For each, you’ll find a child-friendly definition and some additional information to help your child better understand the term.
Unicorn
Did you know that unicorns are real? At least they are real in the world of personal finance. Except “unicorns” in the financial sense aren’t horse-like creatures sporting a beautiful horn. But like the mythical creatures they’re named for, companies that reach “unicorn” status are rare. A financial unicorn is a private company that reaches a supposed valuation of $1 billion. That’s $1 with nine zeros after it. That’s a high valuation, especially for a company that isn’t publicly traded on the stock market.
Why Is This Term Important?
Since unicorns are so rare, they attract interest. If you hear a company referred to as a “unicorn” in the news, take time to talk to your child about it. Discuss how companies have different valuations, and what that means. Research the value of the business together and discuss why it may be successful. Investors aim to make money by investing in unicorns. You can help your child understand the potential rewards as well as risks involved with these companies. For example, as private companies, these businesses aren’t required to file information with the U.S. Securities and Exchange Commission (SEC). This means you may not have all the information you need to make an investment decision.
Volatility
Volatility is a word you’re likely to hear referring to stocks. It’s a description of changes in stock price, or how often and how significantly the price of a stock moves up and down.
Why Is This Term Important?
The stock market is unpredictable, so it’s important to help your child understand what volatility is and how it can impact investments. Financial news will often address overall market volatility or the volatility of specific companies. Take that opportunity to help your child determine what may be causing a stock’s price to jump around. Stock swings can be caused by the broader economic situation, pending legislative changes, or company-specific news such as financial reports, among other factors.
Wall Street
Wall Street is technically a street in New York City where the New York Stock Exchange and many of the biggest banks are located. But many people use that term to refer to a broader financial area of Manhattan. When people talk about Wall Street, they may also be referring to U.S. financial markets in general. The stock market, bond market, and commodities market are all part of “Wall Street” in that sense.
Why Is This Term Important?
Wall Street plays an important role in the U.S. and global economy, so your child will likely hear this term frequently throughout their life. Help your child understand that Wall Street is more than a physical street and how it represents the U.S. markets and financial industry.
Expensive
When it comes to personal finance, identifying “expensive” items can help with keeping a budget in check. The term essentially means something costs a lot of money, but just what is considered expensive is subjective. It can depend on how much money you have or it can depend on what you are comparing the item to. If you have an average income, a mansion house, a luxury car, or a trip to Europe can all be considered expensive. If you have a large income, a mansion may not be expensive to you. Or a mansion may not be expensive compared to another mansion that costs more. If you want to buy something that is expensive for you, you may need to save money to afford it.
Why Is This Term Important?
It’s important to understand how the cost of what you buy impacts your personal financial situation. If your child does not understand what’s expensive, they may develop an unhealthy attitude about money or they may believe they can buy what they want without consequences.
Yield
When you plant a garden, you get to harvest crops. The more seeds you put in the ground, the more food you can grow. Your garden’s yield is the amount of produce you should expect to harvest from your garden based on the number of seeds you planted, how long your rows are, and what your soil is like. In the world of personal finance, yield is used to describe the amount of money you expect to make from an investment. For example, if you buy a bond for $1,000 that gives you $50 in interest each year, your yield is 5%.
Why Is This Term Important?
Your child should understand that not all investments are created equal. Some generate a higher yield than others. It’s essential to compare the terms of any investment before it’s made, including the yield.
Zombie Debt
You may think of a zombie as a walking corpse with deadly intentions. But the term “zombie” has a different meaning in the world of personal finance. Zombie debt is old debt that has been defaulted on or forgotten. These debts are often sold to collection agencies, or organizations that specializes in debt collection, for a low rate. Then the collection agencies try to revive your debt and make you pay it. They might keep calling you and writing to you about this debt, even if you’re no longer legally obligated to pay it.
Why Is This Term Important?
Help your child understand the negative impacts of carrying debt and how to use debt responsibly. Explain to them that their debt can come back to haunt them even if they believe they have settled it. Take the opportunity to teach your child how to avoid the pitfalls of debt by keeping their payments up-to-date and keeping records of all of their payments.
