptable way of life in one’s own society.’ (Derived from Perry, MSD)
Financial mentor	An adviser who uses budgeting advice tools, a Financial Plan of Action, and makes connections with a range of social services to ensure people and their families and whānau get the right support and can improve their financial positions.
Financial Plan of Action	A plan to address money issues and help you achieve your goals. The plan looks at aspects of your money, including where it comes from, spending, saving, borrowing and income generation. It helps you develop your financial skills by helping you develop your strengths.
Financial resilience	‘The ability to access and draw on inherent capabilities and appropriate and accessibleexternal resources and support in times of adversity.’ (NAB / Centre for Social Impact, 2016)
Fixed rate	The rate of interest paid on a loan may be either a fixed rate or a floating rate. For a fixed rate loan, the interest rate is set at the date you take out your loan and remains the same throughout the term of your loan, even if floating rates go above or below that.

Floating rate	The interest rate changes from time to time. If interest rates fall, then so does the amount you have to repay, or you could continue at same level of repayment and pay your loan off quicker. But, if interest rates rise, then the opposite happens, either your repayments need to be increased or the term of your loan is extended.
Goal	A target, something you aim to achieve.
Guarantor	Someone who co-signs a credit contract to guarantee that the borrower will repay it. If you agree to become a guarantor you need to be very careful and trust the person you are guaranteeing as the lender can demand repayment from you if anything goes wrong. If you are asking someone to be your guarantor, be aware this is a big ask.
HP or Hire Purchase	An agreement to buy something on credit, without paying the full amount straight away. With HP you usually pay a deposit followed by monthly payments (including any interest and fees charged) over a set period. Also known as a credit contract.
Inflation	The rate that prices of goods and services increase over time. For example, if New Zealandhas 2% inflation and you bought something for $1000 now, in one year’s time the price might be $1020.
Inflation-adjusted	Increasing an amount of money each year by the same amount as inflation each year. For example, if you got $1,000 last year, and the rate of inflation for the 12 months is 2%, this year’s earnings should go up by 2%. So $1,000 inflation adjusted would be $1,020. If you do not get an inflation adjustment the amount of things you can buy goes down.
Interest	The extra money you pay on a loan or are paid for an investment, usually shown as a percentage (%). For example, 15% interest on a $1000 loan repaid in a year = $150 extra.
Interest rate	Money charged for the use of loaned money, shown as a percentage. It is usually an annual rate, for example, if you take out a loan for 3 years at 15% interest, you will pay 15% per year for any money owing.
Investment	A way to use your money to make it grow.
Lay-by	You pay the store to put aside goods for you. You don’t get them until you have paid in full using an agreed number of regular payments, but there are usually no fees or interest charges payable.
Loan	A borrowed sum of money from a lender, such as a bank or finance company.
Microfinance, micro-lending	Small loans to people on low incomes, often arranged by community organisations. Many charge very low interest, or even no interest or fees at all. They aim to help people on low incomes improve their lives through using safe borrowing.
Need	Something that you require, must do, or must have. For example, you need to pay your rent, because you must have somewhere to live.
No-asset procedure (NAP)	An alternative to bankruptcy which might be available if you owe between $1,000 and $47,000 in secured and unsecured debt and can show that you have no realisable assets. You need financial mentor advice to help you make this decision.

Net worth	Your overall financial position – the value of your assets minus your debts. Or the difference between what you own and what you owe. If your debts are more than your assets you have a negative net worth.
Pension	An income paid at regular intervals to an older person, by government (to people over 65) or through an employer superannuation scheme.
Per	Per means ‘for each’. For example, if you buy 10 items at $20 per item, you pay $20 for each item.
Percent	(%) Means ‘per hundred’. 15 percent is like fifteen out of a hundred: 15/100. Per annum For each year. For example, an interest rate of 15% per annum means a 15% interest rate for each year on money that is owed.
Principal	The original amount borrowed, before fees and interest is added. Refinance Changing the terms of a loan, or replacing an existing loan with a new one.
Repayment	To pay back money owed. Usually a repayment amount will be a set regular amount of money, for a set period of time, until the balance is paid in full.
Repossession	Legally taking back items that you borrowed to purchase, or that you agreed could be used as security, if you don’t repay the lender. They can charge you fees for this process. Creditors may only repossess things listed, item by item, in your credit contract. With some exceptions, they can’t take your necessary household items.
Returns	The change in the value of an investment over a period of time, plus the value of any income received from it (e.g. share dividends) during that period. Returns can be positive and negative.
Secured loan	A loan secured against some or all of a borrower’s assets decreasing the risk to the lender. If the borrower defaults on the loan, the lender may take some/all of these assets in order to cover the loan payments.
Security Assets	attached to a secured loan, which can be taken by the lender if the borrower defaults. Summary instalment order (SIO) A formal arrangement with creditors to repay some debt over time (normally three years). A SIO supervisor will administer the SIO. Your total unsecured debts must be less than $47,000. You need financial mentor expert advice to help you make this decision
Superannuation Funds	specifically designed for people saving for their retirement.
Term deposit	Money deposited for a fixed term – usually between 30 days and five years – to get a better interest rate. If you need the money back before the term is up there may be a penalty.
Unsecured loan	A loan which is not secured against any of your assets, so it is more risky to the lender secured loan. To make up for this, the lender will charge a higher interest rate.