Financial Literacy curriculum

Money does three jobs at once: you pay with it, you hold value in it, and you price things in it. The jobs can come apart. Cash, a bank balance and an app balance are all counted in dollars, yet they carry different credit and liquidity risk, so they are not equally safe places to store value.

A Federal Reserve note cannot be swapped for gold, silver or any other commodity, and it has not been redeemable in gold since 1934. What gives it value is confidence that others will accept it and that it will hold its worth, which is why the Fed's work of keeping prices and the financial system stable matters so much.

Legal tender means US coins and currency are a valid offer of payment for debts, taxes and public charges. It does not force anyone to take cash at the register: no federal statute requires a private business to accept currency, so a store may go card-only unless a state law says otherwise.

Money is a group of safe assets used to pay or to park funds short term, so it can be drawn more or less widely. The monetary base is currency plus banks' reserves at the Fed; M1 is currency the public holds plus checking-type deposits; M2 adds small time deposits and retail money market funds. Always ask which measure a claim uses.

Velocity is nominal GDP divided by a money measure, so it shows how much spending each dollar supports in a year. In the quantity equation, money times velocity equals the price level times output. The link from money growth to inflation depends on velocity, and in the early 1990s M2 velocity rose beyond what interest rates could explain.

The Federal Reserve Board issues paper money, ordering Federal Reserve notes each year from the Treasury's Bureau of Engraving and Printing. Coins work differently: the Treasury's US Mint makes them, and the Reserve Banks only distribute them to banks. Most newly printed notes replace worn-out ones, not new demand.

Barter needs a double match: the person who has what you want must also want what you have. It also fails on size, since a valuable item cannot be cut up to match a cheaper one. Money fixes both by splitting one swap into a sale and a purchase, and the two need not involve the same person.

Compound interest pays interest on your money and on the interest it has already earned, so growth speeds up the longer it stays put. Simple interest, common on car loans, is figured only on the outstanding balance. Compounding also works against you when unpaid interest piles onto a debt.

At the same annual rate, interest that compounds more often grows a little faster, because each credit starts earning sooner. The effect is small next to the rate itself: an account with a higher annual rate generally beats one that only compounds more frequently.

Dividing 72 by an annual rate of return estimates how many years an amount takes to double. It is only an approximation, and it assumes a steady rate with nothing added along the way. It runs the same way on debt: divide 72 by a loan's rate to see roughly how fast an unpaid balance doubles.

APR is a borrowing measure: the interest rate plus fees charged with the loan, stated per year. APY is a savings measure: the total interest a deposit pays over a year, based on its rate and how often it compounds. Compare APR with APR and APY with APY; matching one against a bare interest rate misleads.

The nominal rate is the number quoted; the real rate takes out inflation to show what you gain in buying power. Economists write the nominal rate as the real rate plus expected inflation. That is how a savings balance can grow in dollars while what it buys shrinks, whenever its interest trails inflation.

On an amortizing loan, each fixed payment covers the interest owed and the rest pays down principal. Because interest is figured on the remaining balance, the split shifts as the balance falls, and the lender's formula sets the payment so the loan reaches zero exactly at the end of the term.

Early in a loan the balance is at its highest, so most of each payment goes to interest and the principal shrinks slowly. Nothing extra is charged up front; interest is simply figured on a large balance. A longer term lowers the payment but raises the total interest, because the balance stays high for longer.

A variable rate has two parts: an index that moves with market rates and a margin the lender adds and fixes in your contract. When an introductory rate ends, the rate resets to index plus margin, within any caps. Margins vary a lot between lenders, so once the teaser is gone, the margin is what sets one lender's rate apart at every reset.

Money held now can earn interest before a later date arrives, so the same amount promised in the future is worth less in today's terms. Treasury bills make the gap visible: you can buy one below face value and are paid the full face value at maturity, and the difference between the two is your interest.

Keeping funds liquid has a price: the interest a less liquid choice would have paid. Fed researchers measure that cost for M2 as a three-month Treasury bill yield minus the rate M2 assets themselves pay. In late 2008 that gap fell to about zero, so holding money gave up almost no return.

Compounding magnifies small gaps over time. A difference in fees that looks trivial in a single year can add up to a substantial difference in what an investment returns over many years, and for the same reason money that starts compounding earlier has more time to grow.

Inflation is a rise in the overall price level, not in the price of one item or even several. One price can jump while the general level holds steady. That is why the Fed tracks broad price indexes, averages over months, and checks whether a rise looks temporary before reading it as inflation.

The CPI tracks the cost of a market basket of goods and services, built around the spending of an average household in its target group. Your own inflation can differ: if you spend a bigger share than average on something whose price is rising faster, such as medical care, your rate runs above the index.

Core measures leave out food and energy because their prices swing hard and a big move one month says little about the next. That makes core better for spotting the trend. The cost is coverage: food and energy are a large part of most household budgets, so core is not the full cost of living.

Deflation is a falling overall price level; disinflation is inflation slowing while prices still rise. Fed officials speak of progress on disinflation while inflation is still above their 2 percent target, which shows the word does not mean prices are falling. Deflation itself is rare in the US, and it can feed on itself when people expect prices to keep falling.

Indexing ties a payment or threshold to a price index so it keeps pace with prices. The CPI is commonly written into escalation agreements and used to adjust pensions and tax brackets. Treasury's TIPS apply the idea to a bond: the principal rises or falls with inflation, and interest is paid on that adjusted principal.

Inflation shifts value around fixed-dollar debts. Unexpected inflation shrinks the real value of what a borrower repays, so the lender bears the loss, and a saver whose interest trails inflation loses buying power too. Lenders who expect inflation charge higher rates to cover it. Deflation flips the effect: debtors must repay in dollars of rising real value.

Beliefs about future inflation shape the price of money today: a nominal interest rate equals the real rate plus expected inflation. Expectations can also feed the outcome, as when weak demand slides into deflation because people expect prices to keep falling. That is why the Fed values expectations that stay low and stable.

