WTF does that mean?! Unscrambling money jargon

Taking the power back by learning what the heck all this money lingo actually means. No mansplaining. No shame. No stigma.

Our mission is to encourage more women to talk about money, but that’s a little hard to do if you don’t understand the lingo. To help you navigate the jargon-filled financial world, we’ve put together a glossary of money terms on everything from insurance to investing. Plus, we’ve broken down what all those confusing acronyms actually mean. 

On that note, we’ve done our best to make these terms more accessible, but we know it can still be a little overwhelming. If you’re still feeling confused about what this lingo actually means - let us know! We’d love to hear your feedback or add any words you come across that you want unscrambled to make sure we’re providing helpful resources on your way to financial literacy. We also want to acknowledge that all of us come to this community with different levels of financial literacy, so you might have heard of some or all or none of these terms before. It’s comprehensive, but there are also lots of other resources out there - they might just not have our signature Ladies Talk Money flair ;)  

Ready to expand your money vocabulary and *finally* learn what on earth all this financial lingo actually means? Ladies, let’s unscramble some money jargon.

Let’s Crack These Common Acronyms 

ASX: the Australian Securities Exchange. Not the ‘ASE’ because that would be too easy, instead it’s ASX where the ‘X’ is ‘exchange’. The ASX is the world’s eighth-largest share market and Australia’s leading place where stockbrokers and traders can buy and sell ‘securities’ (stocks and shares in publicly listed companies). 

ATO: Australian Tax Office, the key government organisation responsible for managing and shaping Australia’s tax and superannuation systems. You’ll probably be familiar with these guys as this is the place your tax dollars go.

GDP: Gross Domestic Product is essentially the total value of all the goods and services produced in Australia, and refers to the size of our economy. This dollar figure is commonly used as an indicator of the health of a nation’s economy, though it’s a rather capitalist and patriarchal one. 

RBA: is the Reserve Bank of Australia, Australia’s central bank - kind of like the bank in charge. The RBA does official things like setting the cash rate (see below), issuing and managing the Aussie dollar, and being in charge of the country’s monetary policy.

Cash Rate: Ok so technically not an acronym but still, JARGON! Effectively, the cash rate dictates how much it costs to borrow money at any given time, and is set and monitored by the RBA (but you already knew that ;) Generally speaking, the cash rate is often ‘cut’ or lowered by the RBA to help stimulate a troubled economy and conversely, it can be raised to help stabilise a booming one (if it’s booming too much). For a little more on the cash rate, check out this article by one of our leading ladies, Carmen, for Verve.

CPI: the Consumer Price Index is published by the Australian Bureau of Statistics (ABS) and is the RBA’s (remember, Reserve Bank) main way of measuring inflation. Phew, that was a lotta acronyms (sorry ladies, we’re testing you already!). Essentially, CPI is all about measuring household spending and the price of goods and services. It is a way of checking whether the cost of living is in-line with wages, salaries and pensions, or not. Want to nerd out on all things CPI or understand more about inflation? Check out the RBA’s explainer guide to inflation here.

SOA: if you’ve ever worked with a financial adviser you’ll be familiar with this term. A Statement of Advice (SOA) is a document that explains the recommendations made to you by a financial adviser. This document explains everything your adviser will be helping you with to get your financial world sorted, and it needs to be signed before a financial adviser can action any of their recommendations. (Our Co-Creator Jess is plenty familiar with the SOA in her day job as a financial adviser at Fox & Hare!)

ASIC: this stands for the Australian Securities and Investments Commission, which is the Australian Federal Government agency that is tasked with protecting us as consumers and investors, and enforces laws relating to companies, securities, financial services and credit.

Mortgage-Related Terms

Lender: So, the word ‘lender’ is a term used to describe an entity or institution that will lend you money, like, a bank. Sometimes, you might also come across the term ‘Non-bank lender’ and really, it’s the same thing. The reason the term exists is because not all of these institutions have a banking license (the thing that allows them to take money deposits from the public and hold them in bank accounts), and so they can’t technically be called a ‘bank’. Using the word lender is just a handy way of grouping them all together, making things easier for the industry, but confusing for everyone else. Go figure...

