Financial Jargon (Top 10 Explained!)

Financial Jargon (Top 10 Explained!)

Are you so lost with money that it seems like everyone in finance is speaking an entirely different language?


There is not enough financial information out there that actually explains things IN CLEAR ENGLISH. Let alone from people from our generation we can actually relate to. On top of that, if you DO find someone like this, 9 times out of 10 they’re from the states which leaves us Canadians wanting so much more!

So, today I’m going to break down a top 10 list of financial terms and boring jargon (from both the US and Canada) that you should know!

One of the reasons I became a financial coach, is because when I started my own ‘financial adulting’ journey, there was little to no information that spoke to me. Everything looked and sounded completely boring. There was almost no one my age talking about it, and nothing was IN ENGLISH instead of fancy financial jargon!

When I DID finally find some people I could actually understand, almost all of them were from the States! So I got even MORE confused because I had never heard of some of the things THEY were talking about.

(What the heck is a 401k?! Don’t they have Pensions? I keep hearing the acronym TFSA but no one is mentioning it, is that not a thing anymore?!)

So, whether you live in the US, or Canada, by the end of this post you’ll have a MUCH clearer understanding of what the heck this jargon actually means!


The first term we’re going to talk about is interest. According to google, interest is:

money paid at a particular rate for the use of money lent, or for delaying the repayment of a debt.

So, you can EARN interest by giving money away (ie. when you ‘give’ the bank your money by keeping it in your account) OR you can PAY interest if you have a balance on any debts, like a credit card or student loan.

There are many different (and complicated) ways to calculate interest, but one of the most important that I want to talk about today is COMPOUND INTEREST.

Compound Interest:

Compound Interest is when interest is calculated from the initial balance, and then ADDED to that balance to collect MORE interest. For example, if you have $100 in the bank and the compound interest rate is 2% (per month in this example to make it simple) At the end of the month you’re going to have $105.

The NEXT month, even if the interest rate stays the same (and you don’t deposit anything else) you’ll have a balance of $110.25 (an extra 0.25 because now, it’s 2% of $105, not $100).

Make sense?

It may not seem like much at first, but think about an ENTIRE lifetime of compounding interest. The larger it grows, the more money you get! Especially if you start adding to that balance regularly, that balance could SKYROCKET by the time you actually need to use the money. (This is how people end up saving enough to actually retire, it’s not just ‘winning it big’ in the stock market! Although investing does help with this!)


Basically, this is a long fancy word for the repayment period of a loan or debt. (Usually, the number of years it’s going to take to pay it off)

Annual Percentage Rate (APR):

These letters stand for “Annual Percentage Rate”. Which is a calculation used by lenders (often banks) to show the yearly cost of a loan or credit card. (This is different than the interest rate. APR includes the interest you’ll pay, as well as any fees!) It allows borrowers (people like you and me!) to compare different companies and loan products.

Credit / Credit Score:

So what’s your credit like?

If you’ve ever been asked this question and got that ‘deer in headlights’ feeling, I get it. This is one of those ones people kind of assume you know and don’t explain at all! ‘Your credit’ usually refers to your credit score. I’m not going to spend too much time on this, because I’ve already made a few posts explaining all of the details. but basically your credit score is the way a lender (a bank or credit company) will judge how much risk they are going to take when giving you money.

ie. how much money they’re going to give you, how much interest they’re going to charge, etc.

You usually need these scores if you’re going to take out a large sum of money, like a student loan, or a car or home purchase. This is one of the reasons you should know what your score is, and should be tracking how it’s doing. You’ll want ‘good credit’ for when that borrowing time comes!

If you want to know what a ‘good’ credit score is, and how to improve yours if it’s not, take a look at my post: What is a Good Credit Score in Canada.

If you want more information on why you should be tracking your credit and how to do it, take a look at my post: How to Find Out Your Credit Score.