A bank takes deposits and lends, and those deposits partly fund its loans. The business rests on a mismatch: depositors can ask for their money quickly, while loans cannot be turned into cash on demand. So a bank must keep enough liquid assets on hand to meet withdrawals and other near-term bills.

When a bank lends to a household or business, it creates a new deposit by crediting the borrower's account. Spending that money usually moves the deposit to another bank rather than out of the system. Lending between banks is different: it shifts reserves around and creates no new deposits.

Net interest margin compares what a bank earns on its loans and investments with what it pays on deposits and borrowings, scaled by its average earning assets. Because it is a ratio, it lets you compare a small bank with a large one, and track one bank across years, as a key gauge of profitability.

Liquidity is having cash or quickly sellable assets to pay what is due now; solvency means assets are worth more than liabilities. They fail separately. A bank can own enough to cover its debts yet be unable to raise cash fast enough, or be liquid today while losses eat through its capital. Banks have failed from either problem.

A run starts when holders doubt their money will stay convertible at full value and rush to pull it out. Meeting those withdrawals forces asset sales, which can deepen losses and seem to justify the fear. Bank deposits have backstops against that spiral: federal deposit insurance up to its limits, supervision, and access to Fed liquidity.

Capital is the gap between what a bank owns and what it owes, and it works as a cushion that absorbs losses so the bank stays solvent. Examiners rate a bank's capital adequacy, and since the financial crisis the Fed has pushed banks to hold more capital and more liquidity.

Examiners check banks on a cycle, not only in a crisis. A state member bank must be examined at least every 12 months, smaller sound banks less often, troubled banks more often. Each bank gets confidential ratings from 1, the best, to 5, covering capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk.

Deposit insurance covers deposit products at an insured bank, such as checking, savings, money market deposit accounts and CDs, including interest accrued up to the limit. It protects you against the bank failing, not against theft or fraud, and it starts automatically when you open a deposit account.

Coverage is counted by ownership category, the legal capacity in which you hold the money, so deposits in different categories at one bank are insured separately. All your single accounts there are added together, each co-owner's shares of joint accounts are added together, and certain retirement accounts form their own group.

The standard limit, which the FDIC states as $250,000, applies per depositor, per insured bank, per ownership category. Branches of one bank share a single limit, while a separately chartered bank gets its own. Within a category the FDIC adds every deposit at that bank together, whatever the account type.

A bank may also sell mutual funds, annuities, life insurance, stocks and bonds, but these are investments, not deposits, so deposit insurance does not cover them even when you buy them at an insured bank. The FDIC sign covers what you deposit, not everything sold in the lobby.

Credit unions have their own federal fund, NCUA's Share Insurance Fund, backed by the full faith and credit of the United States. It insures members' accounts automatically at federally insured credit unions, and like FDIC coverage it counts individual, joint and retirement accounts separately.

SIPC, a non-government entity, steps in when a member brokerage firm fails and customers' cash and securities are missing, within its own limits. It does not protect you from a drop in market value, and it covers only customers of member firms. FDIC insurance protects bank deposits against a bank's failure.

When an insured bank fails, the FDIC acts in two roles: as insurer it pays insured deposits, and as receiver it sells the bank's assets and settles its debts. Often a healthy bank takes over and customers reach their money there. Any amount above the insured limit becomes a claim against the failed bank.

A credit union is a not-for-profit cooperative owned and controlled by its members, who share a common bond and elect a volunteer board. Profits flow back to members as lower fees, higher savings rates and cheaper loans, so one member's savings becomes another's loan. Membership is limited to its field of membership.

A savings association, or thrift, has a housing-centered charter: to count as a qualified thrift lender it generally must keep at least 65 percent of its portfolio in qualified thrift investments, which center on home loans and mortgage securities. Federal thrifts are supervised by the OCC, state ones generally by the FDIC and their state.

A broker-dealer executes your trades and often holds your securities too, so federal rules require it to keep possession or control of customers' fully paid securities rather than use them as its own. Brokers are generally paid commissions when you buy or sell and, unlike investment advisers, generally do not give you a detailed financial plan.

Money services businesses are nonbanks that act as money transmitters, check cashers, currency exchangers, or issuers and sellers of money orders, traveler's checks or stored value. With few exceptions each must register with the Treasury through FinCEN, though a business that is an MSB only as another MSB's agent need not register.

A payment or banking app that is not itself a bank is never FDIC-insured. Your money can gain insurance only after the app deposits it at an insured bank and keeps records showing who owns what. Even then, coverage protects you if that bank fails, not if the app itself collapses.

Who supervises a bank follows its charter. The OCC charters and supervises national banks; the Fed supervises state banks that joined the Federal Reserve System, and the FDIC those that did not, each alongside the chartering state. The Fed also oversees bank holding companies, while the SEC and CFPB cover other parts of finance.

Payments travel on different rails. Checks and ACH are the Fed's retail services, built for lower-value everyday payments. In 2018, cards and ACH led by number of payments, while wires, ACH and checks led by value. Fedwire moves large, time-critical sums that are final once processed, and FedNow sends instant payments at any hour.

ACH moves files of payment instructions between banks instead of single real-time transfers. A credit pushes money out, as with payroll; a debit pulls it in with the payer's authorization, as with a utility bill. Each ACH payment carries a settlement date set by the originator, unlike a Fedwire transfer that settles at once.

A card payment links four parties through a network: you, the bank that issued your card, the merchant, and the merchant's bank, called the acquirer. The network sets the interchange schedule, the acquirer pays interchange to the issuer, and the acquirer generally passes that cost on to the merchant.

A card purchase is authorized when you pay, but it settles later, when the final amount actually posts. Between the two, the balance you see can be misleading, especially at gas stations and restaurants where the final amount is unknown at authorization, and that gap can lead to overdrafts you did not expect.

Interchange is the fee a merchant's bank pays a cardholder's bank on each card transaction, set by the card network's schedules. Merchants usually bear it, since their banks generally pass the cost through, so card acceptance is not free to them. For debit cards, the Fed's Regulation II limits the fee, with exemptions for small issuers.