LVR: stands for ‘Loan to Value Ratio’ and it refers to the loan against a property as a percentage of that property’s value, which is a bit confusing, so, let’s break it down. For example: let’s say you want to buy a property worth $600,000, and you’ve saved up a deposit of $60,000, so 10%. You’d then be looking for a loan of $540,000 to make up the rest, which would equate to the remaining 90% of the property's value. So, in this case, that’s a Loan to Value Ratio (or LVR) of 90% for that property purchase.

LMI: stands for ‘Lender’s Mortgage Insurance’ and is actually a fee charged by the bank (or lender, as you’ve now learned) whenever a property purchase has an LVR (or Loan to Value Ratio, which you’ve also already learned!) of 80% or higher. Note: this is insurance for the lender, not for the purchaser, and it’s actually designed as a bit of an extra safeguard for them, should things go pear shaped. 

Equity: how much an asset (such as your home) is worth minus how much you owe the bank (debt). So, if you own a property worth $600,000 and your loan for that property is sitting at $450,000, that means you hold $150,000 of equity in that property. 

Interest + interest rates: Unfortunately, borrowing money isn't free. So when we take out a loan there is an extra fee we have to pay on top of the amount we borrow, which is known as interest. The interest rate is what determines the amount we will pay, and is expressed as a percentage of the total loan amount. Now technically, each bank sets their own interest rates (which is why there can be big differences between them all) but they are also influenced by the RBA’s (remember: Reserve Bank, the bank in charge) official cash rate. However, banks have the final say on whether or not they will ‘pass on’ the RBA’s interest rate changes to their customers so it's important to do your research and compare rates from different providers before making a final decision. Fortunately, this is the kind of stuff Chandel does every day at Pure Finance, so, it can often be a lot easier to enlist the services of a mortgage broker you feel comfortable with, and they can do all the hard work for you...for free!

Fixed vs variable interest rates: we don’t need to remind you that a home loan is a big, long-term debt. But, it’s important to understand the role that interest plays in changing the cost you’ll need to pay over time. So, what’s the difference between a fixed and variable interest rate?

• A fixed interest rate (as the name suggests) stays the same for a set period of time. This can make it easier to budget for your repayments, however, you won’t receive the benefits if there is a drop in interest rates. 

• A variable interest rate offers greater flexibility as it changes in line with lending market changes which is great if rates go down. However, if rates increase, then so will yours

To dive deeper into the pros and cons of fixed vs variable interest rates, check out Pure Finance’s guide to Fixed Rates 101 here. 

Offset account: When used effectively, an offset account is a great tool you can use to reduce the amount of interest you’ll pay over the life of your home loan. For all intents and purposes, an offset account isn't really any different to a regular, transactional bank account except that it sits alongside your home loan and whatever money you have in it is used to ‘offset’ the amount you owe, reducing the amount of interest you’ll pay. For example:

Let’s say you take out a home loan of $400,000. You deposit $10,000 into an offset account and link this to your home loan. Now, you’ll only be charged interest on $390,000 (instead of the original $400,000 loan). Have $30K in your offset account, pay interest on $370K, etc etc. 

The best bit? You’ll still be able to use all the normal functions of your offset account (such as withdrawing, depositing and making EFTPOS payments) and you can also get your pay checks deposited straight into this account, too.

*TIP: ladies, if you have a loan with an offset account, then chuck as much of your cash in there as you can! Remember, you can easily get it back out again if you need it and you’ll enjoy the interest savings in the meantime.

Negative gearing: is where the amount of money you borrow for an investment is higher than the amount of money you receive in interest or rent payments. Still confused? Let’s take a look at an example.

Let’s say you’ve purchased a property. You might borrow $650,000 from the bank at an interest rate of 2.5%. You decide to lease out the property and use rental payments from your tenants to pay back this original loan. However, if the rent you receive is less than your loan repayments, you can ‘deduct’ or take away this difference from your taxable income and record it as a ‘loss’. That’s called negative gearing.

The goal for investors who follow a negative gearing strategy is for the property to increase in value over time and to make a profit when they eventually sell it rather than on the rent money they collect in the meantime. If you’re interested in learning more about negative gearing, check out Canstar’s explainer guide here. You can also check out Finder’s comprehensive guide to negative gearing complete with examples and commonly asked questions.

