Glossary of Terms

Term

Definition

Asset Class

Investing funds in a particular class in order to minimise risk through

diversification.

Bank

A financial institution which provides predominantly savings and

borrowing products.

Borrower

Individual receiving money from a lender.

Budget

A tool used to plan ones income and expenses.

Budgeting

Principal tool for gaining control over your money as it provides a

framework for planning cash flow.

Business Cycle

Depicts the changes and fluctuating levels in an economy over the long
term.

Capital Growth

The increase in value of an investment over time.

Competence

The skill and ability to undertake or complete a task.

Confidentiality

Keeping personal information to oneself and not revealing to others

without permission.

Consumer Credit

The term used to describe finance provided to individuals for private,

domestic, and household purposes.

CPI - Consumer Price

Index

Consumer Price Index measures inflation.

Credit Card

Facility enabling people to buy goods and services without having to

handle cash.

Diversification

How various investments can be mixed together to minimise risks.

Duty of Disclosure

Requirement to disclose any information which may be of interest to an

insurance company.

Economy

Consists of a countries output and activity.

Estate Planning

Arranging your affairs including assets and liabilities to provide for your
beneficiaries.

Ethics

Behaving with a set of morals and principles.

Financial Adviser

A professional who assists clients in meeting their financial goals.

Financial Life Cycle

The evolution of financial goals over a lifetime.

Financial Planning: Glossary of Terms

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Term

Definition

Financial Plan/
Statement of Advice

The plan or document that formally sets out advisers

recommendations for clients to achieve their goals.

Financial System

A system that facilitates the transfer of funds.

Fiscal Policy

A policy tool used by the government through spending and borrowing

funds to control the economy.

Fixed Interest Rates

When the interest rate is fixed and does not change for the term of the
loan.

Franked Dividends

Income forms a share where company tax has already been paid.

GDP - Gross
Domestic Product

Gross Domestic Product measures the output and size of an economy.

Inflation

A rise in the general price of goods and services over time.

Insurance

Transferring of risk to another in order to protect against a possible

hazard.

Integrity

Having a set of principles and values in regards to ones actions.

Interest Rate

The cost of money. That is, the rate that a borrower pays for using other
peoples money.

Investment

Putting aside money for the longer term, with the expectation of
receiving a gain either through income, capital growth or both.

Investor

An individual putting aside funds for the purposes of a return.

Liquidity

Describes how quickly a financial security can be converted into cash.

Liquidity Risk

Risk that a market will lack sufficient depth to facilitate efficient and
inexpensive entry into and exit from the market.

Managed Fund

Arrangements where individual investors pool their money so that it can

be managed by a professional fund manager, and providing for
diversification.

Maturity

The time frame of when a financial security/investment is due.

Monetary Policy

A policy tool used to control interest rates by the government.

Mortgage

A lenders requirement for large loans where the lender will ask for
security (property) to protect themselves in the case of default.

Objectivity

Keeping an open mind when making decisions or judgements.

Para Planner

Assists the financial planner by undertaking tasks such as research,

strategy and development.

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Term

Definition

Professionalism

Acting with care, diligence, displaying trust, ethics and acting in the best
interest of clients.

Property

An asset class that represents real estate.

Real Rate of Return

The return on an investment after adjusting for inflation.

Reserve Bank of
Australia

Central Bank of Australia.

Risk

The potential for suffering a loss.

Risk Return Trade-off

The relationship between the return received on an investment for a

given level of risk. The higher the return required, the higher the level of
risk to be accepted.

Saving

Putting aside small amounts of money regularly.

Security

Documentary evidence of ownership of a financial asset.

Shares / Equity

Represents ownership in a company, and therefore entitled to certain

rights (That is, income through dividends).

Superannuation

Government requirement that employers contribute to employees

superannuation to fund retirement.

Term Deposit

A short term investment where the principal earns a set interest rate for
the period.

Unemployment Rate

An economic statistic that measures unemployment in the economy.

Variable Interest
Rates

When interest rates change over the term of the loan and the
repayments can go up or down.

Volatility

Refers to the fluctuating returns on an investment.

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