Rails differ in when a payment is truly done. A Fedwire transfer is final and irrevocable once processed. Consumer electronic transfers, by contrast, come with error-resolution rights, so a transfer you report in time can still be investigated and corrected after it seemed complete.

Under Regulation E, if you report an electronic transfer error within 60 days after the statement that first shows it, your bank must investigate. It must generally decide within 10 business days, or it can take up to 45 days if it provisionally credits your account meanwhile, and it must correct any error it finds.

You can stop a preauthorized electronic transfer by telling your bank, orally or in writing, at least three business days before the scheduled debit. The bank must honor that stop-payment order, and it must keep honoring it if the payee simply resubmits the same debit.

Credit bureaus, called consumer reporting agencies in the law, assemble information on people to sell as reports to others. They do not create the data: businesses that deal with you, including creditors and debt collectors, furnish it. Each side has its own legal duties, so an error may need fixing at the source as well as at the bureau.

A bureau may hand over your report only for reasons the law lists, such as your own written instructions, a credit deal involving you, employment screening, insurance underwriting, or a legitimate business need tied to a transaction you started. Wanting to know about someone is not on the list.

Accuracy is a shared duty. A bureau must follow reasonable procedures to assure maximum possible accuracy of what it reports. A furnisher must not report information it knows or has reasonable cause to believe is wrong. Neither duty promises a perfect file, which is why the dispute process exists.

When you dispute an item, the bureau must reinvestigate, generally within 30 days, and pass your dispute to the company that supplied the data. If the item proves inaccurate, incomplete or unverifiable, it must be deleted or corrected. Accurate negative information, though, cannot be removed just because it hurts.

If a lender, insurer, landlord or employer acts against you based even partly on a credit report, it must tell you, name the bureau, and explain that you can get a free copy and dispute errors. The notice also says the bureau did not make the decision and cannot give the reasons, so you know whom to ask.

A credit score is a model's prediction of your credit behavior, such as paying a loan back on time, computed from your credit report. You do not have one score: each depends on the scoring model, the loan type it was built for, which data it reads and even the day it runs, so two honest scores for you can disagree.

Most negative information can be reported for seven years and bankruptcies for up to ten, while a good payment record may stay longer. Expiry stops the reporting, not necessarily the record. The time limits do not apply to reports used for some high-paying jobs or for large amounts of credit or life insurance.

The finance charge is the cost of credit in dollars: interest plus charges you pay as a condition of borrowing. A charge you would also pay in a comparable cash purchase is left out, and if the credit version costs more, only the difference counts. Seeing the cost in dollars complements the APR's yearly rate.

The APR states the cost of credit as a yearly rate that accounts for both how much you receive and when you repay, so fees count as well as interest. Because every lender must disclose it the same way, APRs can be lined up across offers; setting one lender's APR against another's bare interest rate misleads.

When a credit deal puts a security interest on your principal dwelling, such as a home equity loan, each owner can generally cancel until midnight of the third business day after closing. A loan used to buy or build that home is a residential mortgage transaction and is not rescindable.

A credit card statement follows required content, including the previous balance, the transactions for the cycle, and the interest and fees charged. It must also carry a Minimum Payment Warning estimating how long payoff takes and what it costs if you pay only the minimum, beside a three-year payoff comparison.

To dispute a card billing error, send written notice that reaches the creditor within 60 days after it sent the first statement showing the error. While the dispute is open you need not pay the disputed part and the creditor may not try to collect it, and it must resolve the matter within two billing cycles, never more than 90 days.

Card rules limit surprises. An issuer generally may not raise a card's rate or certain fees except in listed cases, such as a payment more than 60 days late. Payments above the minimum must go first to the balance with the highest rate, and first-year fees generally cannot exceed 25 percent of the starting credit limit.

For most home mortgages, a lender may not make the loan unless it decides in good faith, before closing, that you can reasonably repay it on its terms. That judgment must rest on checked facts, such as a credit history verified with third-party records, not on what an applicant merely states.

Mortgage disclosures use fixed federal forms, the Loan Estimate and the Closing Disclosure, so each item sits in the same place on every lender's version. The shared layout is what makes it practical to request estimates from several lenders, compare them line by line, and check the final terms against what you were quoted.

A creditor may not discriminate on race, color, religion, national origin, sex, marital status or age (if you can legally contract), on income from public assistance, or on your good-faith use of consumer credit rights. The ban reaches any aspect of a credit transaction, not just the yes-or-no decision.

A denied applicant is entitled to the specific principal reasons, given in the notice or sent on request. Vague answers do not count: saying you missed the lender's internal standards or failed to reach a qualifying score is not enough. Real reasons let you check whether the decision rested on accurate facts.

Redlining is a lender discouraging, denying or avoiding loans in neighborhoods because of the race, color or national origin of the people who live there. The map stands in for the forbidden trait, so a policy can discriminate without ever naming an applicant's race.

Disparate treatment means handling applicants differently on a prohibited basis, and Regulation B calls it illegal even without conscious intent. Disparate impact asks whether a neutral policy falls harder on a protected group. Since July 21, 2026, Regulation B says ECOA does not apply that effects test, reaching neutral criteria only when they are proxies used with intent.

Home lending falls under two laws. The Fair Housing Act bars discrimination in making or purchasing loans for a dwelling, and its protected traits include familial status and disability, which the statute calls handicap. ECOA covers all credit and adds marital status, age and public assistance income, so a mortgage applicant can be protected by both.

Some people have no file at the nationwide credit bureaus, and others have files too thin or too stale to score. Because lenders lean on scores, both groups face much harder access to credit. In a 2015 CFPB study the gap was sharpest in low-income neighborhoods.

Alternative data means records such as rent, utility, phone or insurance payments that traditional credit files often miss, and it could help people with thin files show a track record. The fairness risk is that some variables correlate closely with race, sex or another protected trait, so a model can carry bias it never names.

Federal debt collection law aims mainly at third-party collectors, firms collecting debts owed to someone else, rather than the original lender collecting its own. It protects you on household debts such as credit cards, car loans, medical bills, student loans and mortgages.