*A word on negative gearing* - Negative gearing gets put in the spotlight for its tax benefits (all interest that you pay on your loan is deductible) and whilst this is true it isn’t the only consideration to think through. Ultimately, if you want a property to generate you an income, the debt needs to be repaid (which means a trade off on tax deductibility benefits). You also need to consider the impact of your cash flow if you need to add extra cash to fund the mortgage. 

Cross collateralisation: or ‘cross securitisation’ as it can also be called is effectively a fancy finance pants way of saying you use a property you already own to help you buy another one, by tapping into its equity. So you end up with your loan/s secured by the two properties. Why do this? It means you’re able buy the new property without having to save up for the deposit and stamp duty costs.

Reverse mortgage: although we wish the definition for this was “the bank pays your mortgage for you”, a reverse mortgage isn’t quite that generous. It’s actually a loan designed for older Australians in retirement who want to convert the equity (remember me?) in their home into cash. Want to learn more about how a reverse mortgage works? Check out Money Smart’s guide here.

Stamp duty: a state tax imposed on certain transactions, such as car registrations, mortgages and property transfers. Lame!

Liability: Basically, another finance-y word for a debt or financial obligation. Liabilities can be any debt that requires an ongoing payment, i.e. a mortgage, a car loan, a credit card, or even a HECS debt.

Girl, look at you go! You totally got this jargon thing in the bag. Here’s a few more…

Investing Terms

Diversification: is a strategy for reducing risk when investing. It involves investing in a portfolio of ‘diverse’ or different ‘asset types’ (such as shares, bonds, cash and property), geographical areas and or industries. Diversification can give investors peace of mind knowing they are invested in a broad range of assets (things you own that have a tangible value that increases over time.), spreading their exposure to risk, should the market experience volatility. It also lessens the impact of the ups and downs of the stock market. 

Asset allocation: describes the process of deciding which investments to buy, or the money you ‘allocate’ to each ‘asset’. This involves splitting up your investment portfolio among different ‘asset classes’ (these are different categories of investments, including things like stocks, property, bonds and cash). The thing to remember is that each asset has its own level of risk and return. While some assets might rapidly grow in value, they often hold a higher level of risk and volatility. By carefully deciding the right mix of assets for your situation, you’ll be more able to find the right balance of risk vs return for your specific goal. Or, if it's all a bit overwhelming, you can get a financial adviser like Jess to help get the right mix for you!  

Compound interest: this is one of our favourite ways to grow your money! It involves investing a sum of money, earning interest on it and then reinvesting this interest to earn more interest. Essentially, it’s earning interest on interest. This is a powerful way to grow your savings faster. Plus, the sooner you start investing, the more interest you’ll earn over the long term. Genius. Here’s a wee example:

If I invest $1000 and get 10% interest (#dreamy, but it makes the maths easier), then I have $1100. The next time I earn that 10% interest, it’s now on $1100. So, now I have $1210, and so on and so forth.

Net return: when we invest, there are fees and expenses (such as broker fees for purchasing shares on the stock market). Your net return is what you’re left with after fees/commissions are deducted, and after the effects of taxes and/or inflation. The net return is often shown as a percentage of what you initially paid. It’s important to look at the net return, not just the headline performance figure!

Index fund: a method of investing that enables you to invest in multiple companies at the same time (rather than buying shares in just one company). The portfolio (which is a fancy name for your range of investments) is created to match or replicate the components of a financial market place, (like the ASX200 - top 200 companies on the Australian Securities Exchange). 

The benefit of index funds is that they include a widely diversified portfolio of stocks (oh hello diversification, our old friend!) and are managed by a professional fund manager. They are also relatively low-cost and lower risk than traditional stock investments and are usually accessed via online share trading platforms or directly through a financial adviser/broker. Curious to understand the difference between managed funds and index funds? Check out Canstar’s investor guide here. 

ETFS: An exchange-traded fund, is a fund that can be traded on an exchange like shares. ETFs allow investors to buy and sell a basket of assets (like a Aussie ETF, or an International ETF - or you can even buy ones that are a mix of many different funds) without having to buy all the components individually. BetaShares have a useful guide to understanding ETFs here.

Actively managed funds: This is a type of investment portfolio where a team of investment people actually picks each of the companies that a fund invests in, as opposed to an index fund, which invests in an entire market (like the ASX200 - top 200 companies on the Australian Securities Exchange). Fees for actively managed funds tend to be higher than index funds, as they need a team to hand-select each investment. Plus there is normally more active trading happening too. A financial adviser is the one to ask for if an actively managed fund might be right for you.

