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Sunday, June 23, 2024

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Basic Financial Terms Everyone Should Know

SPONSORED CONTENT FROM JP MORGAN CHASE

By Edward Gay, Vice President of Commercial Banking, Chase Middle Market

One hard truth we as a society face is that it’s expensive to be poor.  Low-income families often have to pay a larger percentage of their income on basic necessities like food and housing.  What’s more, many end up paying a significant portion of income on basic financial services that people with a bank account get for free, like cashing a check or getting small amounts of credit.  Learn more about the ways to avoid the pitfalls of being “unbanked or underbanked” and the terminology you need to be more fluent in the language of finance.

A secure bank account is more important now than ever to get your stimulus, unemployment and other emergency benefits faster, and more safely. Yet, about 7.1 million American households don’t have a bank account, including about 14% of Black households and 12% of Hispanic ones (the figure for white households is less than 3%), according to 2019 FDIC numbers.

“As a society more needs to be done to create more financial inclusion, and provide the millions of consumers access the basics of banking to do things like cashing paychecks without enormous fees,” said Edward Gay, Vice President of Commercial Banking in Chase’s Middle Market Banking team.

JPMorgan Chase is focused on strengthening financial health of low-income households by offering products that include low-fee checkless accounts that offer access to its mobile app, branches and ATMS.  The accounts come with debit cards, digital payments and free check cashing, but do not allow overdrafts.  It’s part of a nationwide goal the bank has announced to help one million people open low-cost checking or savings accounts with BankOn.

As part of this need to address the underbanked, Chase is also investing in more community branches in underserved communities, and modeling new ways of approaching community banks.  “We’re working to make our branches community destinations,” said Gay. 

Learn more about terms you might fight useful as you navigate the financial world, from the underbanked to those who have been banking for years and are ready to move from merely banking to saving and investing.

Unbanked & Underbanked

Individuals who rely on alternative financial services such as money orders, check cashing services or payday loans rather than traditional banks to manage finances and conduct personal business.

Checking Account vs. Savings Account

A checking account is a bank account you can write checks from, or access several other ways, which tends to make it your go-to, daily transaction bank account. A savings account is where you stash funds that you aren’t ready to use yet, often with the goal of accumulating more. 

Transaction Fees

Transaction fees are the charges incurred to access banking services.  These fees can be very low, as is the case on some of the Chase Secure Banking programs.  Alternative financial services typically have far higher transaction fees for basic banking services. 

Compound Interest

Another term we’ve all heard but probably don’t fully understand is compound interest. The simplest way to view this is interest stacked on top of interest. When saving or investing, compound interest will help your money pile up faster. For example, you may receive interest for any deposits into an account that’s already accruing interest on the balance. Compound interest should also be looked at closely when dealing with debt. You may be paying interest at the outset of a loan, plus any added to the balance through the course of your loan. It truly is a double-edged sword.

Net Worth

We’ve all heard this phrase referring to athletes or celebrities, but few know how it’s calculated and how to use it for their own financial benefit. Net worth is calculated by subtracting your liabilities from your assets. Include all bank accounts, investments, home values, and even vehicle values when calculating assets. All debt, including remaining mortgage balances, credit cards, or student loans, factor into your liabilities. By figuring out your net worth, you’ll get an overall picture of your financial health and can make changes to your goals accordingly.

Bonds

We’ve all heard the word, and have probably been gifted one at some point, but few know the details behind the transaction that takes place when purchasing a bond. When you buy a bond, you essentially become a lender, typically to the government, and there are corporate bonds, as well. You’ll receive periodic interest payments, and the full amount of the bond will be returned to you at maturity. Bonds continue to be viewed as one of the safest ways to invest, although the returns are typically smaller than other investment options.

By increasing your understanding of the language of finance, you’ll be better equipped to put your money to work and start reaching your financial goals. Whether you’re trying to maximize your gains using compound interest or looking to lower your tax liability by holding onto an asset long term, expanding your knowledge will only help you make sound financial decisions. The further you dig, the more resources you’ll discover to enable your money to grow.

Finances FYI is presented by JPMorgan Chase.