A collector must send validation information when it first contacts you or within five days: its name and address, the creditor, the amount broken into interest, fees, payments and credits, and how to dispute. If you do not dispute within 30 days of receiving it, the collector may assume the debt is valid.

Collectors generally may not contact you before 8 a.m. or after 9 p.m. your local time, at work if you say that is not allowed, or by email or text after you ask them to stop. They also may not call more than seven times in seven days about one debt.

Collectors may not harass, oppress or abuse you, misrepresent the debt or who they are, or use unfair means to collect. Suing or threatening to sue on a debt whose limitations period has expired is treated as misleading, because it implies the debt can still be enforced in court.

A statute of limitations caps how long a collector has to sue, usually counted from a missed payment, and its length depends on the kind of debt and the state. An expired debt does not usually disappear. In some states a payment, or even a written acknowledgment, restarts the clock.

Creditors sell portfolios of unpaid consumer debt at a deep discount; in a 2013 FTC study of nine large buyers, they paid about 4 cents per dollar on average, less for older debt. Buyers often lacked key facts, such as whether a debt had been disputed, so errors about who owes what can travel with the debt.

A lawsuit becomes a judgment when the court rules, and that often happens by default when the person sued never responds. A judgment is a court order that gives the collector stronger tools, such as garnishing wages or bank accounts or placing a lien on a home, and it is hard to undo once the case ends.

Garnishment takes wages or account funds under a court order, so a collector needs a judgment first. Federal law caps ordinary wage garnishment as a share of disposable earnings, many federal benefits such as Social Security are generally exempt, and a bank served with an order must first review the account for recently deposited benefits.

Consumer finance is policed by several agencies. The CFPB's statutory job is to implement and enforce federal consumer financial law consistently, whether or not a firm is a bank. The FTC bars unfair or deceptive practices across commerce, banking regulators judge banks' soundness, and the SEC oversees securities markets.

Rulemaking writes requirements in advance; enforcement acts after a violation. The CFPB's statute gives it both jobs: it issues rules implementing federal consumer financial law, supervises covered firms for compliance, and takes enforcement action to address violations, alongside handling consumer complaints.

The CFPB examines very large banks, thrifts and credit unions, those with more than $10 billion in assets, and it also runs a complaint system. Complaints go to the company for a response, and most companies respond within 15 days; if another agency is better placed, the complaint is sent there.

Federal consumer finance law generally sets a floor, not a ceiling: a state law is not treated as inconsistent with it if it gives consumers greater protection. Bank charters complicate this, since a national bank may charge interest at the rate allowed in the state where it is located.

An act is unfair when it causes or is likely to cause substantial injury that consumers cannot reasonably avoid and that benefits do not outweigh. Abusive conduct materially interferes with understanding a term or takes unreasonable advantage of a gap in understanding. Deception is a separate charge from both.

A pre-dispute arbitration clause lets either side block a lawsuit, including a class action, and send the dispute to private arbitration instead. A 2015 CFPB study found that very few consumers sought relief on their own, in arbitration or in court, while class settlements reached millions of people each year.

Relief in a CFPB enforcement action can include canceling or rewriting contracts, refunds, restitution, disgorgement, damages, public notice, limits on a firm's activities and civil money penalties. Penalties go into a Civil Penalty Fund used to pay victims of the violations; if victims cannot be found, the money can fund consumer education.

A payday loan is small and short, usually due in two to four weeks, repaid by a check or account debit the lender can cash on the due date. Its cost is a flat fee per $100 borrowed, and because the term is so short, that fee turns into an annual percentage rate in the hundreds when stated per year.

Rolling over means paying just the fee to push back the due date, then owing a new fee on top while the full original amount stays due. Each rollover buys time, not progress. Several in a row can cost hundreds of dollars in fees with the original loan still unpaid.

A title loan uses your vehicle as collateral: you hand over the title, usually for a short loan worth a fraction of the vehicle's value. If you cannot pay, the lender can repossess and sell the vehicle, and depending on state law you may still owe the gap between the sale price and your balance.

A pawn loan borrows against an item you leave with the shop; if you neither repay nor renew, the shop sells it. Rent-to-own lets you use goods while paying toward them, but with some plans markups and fees mean you might pay about twice the cash price, and a longer contract costs more in total.

Buy now, pay later is an installment loan that splits a purchase into four or fewer payments, often with no interest but with late fees. Regulation Z's creditor definition turns on a finance charge or more than four installments, and a 2022 CFPB report found most such lenders did not give the standard cost-of-credit disclosures.

When a bank pays a transaction your balance cannot cover, it is lending you money, and the flat overdraft fee is the price. Most debit overdrafts are small and repaid within days, so the fee works out to a very high annual rate. After Truth in Lending passed in 1968, the Fed exempted overdraft from those credit rules.

Rate caps come from more than one place. A national bank may charge interest at the rate allowed by the laws of the state where it is located, so its home state's rules travel with its charter. Some caps are federal and targeted: the Military Lending Act limits covered credit to service members at 36 percent APR.

In the primary market, newly issued securities are sold to investors and the issuer receives the proceeds. After that, existing securities change hands in the secondary market, where investors trade with one another. Only the first sale raises money for the issuer, so later swings in the trading price do not put new cash into the company.

A national securities exchange is one registered with the SEC under the Securities Exchange Act of 1934. Securities not listed on one are over-the-counter (OTC) and usually trade on alternative trading systems where dealers post bid and ask quotes. Some OTC issuers file no periodic reports or audited statements with the SEC, so current, reliable information can be hard to find.

The bid is the highest price a buyer will pay and the ask is the lowest price a seller will accept; the gap between them is the spread. Buy at the ask and sell soon after at the bid, and you lose the spread even if the quote never moved. A quote also covers only a specific number of shares, so a larger order may fill at a different price.

A market order asks to trade at the current market price and is almost always executed while willing buyers and sellers exist, but the price you get may not be the one you expected. A limit order guarantees your limit price or better, but not that it fills. A stop order becomes a market order once the stop price is reached, so a brief swing can trigger it and the fill can differ from the stop price.