Net Worth:

Net Worth is basically how much money you have. That is, how many ‘Assets’ you have minus your ‘Liabilities’. Let me explain:


Assets are things you own. Like, your car, or your house. Even if you owe money against that item, you still own it and it counts as a positive! There’s also a fancy thing called ‘Liquid Assets’ which is anything that you could convert quickly into cash, without losing it’s market value. (ie. a savings account is a liquid asset, because it would take minutes to turn that into cash, but a car is not because it would take a long time to sell.


Liabilities are basically a fancy word for debt, or anything you still owe. If you add up the monetary values of everything you have, adding the assets and taking away the liabilities, you get your net worth!

Net Worth is kind of an overall representation of how rich or poor you are. But, I’d suggest not taking this number to heart that much, because I’d much rather be rich in life than rich in money! (Let’s be honest, we’ve all just been paying attention to getting out of the student loan hole anyway and none of us are really worth anything in this sense until much later in life!)

Gross vs. Net (Income):

Gross is total amount BEFORE anything is deducted. Net is the total AFTER deductions. This is often used when referring to income, ie. your GROSS income is that salary that’s on your contract, your NET income is what you actually get paid after taxes come off the cheque!


The TFSA is the Tax Free Savings Account. This account is magical. (Oh, and also it’s only Canadian. Sorry US!) Money in here is taxed with your income when you contribute but not taxed when it comes out.

Why is this important?

Because this includes anything you earn inside the account! You can contribute a little bit of money, let it grow, and take out the larger sum tax free! You can open as many of these accounts as you want, but you have a contribution limit for each year. (Previously, it was $5,500 except for once in 2012 when it was $5,000 but in 2019 they’ve upped the limit to $6,000!)

This contribution limit starts when you’re 18 and rolls over if you don’t contribute your full amount. For example, I turned 18 in 2009 - when they made this law, so I had a $41,000 contribution limit when I opened my first TFSA in 2015.

Roth IRA / Traditional IRA:

In the US, they have the ‘IRA’. This is a type of retirement savings account. It can be opened by individuals,(different from a 401K which can only be opened by your employer). There are different options of IRA’s:

Traditional IRA

This account is ‘Tax deferred’ which means you pay taxes on money when it’s withdrawn - when you retire. (sort of like the Canadian RRSP - more on that in a second)

Roth IRA

You’ll pay income tax on the money that goes in this account, but it can then grow tax free (sort of like our TFSA)

Fun fact: according to Investopedia, ‘Roth IRA’ is named for the US senator ‘William Roth’ who spearheaded the tax law governing Roth IRA’s! - Roth is a person!!

RRSP: Registered Retirement Savings Account

In Canada, we have the RRSP. This is most like the Traditional IRA, in that the money is tax deferred. As long as the money stays in that account, you will not be taxed!

There are advantages to this of course, you will probably be in a lower income bracket during your retirement than you were in your income-earning years, so you will potentially be taxed less than if you had counted them under your income earlier on. Contributing to this account also lowers your taxable income so you could be taxed at a lower bracket than you actually earned.

There are also special considerations for this account for example, you can withdraw up to $25,000 from your retirement account before you actually retire in order to help with a down payment for your first home.


This is basically a fancy word in the US for pension. It’s a retirement account opened by employer on behalf of individual. Colloquially it’s called a 401K because that’s the code # of the tax law that governs it.

In Canada, employers can also open retirement accounts for us, but they’re generally just called ‘pensions’. These type of accounts are super important, because usually if an employer is opening it, they might match a certain contribution amount!

So, if you put in $1,000 they also put in $1,000! (Ok, there are usually rules on this it doesn’t quite work that way, but it’s free money and you should totally check if your employer offers this and get contributing RIGHT away!)

Alright, a LOT of information in this one I know, hopefully you enjoyed it I know financial terms are not the most interesting!

If you want to know more about the differences between the US and Canada Finances, check out my post: Canada Vs. US Finances.