They Never Taught Us This: Money Terms Every Parent Should Know
Does it seem like everyone else got handed a secret financial playbook while you’re stuck trying to decode Wall Street lingo like it’s ancient Latin? They don’t teach the language of money in school—at least not in any way that prepares us for handling money in real life.
This glossary is your crash course, written in plain English. Whether you’re investing for your kid’s future or just trying to sound like you know what a yield is, I’ve got you.
In this article:
The Basics: What You’re Building and Why It Matters
Investment Terms for the Not-Rich-Yet
Business & Tax Talk (Because You’re the CEO of Your Household)
Time Is Money (Literally)
Smart Debt vs. Dumb Debt
The Basics: What You’re Building and Why It Matters
Before you dive into stocks or savings tips, it helps to know what you’re even trying to build. These are the core terms that show up in every money conversation. Understanding them gives you the language to start making confident moves.
Asset – Anything that puts money in your pocket or holds value. A stock, a rental property, a business.
Equity – The part of something you actually own. If your house is worth $300k and you owe $200k, your equity is $100k. Same goes for stocks or businesses.
Capital Gain – The profit you make when you sell something for more than you paid. Bought stock at $50, sold at $70? That $20 difference is your capital gain.
Cost Basis – The original price you paid for an investment, plus any fees. This number matters when you’re calculating your gains (and taxes).
Yield – How much income something produces. A savings account might yield 1%. A stock might yield 4% in dividends. It’s your money making money.
Dividend – A company shares its profits with you just for owning its stock. Not all companies do this, but the ones that do are basically saying, “Thanks for sticking with us.”
Investment Terms for the Not-Rich-Yet
You don’t need to be rich to invest. You just need to know which tools work for you. A Roth IRA is one of them (and yes, here’s a guide with actual numbers to prove it’s worth your time).
Index Fund – A collection of investments (usually stocks) designed to copy the performance of a specific market index, like the S&P 500. It’s built to match the market—not beat it. Low fees, solid returns over time, and zero drama
ETF (Exchange-Traded Fund) – An ETF is like an index fund but it trades on the stock market throughout the day like an individual stock. Same ingredients as an index fund, just more flexible with how you buy and sell it.
Portfolio – Your entire investment collection—stocks, bonds, crypto, whatever. It’s your money garden, and yes, some plants die. That’s normal.
Asset Allocation – How you divide your money between different types of investments. Think of it as a money pie. Stocks, bonds, cash, maybe real estate—slice it how you like.
Liquidity – How quickly you can turn something into cash. Savings account? Super liquid. A house? Not so much.
Rebalancing – Selling off the overachievers and topping up the underdogs to keep your money mix where you want it. Over time, some parts of your portfolio will grow faster than others, so you end up with more risk (or less balance) than you planned for.
Dollar-Cost Averaging – Investing the same amount on a regular schedule, no matter what the market’s doing. It takes the drama out of “should I buy now or wait?” You’re already buying.
Business & Tax Talk (Because You’re the CEO of Your Household)
Even if you’re not running a company, you are running a life. Here are some terms that come up in taxes, side hustles, and grown-up conversations about money.
EBITDA – Earnings Before Interest, Taxes, Depreciation, and Amortization. Fancy way to say: “This is what a business made before we counted all the messy stuff.” It helps compare profitability.
Tax-Deferred – You don’t pay taxes yet. Retirement accounts like a traditional IRA or 401(k) let your money grow now, and Uncle Sam collects later.
Leverage – Using other people’s money (usually the bank’s) to try to make more of your own. You borrow cash to invest and hope the returns outpace the interest. If it works, you look like a genius. If it doesn’t, you’re broke and stressed. It’s financial gasoline—great if you know what you’re doing, explosive if you don’t.
Risk Tolerance – Your personal threshold for watching your money dip without losing your mind. Some people can ride the rollercoaster and sleep fine. Others sell the minute things get shaky and lock in losses. Know this before investing, or you’ll end up bailing at the worst possible time.
Sweat Equity – The value of the hard work you put in. If you built your business from scratch or DIY’d your way to a profitable rental, that effort has financial value—even if it didn’t come with a paycheck.
And once you start getting more comfortable with these terms yourself, talk openly about money—yes, even taxes and business stuff—with your kids to build healthy financial habits way earlier than most of us did. If you’re not sure where to start, this guide to talking to your kids about money breaks it down by age.
Time Is Money (Literally)
You’ve probably heard that starting early is everything in personal finance. This section explains why and how time can quietly do a lot of the heavy lifting for your money if you give it the chance.
Compound Interest – Interest that earns interest. Check out this compound interest calculator to see how much your money can grow.
The Rule of 72 – A shortcut to figure out how long it takes your money to double. Divide 72 by the interest rate. Earning 6%? Your money doubles in 12 years. Do the math, and plan your escape from the rat race.
Inflation – When prices go up and your money buys less. If milk was $2 in 2000 and is $4 now, that’s inflation eating your savings like a raccoon in your garbage can.
Opportunity Cost – The invisible price tag of every decision you make. When you choose one thing, you’re automatically giving up something else. Spend $100 on takeout? That’s $100 that’s not earning compound interest or building your future.
Smart Debt vs. Dumb Debt
Not all debt is created equal. Here’s how to tell the difference and make choices that support your future, not sabotage it.
Good Debt – Helps you build something of value: student loans (in theory), a mortgage, business loans. Still debt, but potentially worth it.
Bad Debt – High-interest, no-return crap like credit cards or payday loans. This is the kind of debt that keeps you up at night and ruins your brunch plans.