Liquidity is how quickly you can buy or sell a holding without paying a hefty fee or substantially moving its price. A thinly traded stock can be hard to sell when you need the cash and may force a bigger loss. Liquidity risk is not finding a market at all, which is sometimes the case with complicated products and with ones that penalize early withdrawal, such as a certificate of deposit.

Price discovery is how a market gathers information and works out what an asset is worth. Orders meet through exchanges, market makers and electronic networks, so news about a company, or political and market events beyond its control, moves the quoted price. In a 2007 speech, one Federal Reserve governor warned that in financial distress information flows can be disrupted and price discovery impaired.

A market index measures the performance of a chosen basket of stocks meant to represent a particular market or sector, so it says nothing about stocks outside that basket. An index is a measurement, not something you can own; a fund that tracks one aims for roughly the index's return before fees, and its fees come out of what you actually receive.

Market capitalization is the share price multiplied by the number of shares outstanding. A company with a high price per share but few shares can be worth less in total than one with a low price and many shares. To judge whether a price is high, analysts compare it with something per share, as the price-earnings ratio does with earnings.

A share is an ownership position in a corporation and a claim on a proportional share of its assets and profits, and most stocks carry votes on matters such as electing directors. That claim comes last: if the company goes bankrupt, bondholders are paid first, then preferred stockholders, and common stockholders get whatever is left, which may be nothing.

A dividend pays part of a company's profit to shareholders, usually on a fixed schedule; buy on or after the ex-dividend date and the seller gets the next one. A buyback instead has the company purchase its own shares, for example through an issuer tender offer that each holder may accept or decline. With fewer shares outstanding, profit is divided among fewer shares.

A bond is a loan from you to the issuer. The issuer promises interest at a stated rate on a set schedule, the coupon, and repayment of the face, or par, value when the bond matures. Hold it to maturity and, unless the issuer defaults, you get par back; sell earlier and you get whatever the market pays, which can be more or less.

When market rates rise, newly issued bonds pay more, so an older bond with a lower coupon has to sell at a discount to attract a buyer; when rates fall, it can sell at a premium. On a fixed-rate bond the coupon does not change. Because current yield is the coupon divided by the market price, a lower price is what lifts the older bond's yield toward new rates.

Credit rating agencies give an opinion on a borrower's creditworthiness, expressed as a grade. Investment-grade bonds are believed less likely to default and are issued at lower yields; lower-rated high-yield bonds pay more because default is believed more likely. A rating speaks to default risk, so a highly rated bond can still lose market value when interest rates rise.

Mutual funds and most ETFs are open-end investment companies. You buy or redeem mutual fund shares at about the per-share net asset value (NAV) calculated each business day, while ETF shares trade on exchanges at market prices. A closed-end fund generally does not buy shares back on request, so if it is listed you sell to another investor at the market price.

A derivative's value comes, at least in part, from an underlying asset, security or index. An option gives the buyer the right, but not the obligation, to buy or sell at a fixed price within a set period. A futures contract is an agreement to buy or sell a set quantity at a set price on a future date, so both sides are committed.

In an initial public offering a company first sells its shares to the public, after filing a registration statement with the SEC that usually includes a prospectus describing the company and the securities. Registration requires disclosure; the SEC does not judge whether the shares are a good investment. Some offerings, such as private ones to a limited number of buyers, are exempt.

Business, or credit, risk is the chance an issuer fails and cannot pay; volatility risk, that a price swings even when it does not; inflation risk, that fixed payments buy less over time; interest-rate risk, that a bond's value falls when rates rise; and liquidity risk, that you cannot find a buyer. Concentration piles one holding's risks onto your whole portfolio, which is why diversification spreads money within each asset class too.

Volatility is a price moving up and down even when a company is in no danger of failing. It becomes a realized loss only if you sell after a drop, while a permanent loss comes from the issuer failing, where common stockholders are last in line. A bond held to maturity returns its face value plus interest, whatever its price did in between.

Diversification works when holdings do not all fall for the same reasons: conditions that hurt one asset class may help another. That is why spreading across asset classes, and across industries within each class, is recommended. Because a broad market drop can pull most holdings down together, diversification can improve your odds of avoiding a loss, or of a smaller one, but cannot rule one out.

Some risk belongs to one company, such as a faulty product or a bankruptcy, and holding many stocks across industries dilutes it. Other risk comes from events no single company controls, such as political or market events, and a broad market drop hurts diversified investors too. Diversification shrinks the first kind, not the second.

When market interest rates rise, newly issued bonds pay more than older ones, so you may have to sell an older, lower-rate bond at a discount. The risk bites only if you sell before maturity: held to maturity, the bond returns its face value plus interest. It runs in reverse when rates fall, and an issuer may then call the bond early.

As investment risks rise, investors seek higher returns to compensate for taking them. High-yield bonds pay more interest than investment-grade bonds because default is believed more likely. The extra return is payment for bearing risk, not a reward collected for certain, which is why a pitch offering high returns with little or no risk is a classic sign of fraud.

This year's top-performing fund is not necessarily next year's; a fund can beat its peers one year and lag the next. That is why the SEC requires funds to tell investors that past performance does not necessarily predict future results. Fees work differently: they are known in advance and come out of every year's return, good or bad.

Return is compensation for risk, so a promise of high returns with little or no risk contradicts that trade-off. Regulators list guaranteed returns and risk-free opportunities among the red flags of fraud, and Ponzi schemes and high-yield investment programs typically lead with exactly that pitch.

An expense ratio is the percentage of a fund's average net assets used each year to pay its operating expenses, such as management fees and distribution (12b-1) fees. It comes out of the fund's assets rather than appearing as a bill, so it reduces your return every year whether the fund gains or loses. The figure is in the prospectus fee table.

A commission pays a financial professional when you buy or sell. A sales load is a similar fee on mutual fund shares, charged when you buy (front-end) or when you redeem (back-end). When a broker-dealer trades with you from its own inventory, its pay may instead be a markup or markdown built into the price rather than a separate charge, which is why regulators suggest asking how much it is before you trade.

