Jargon buster
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You need to consider your credit score when you are over 18. Your credit score is a number that indicates how reliable you are at borrowing and repaying money. If you apply to borrow money, credit providers will look at your credit score before deciding whether to accept your application. It may also help them decide how much to offer you. Your credit history is used to create a credit score. Your credit file is a report that shows your financial history. It shows whether you pay your bills on time, how much you have borrowed and who from, how many times you've applied for credit, whether you've missed any payments, and if you've had any problems paying money back.
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A Direct Debit is an instruction from you to your bank or building society that authorises an organisation you need to pay to collect money from your account. A Direct Debit is an easy way for you to pay your regular bills and can help avoid missed payments which can have a negative effect on your credit score.
For example, you may choose to set up a Direct Debit to pay for your mobile phone bill. And when you are over 18 your credit card bill, Netflix subscription or TV licence. Some companies offer a discount or reward for paying bills using a Direct Debit for example NatWest has a scheme called MyRewards which is centred on this.
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If you are employed tax will be automatically deducted from your wages and paid to the Government by your employer. Everyone is allocated a tax free allowance, 2020/2021 tax year allows £12500 (subject to change on a yearly basis and will be based on your individual personal circumstance) which means you will only be taxed on anything you earn over this amount. Taxes are used to pay for people who work for the government, such as the military and police, provide services such as education and health care, and to maintain or build roads, bridges and sewers.
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Interest is applied in two different scenarios; when you borrow money and when you save money.
- When you borrow money you will have to pay interest back to the lender, ideally you want a low interest rate which will reduce the amount you have to pay back. This term is commonly used in relation to bank loans, credit cards and other types of borrowing.
- When you put your money in a savings account you may earn interest on your money. How much interest you earn depends on the account, ideally you should look for the highest rate as this will earn you the most money on your savings. However you do need to take care. Often high interest rates will mean you only have limited access to your money or you may need to pay a penalty to access it.
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The interest rate you pay when you borrow money will dictate how much you pay back. Interest rates are generally fixed or variable. As the name suggests a fixed rate will stay the same for a period of time whereas a variable rate can change.
Variable interest rates can change over time because they are based on a benchmark interest rate or index that changes, such as the Bank of England’s base rate. The Bank of England's base rate is the rate the Bank of England charges other banks and other lenders when they borrow money. Benchmark interest rates are regularly updated interest rates that are publicly accessible. They are a useful basis for all kinds of financial contracts such as bank overdrafts and Mortgages. When the variable rates goes up and down it affects how much interest you earn on your savings or pay back on money you have borrowed
Fixed interest rates on loans or savings accounts do not go up and down. A fixed-rate loan has an interest rate that stays the same for an agreed period of time so you pay back the same amount each month. A fixed rate of interest on your savings means that the same rate of interest will be applied to your savings over the agreed period.
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You may want to consider opening a Junior Individual Savings Account (a ‘JISA’). You will need to ask a parent or guardian to open it on your behalf. A Junior ISA is a tax free savings account which under 18s can save into by investing up to £9000 in this tax year (the tax allowance is subject to change on a yearly basis). You can chose between a cash or stocks and shares ISA, and any money invested into one will be locked away until you the account holder turns 18 years old.
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National Insurance is a tax on earnings and self-employed profits to help build your entitlement to certain state benefits. When you are employed and over 16 payments will be automatically deducted from your wages and paid to the government by your employer. You begin paying National Insurance once you earn more than £183 a week (2020-21). Your National Insurance contributions are paid into a fund, from which some state benefits are paid. This includes the state pension, statutory sick pay or maternity leave or unemployment benefits.
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You’ve probably heard people talking about having a nest egg, but what does it mean? A nest egg is an amount of money that has been saved or invested for a specific purpose. This could help fund your university education, buy a car or help you to buy your first home.
A nest egg can also refer to saving up for a more expensive one off purchase, such as a mobile phone or a laptop.
A rainy day fund is having money kept aside to deal with unexpected costs, such as a broken mobile phone or laptop.
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Buying a share of a company simply means you are buying a financial interest in the company. People who own shares in a company are called shareholders. When you buy a share in a company, you become a part-owner of that firm. You may also have rights to vote on decisions made by the company such as the election of the directors who will decide how the business is run.
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A standing order is an instruction given to your account provider to pay an agreed amount of money regularly to another person. For example you can set up a standing order from your current account to your savings account so you can save regularly.
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Value added tax (VAT) is a tax that is added to the cost of nearly everything you buy, although there are some goods or services that are exempt from VAT, including children’s clothing, books and magazines.
In the majority of cases prices quoted will include VAT so you automatically pay it when you make a purchase.
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