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Financial explanations for dummies

November 22, 2015

finance

Image of frustrated guy

Image by: music2work2

It’s happened to all of us at some stage or another. There is a sudden change in topic to: financial crisis or world debt, bonds perhaps? The pros and cons to recent impacts to the stock market or even recent developments with one of your friend’s companies…

You don’t know how to contribute because you’re not quite sure what a bond is, and if you do, you cant explain it or can’t discuss how you would use stocks to your advantage…

Don’t fear, money for dummies is here with mini lessons on what the most commonly unknown financial lingo means, so get ready to digest a crash lesson in what 3 of them mean. This is financial explanations for dummies…

artist interpretation of recession

Image by: MyEyeSees

Recession

Definition: a decline in a country’s gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year.

How it’s resolved: This can be resolved in one of two ways.

Firstly a Monetary Policy that involves the Government lowering strategically rates of interest and loan costs,  which encourages the general buying public to spend more after which means an injection of buying capital into the struggling economy.

The second option is for the Government to make change to how the Fiscal Policy is set up. This usually means that the government will be lenient with taxes and lower them so that the general buying public has more to spend to contribute directly to a struggling economy.

Discussion point: Can we keep safe from the impending double dip recession?

Watch the video below to see how to escape being trapped by the ‘double dip’ recession by possibly investing in supposedly secure commodities like agriculture and gold. Beware, extremely enthusiastic TV presenter included…

Image of a bond

Image by: Maconmoney

Bonds

Definition: when a person with money can lend said money as a ‘bond’ to an investment project either run by the Government or a company who will hopefully earn more than they borrow for the project and the money lender gets full amount back after a certain amount of time with interest.

Features: A bond can be lent for a short term such a 30 days or a long term such as 30 years. This is normally an attractive investment as not only is money saved away from being spent for a set amount of time serving as a back up source of long term savings, it also grows while it is away from your pocket.

Discussion point: Find out how bonds work with a case example of UK typical bonds.

Stocks and the stock market

Definition: stocks are the pieces of a companies equity that can be sold through the stock market, the equity trading platform, which is used to buy, trade and sell stocks from.

Value: Stocks are valuable because they represent “a claim on its proportional share in the corporation’s assets and profits. Ownership in the company is determined by the number of shares a person owns divided by the total number of shares outstanding.” Investor Words

Discussion point: by buying stocks of a company, the aim is to see it as an investment that will grow in value when a company does well and before it does badly, selling the stocks for more than you bought them for. Find out more about what the stock market is and how it works in this video.

Now that you know three main financial terms, why not pick an area of interest and look into the various other sub aspects of it and various terms used to name these aspects.

Whether it is financial crisis or investment opportunities, knowing a little about anything will make you more cash savvy which could be helpful not only in money based discussions but also open up your insights into how you could make more.

Did you find these explanations useful? If you did tell us what more you would like an explanation to!

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