A trade can cost money even with no commission. You buy near the ask and sell near the bid, so a round trip pays the spread. A broker filling your order from its own inventory can earn that spread, and some market makers pay brokers for routing orders to them, so where your order is sent affects the price you pay.

Brokers and investment advisers must act in your best interest and not put their own ahead of yours, yet the way each is paid creates conflicts. A broker paid per transaction earns more when you trade more; an adviser paid a share of your assets earns more as those assets grow. Each firm's relationship summary (Form CRS) must disclose its fees, conflicts and disciplinary history.

Brokers and investment advisers both must act in your best interest and not put their interests ahead of yours, but the duty attaches to different services. A broker's applies when it makes a recommendation, often trade by trade. An adviser typically gives ongoing advice and monitors your investments. Each firm's relationship summary states the standard of conduct that applies.

Brokers usually charge per transaction, through a commission or markup each time you buy or sell. Investment advisers typically charge a fee based on the value of the assets in your account, and some professionals quote an hourly rate or a flat fee instead. Each structure rewards different behavior, which is why regulators suggest asking how a professional is paid.

A fee charged as a percentage of assets is taken every year from a balance that would otherwise have kept growing, so its cost compounds along with the investment. In an SEC illustration of one hypothetical portfolio over two decades, each step up in the annual fee left a visibly smaller ending balance. Small percentage differences become large dollar differences over time.

Registration makes a company offering securities to the public disclose its business, management and audited financial statements, so that investors, not the government, can judge the investment. The SEC does not evaluate an offering's merits and cannot guarantee the accuracy of filings, though it brings enforcement actions over missing information. Registered is not the same as safe.

Free public databases show whether a financial professional is registered or licensed, their qualifications and employment history, and reported complaints, arbitrations and regulatory actions, which is why checking matters even when a friend makes the referral. Be wary of proof offered by the seller: the SEC issues no registration certificates, and making an SEC filing is not the same as being registered.

A Ponzi scheme pays existing investors with money collected from new investors rather than from real earnings, and organizers often take some for themselves. With little or no legitimate income, it needs a constant flow of new money to survive. It tends to collapse when recruiting new investors gets hard or when many existing investors try to cash out at once.

A pyramid scheme pays participants mainly from new recruits' fees, not from selling a genuine product to outside customers, so it must keep recruiting and eventually collapses. The structural test for a multi-level marketing business is where the money comes from: one that is not a pyramid scheme pays you for sales to retail customers, without requiring you to recruit.

Affinity fraud targets an identifiable group, such as a religious or ethnic community, older adults or a profession. The promoter is, or poses as, a member and often enlists respected leaders, who may themselves be unwitting victims, to vouch for the scheme. Many such scams are Ponzi or pyramid schemes underneath, so they collapse once new money stops arriving.

Promoters spread false or misleading claims about a stock, through social media, newsletters or ads, to create a buying frenzy that pumps up its price. They then sell their own shares at the inflated price and stop the hype, and the price typically falls. Microcap stocks are especially exposed because little public information exists to check the claims against.

Earlier fraud victims are prime targets for a second scam. Callers may pose as regulators or other organizations and claim the lost money has been or can be recovered, once a fee is paid. This reload scam is a form of advance-fee fraud, and every extra payment adds to what is already gone. Genuine recoveries, when they happen at all, are often partial and slow.

Problems with an investment account or professional can be reported to the SEC through its complaint form, and suspected securities violations through a separate tips portal. Each state also has a securities regulator that enforces its own laws and can confirm whether a seller is cleared to sell there. Reports feed enforcement, which sometimes returns recovered money to victims.

Insurance gathers premiums from many policyholders into one pool and pays the few claims from it. The pool lasts only if premiums cover at least its average yearly losses; the federal flood insurance program fell short and was left with a large deficit after the 2005 hurricanes. Where everyone pays a price set from the group's average risk, higher-risk members get coverage for less than their own risk would cost.

A premium starts from expected loss: how likely a loss is, combined with how much damage it would cause. Rates that rest on outdated data, or that lump different risks into one rating class, can end up too low to cover future losses. Insurers that use extra data such as insurance scores argue it lets them price each policy more accurately.

Buyers usually know their own risk better than the insurer does. When a premium is set from average risk, higher-risk people get coverage cheaply relative to their risk and are more likely to enroll, while healthier people may opt out. The pool then turns riskier than priced, threatening its finances; researchers look for this by testing whether coverage and risk rise together.

Moral hazard is a change in behavior caused by being covered. It can come before a loss, such as neglecting prevention after enrolling, or after, such as using more services because insurance pays. It is hard to separate from adverse selection and from ordinary care that coverage simply makes affordable, so higher use by insured people does not prove it.

A deductible is what you pay for covered care before the plan starts paying; after that, coinsurance is your percentage of each bill and a copayment is a fixed amount. An out-of-pocket maximum caps your yearly share, after which the plan pays the full covered cost. Premiums do not count toward that cap, and neither does spending on uncovered or out-of-network care.

Reserves are liabilities an insurer reports now for losses and policyholder benefits it will pay later, usually set by its actuary within guidelines in state law. Because premiums arrive long before some claims, setting reserves too low can hide trouble; a 1990 congressional report on insurer failures named underpricing and inadequate loss reserves among the causes.

Insurance in the U.S. is regulated mainly by the states. As a condition of operating in a state, an insurer joins its guaranty fund, which honors policyholder claims against an insolvent insurer up to limits that differ from state to state. For many health plans, insurers must also publicly explain large rate increases before raising premiums.

Federal income tax is charged in layers called brackets, each with its own rate. When your income crosses into a higher bracket, only the part inside that bracket is taxed at the higher rate; the income below it keeps its lower rates. The thresholds differ by filing status and are adjusted for inflation from year to year.

Your marginal rate is the rate on your last dollar of taxable income; your effective rate is total income tax divided by income. Because a higher bracket taxes only the dollars inside it, a raise adds less income tax than the raise itself. What can bite is a credit or benefit that shrinks as earnings rise, which is counted in an effective marginal tax rate.

A paycheck carries two federal taxes. FICA taxes, which fund old-age, survivors and disability insurance plus hospital insurance, are split between you and your employer and go into dedicated trust funds. Income tax, withheld separately, supports a wide range of programs. The Social Security tax stops at a yearly wage base, while Medicare tax applies to all covered wages.

Sell an investment for more than your adjusted basis, usually what you paid, and the difference is a capital gain. Gains on assets held longer than a year are long-term, and net capital gain can be taxed at a lower rate than ordinary income, some of it at 0%; gains held a year or less are short-term. Losses on personal-use property such as a home or car are not deductible.

Federal income tax is pay-as-you-go: you pay as you earn. Employers withhold from each paycheck based on your wages and the Form W-4 you give them, and people without enough withholding, such as many self-employed workers, pay estimated tax. The return trues it up: too little can mean a bill or penalty, too much means a refund of money you could have used.

Below the federal level, states and localities levy their own taxes, including income taxes, general sales taxes, real property taxes and personal property taxes. Some can be itemized on a federal return, but for the income-or-sales category you deduct one or the other, not both, while property taxes are a separate category.

Reducing tax by legitimate means is not a crime. The line is concealment: someone avoiding tax shapes events to lower the bill and then fully discloses them, while evasion uses deceit, concealment or making things seem other than they are. Splitting a business's income among genuine partners is avoidance; a partnership that exists only on paper is not.

Gross domestic product is the value of the final goods and services produced in the United States. It counts what passes through markets, so unpaid work people do for themselves and their families is left out because there are no transactions to track. The headline number is usually the growth rate of real GDP, adjusted to remove inflation.

To be counted as unemployed, a person must have no job, be available to work, and have made at least one specific, active effort to find a job in the 4 weeks before the survey, or be on temporary layoff expecting recall. Someone who wants a job but has stopped searching is counted as not in the labor force, so discouraged workers fall outside the official rate.

The labor force is everyone 16 and older who is either working or actively looking for work, and the participation rate is that group as a percentage of the civilian noninstitutional population. Because the unemployment rate divides by the labor force, people who stop looking leave both the count and the denominator, which can lower unemployment without anyone finding a job.

Real earnings measure pay after adjusting for inflation with the Consumer Price Index. If average hourly earnings rise more slowly than prices, real earnings fall even though paychecks got bigger. The monthly government report combines the change in pay with the change in the index, so a raise and a pay cut in real terms can happen at once.

Two straight quarters of falling GDP is a rule of thumb, not an official definition. U.S. recessions are dated by a committee at the National Bureau of Economic Research, a private nonprofit, which treats a recession as a monthly concept and weighs indicators such as employment, personal income and industrial production alongside GDP, so the two do not always agree.

Each quarter's GDP is estimated three times. The advance estimate comes about a month after the quarter ends, based on the information available then; the second and third estimates add source data that was not yet in hand, improving accuracy. A first print is a provisional reading, and the picture of a quarter can change after the headlines.

A nominal, or current-dollar, series is measured at the prices of its own period, so it can rise from inflation alone. A real series is adjusted to remove inflation's effects so that different periods can be compared. Before reading growth into any dollar figure over time, check which kind it is.

Congress assigned the Federal Reserve to conduct monetary policy to support maximum employment and stable prices, the dual mandate. Maximum employment means the highest employment the economy can sustain while prices stay stable, not zero unemployment. Prices count as stable when people need not worry about costs rising or falling significantly when they plan, borrow or lend.

The Fed's main tool is the federal funds rate, what banks pay to borrow overnight from each other. Changes there ripple into other interest rates; many banks set their prime rate, a reference for credit card and small-business loans, partly from the federal funds target. Those rates shape how much households and businesses borrow and spend.

Open market operations are a central bank's purchases and sales of securities. Before the 2008 financial crisis, the Fed used them to adjust the supply of bank reserves and keep the federal funds rate near its target. Since then it has also bought longer-term securities to push long-term rates down, and used repurchase agreements to keep reserves ample.

Fiscal policy is the government's taxing and spending, decided in the U.S. by Congress and the Administration. Monetary policy is a central bank's action on financial conditions, such as the cost and availability of credit, toward goals like stable prices and full employment. The Fed has no role in fiscal policy, though it weighs the expected path of fiscal policy in its outlook.

A deficit is a flow: the amount by which federal spending exceeds revenue in one fiscal year. The national debt is a stock: the accumulated borrowing used to cover past deficits, plus interest owed to the investors who bought the securities. A shrinking deficit therefore still adds to the debt, only more slowly; a surplus is the opposite of a deficit.

To cover deficits, the Treasury sells marketable securities such as bills, notes, bonds, floating rate notes and inflation-protected securities. Part of the national debt is held by the public; part is intragovernmental, mostly agencies' excess revenue invested in Treasury securities, with Social Security the largest such investor. State, local and household debts are not included.

Monetary policy works through a chain: lower rates make borrowing cheaper, households and businesses spend more, firms hire, and wages and prices can then respond. Each link takes time, and the Fed itself says the linkages from policy to inflation and employment are not direct or immediate. Many other factors also move both, which blurs the effect of any single decision.

A mortgage lender is the institution that lends you the money; a broker lends nothing and instead finds lenders or loans for you for a fee, and some firms act as both. The lender's origination fee can cover processing the application, underwriting and funding the loan. Before closing you receive a Closing Disclosure with the final terms and costs.

Lenders can sell mortgages instead of holding them. Fannie Mae and Freddie Mac buy loans and either keep them or package them into mortgage-backed securities sold to investors, guaranteeing timely payment of principal and interest, and the lender uses the cash to make new loans. The guarantee is what draws investors who might not otherwise buy mortgages.

The lender that made your loan, the company that owns it now and the servicer that collects your payments can all differ. Loans are commonly sold on the secondary market, and the new owner must notify you; servicing rights are sold separately, with their own notice. A sale of the loan does not by itself change your servicer or your loan terms.

Government-backed mortgages are made by private lenders, with an agency taking on part of the risk. FHA loans are insured by the Federal Housing Administration and allow lower credit scores and smaller down payments; for VA loans, Veterans Affairs sets the rules and guarantees part of each loan; USDA offers no-down-payment programs to eligible rural buyers.

An appraisal is an independent assessment of a property's value, with the appraiser usually selected by the lender. The loan-to-value ratio compares the mortgage with that appraised value: a bigger down payment lowers it, and lenders use it to decide whether to lend and whether to require private mortgage insurance.

Foreclosure is the lender or servicer taking back a property after the homeowner fails to make mortgage payments. Some states require a court process (judicial foreclosure) and others do not. Before that, a servicer may offer loss mitigation such as forbearance, a repayment plan or a loan modification, or a way out without foreclosure, like a short sale or a deed-in-lieu.

Your debt-to-income ratio divides all monthly debt payments by gross monthly income, and lenders use it to judge whether you can manage a new loan's payments. For housing alone, households are counted as cost-burdened when rent, mortgage and other housing costs exceed a set share of income, a measure that compares payments to income rather than prices to income.

When a card is loaded into a phone wallet, purchases typically use a token, a substitute number stored in the wallet in place of the card's account number. The merchant receives the token from your device, and the card network converts it back to the account number to process the payment, so your real number is not exposed at those stages of the sale.

Nonbank apps are never FDIC-insured themselves. Money you send one is covered only after the company deposits it at an insured bank and other conditions are met, such as records showing who owns how much; then, if that bank fails, pass-through coverage may apply. It does not protect you if the app company itself becomes insolvent or goes bankrupt.

A crypto asset is generated, issued or transferred using a blockchain or similar distributed ledger, under names such as tokens, coins or virtual currencies. FDIC deposit insurance does not cover crypto assets or protect against a crypto company's failure. A crypto wallet stores the private keys that control your assets, and losing a private key means losing access for good.

A stablecoin is a digital asset designed to hold a stable value against a currency such as the dollar, often with a promise of redemption at par backed by reserve assets. A 2021 federal interagency report found no standard at the time for what those reserves hold and warned that if users lose confidence in redemption, a run on the arrangement could follow.

A robo-adviser is an automated advisory program: you complete an online questionnaire about goals, time horizon, income and risk tolerance, and it builds and manages a portfolio, often at lower cost. Its recommendation is limited by the information it asks for, and updating that information may fall to you. Its Form ADV brochure describes services, fees and conflicts.

Section 1033 of the Consumer Financial Protection Act says a provider such as a bank must make your transaction data available to you on request. A 2024 CFPB rule extended this to third parties you authorize, with conditions on how they collect, use and keep the data; in August 2025 the Bureau began reconsidering that rule, so its details may change.

When a creditor turns down an application, Regulation B requires a statement of specific reasons that names the principal ones. Saying only that you failed the creditor's internal standards or did not reach a qualifying score is not enough. A 2022 CFPB circular applying this to complex models was withdrawn in May 2025, but the reasons requirement in the rule itself still stands.

People with present-biased preferences put a premium on immediate rewards and discount future costs, so they may save less than they themselves intend. Those aware of the bias may welcome commitments that restrict later choices; those unaware of it tend to reject such commitment devices, even though they could benefit from them.

Loss aversion is the greater psychological weight of a prospective loss than of an equivalent gain when weighing a decision. Estimates often put losses at about twice the weight of equal gains, but researchers still debate the size of the effect, so treat that figure as a rough average rather than a law.

Mental accounting is treating money differently depending on the label it carries. Earmarking can help: in one field study, a simple box set aside for health savings raised them. It can also backfire, as when people say they would use a credit card for an emergency rather than touch savings labeled for a responsible purpose, even though the card costs more.

A suggested figure, such as a match threshold or a savings goal, can act as an anchor that shapes what amount feels right. In savings experiments the effects were often modest: in one tax-time study, suggesting a small or a large share of the refund led almost the same share of people to save, though the larger anchor may have nudged amounts saved.

A default is what happens if you do nothing. Automatic enrollment with the option to opt out has been called by far the most effective way to raise retirement plan participation. Defaults do not always win, though: in a tax-time test, making a savings bond purchase the default produced the same take-up as asking people to opt in.

The same offer described differently can change choices. When an investing app framed one recurring deposit as a daily amount instead of the equivalent weekly or monthly sum, far more new users signed up. The daily group was also less likely to stick with it after a month, so a frame that lifts sign-ups does not guarantee lasting behavior.

The CFPB treats financial well-being as how well your money situation gives you financial security and freedom of choice, today and in the future. Its ten-question scale asks about things like handling a major unexpected expense or having money left at the end of the month, and asks for no balances, so it captures more than net worth.

An exchange rate is the price of one currency in terms of another. The same rate can be quoted either way round, as dollars per unit of the other currency or the reverse, so check which currency is being priced before comparing. For a transfer abroad, the rate applied decides how much the recipient gets, which is why it must be disclosed before you pay.

A transfer's cost has two parts: the stated fee and the exchange rate. Providers commonly apply a spread on top of the wholesale exchange rate, a margin that never appears on the fee line. Comparing fees alone can mislead; the disclosed amount the recipient will receive reflects both.

When you send money abroad through a remittance transfer provider, federal rules require disclosures before and after you pay: fees and taxes, the exchange rate, the amount expected to be delivered and when it will be available. You can generally cancel at no cost shortly after paying unless the money has been picked up or deposited, and errors must be investigated.

When an investment is priced in another currency, a change in the exchange rate can raise or reduce your return even if the investment's own price is unchanged. Some countries also impose currency controls that restrict or delay moving money out. Holding value in a currency you do not spend ties your purchasing power to that rate.

A transfer abroad may not travel straight from your provider to the recipient's account. Third-party institutions that process it can deduct fees or taxes, an intermediary may set the exchange rate applied, and the receiving bank can take more. That is why the amount received can be less than what was sent, and why some deductions are disclosed only as a possibility.

Payment providers screen transfers against the sanctions lists and programs of Treasury's Office of Foreign Assets Control. A name that matches or resembles a listed one raises an alert that must be investigated before the payment proceeds, and some transactions must be blocked or are prohibited outright, so a legitimate transfer can be held while a possible match is checked.