MER: a Management Expense Ratio is an estimate of how much it will cost to invest in a managed fund, ETF or index fund. This cost (shown as a percentage of the fund’s average net assets for that year) covers ongoing management fees and operating expenses,

Superannuation Terms

Superannuation: a system of forced retirement savings that came into effect in Australia in 1992. Superannuation works to take the pressure off the old-age pension while also helping to support Australians to live ‘comfortably’ in retirement (meaning we can still afford things like new household goods, private health insurance and even the occasional holiday, which helps us maintain a good standard of living). 

Industry vs ‘self-managed’ vs retail super funds:

Ladies, not all super funds are created equal. When saving for your retirement, you have a bunch of different types of super funds to choose between. So, what is the difference? Let’s find out...

• Industry super funds: are those created by trade unions or industry-specific funds (like HostPlus for hospo or Cbus for the construction industry...etc) and historically their members were in a particular industry exclusively. But today, industry super funds are open to the public and are not-for-profit funds that (generally) charge lower fees than retail super funds (more on that below). Some examples of Australia’s industry super funds include AustralianSuper, REST Industry Super, Sunsuper and Hostplus.

• Self-managed super fund or SMSF: is another way of saving for your retirement where members are also trustees, meaning they are actively involved in managing their own super fund. To find out more about the risks and responsibilities of this type of super fund, check out Money Smart’s guide to SMSFs here. 

• Retail super funds: are created by banks and insurance companies and offer members a broad range of investment options. Typically, retail super funds charge higher fees but they offer investment expertise and personal service to their clients for those fees.. You might be familiar with some of Australia’s big retail super funds, including AMP Flexible Super, Bendigo Smart Start Super, ING DIRECT Living Super and Colonial First State.

Voluntary contributions: for those who want to increase their superannuation, you can add additional money to your super from either your pre-tax salary (known as “concessional contributions”) or your post-tax earnings (known as “non-concessional contributions”). For more on what these types of voluntary contributions actually mean visit Canstar’s website here.

Co-contributions: to support low income earners, the government has developed a co-contribution scheme to help boost your retirement savings. For those with a total income of $33,516 or less, you can receive a tax-free contribution when you also make a contribution using your after-tax dollars. So, the government will pay 50 cents for every dollar you contribute (capped at a maximum of $500 per year). You don’t need to apply for this, the ATO will work out if you’re eligible when you lodge your tax return (and automatically pay these extra funds into your super account). 

Salary sacrificing: is when you decide to ‘sacrifice’ an additional portion of your pre-tax salary into your super fund, through your employer. Along with tax benefits, contributing that little bit extra into your super over time can really add up when it comes time to retirement. Hello compound interest!

Beneficiary: did you know that your superannuation can’t be included in your will? However, you can leave specific instructions to your super fund to nominate how your super will be distributed in the event of your death. A ‘beneficiary’ is the person you nominate to receive the funds in your super account when you pass away. This could be your partner, children, anyone who is financially dependent on you when you die or even a legal representative. For more information, this boring but useful Government website on beneficiaries has all the info you need.

Trustee: super funds are run by trustees, who are people or corporate bodies that have a legal duty to manage the super fund in the best interests of its members. They are governed by the Australian Securities and Investments Commission (ASIC) as well as the Australian Prudential Regulation Authority (APRA).

Insurance Terms 

TPD insurance: Total and permanent disability (TPD) insurance is a way of safeguarding your financial position if you were to suffer a permanent injury or illness that would prevent you from returning to work. Think of it as a financial safety net that can help support you and your loved ones and cover the costs of medical and rehabilitation costs. Although we hope you never need to use it, TPD insurance is delivered as a lump sum payment. There are two definitions of cover you can receive (so make sure to check which definition your insurer is using before taking out TPD insurance). You can access this cover via your super fund, directly from an insurer or through a financial adviser. 

Income protection insurance (IP): what is the most valuable asset you have? You. Income protection enables you to receive 75% of your income if you need to step away from work due to illness or injury. Plus, income protection is tax deductible and affords you the space to focus on recovery without the financial stress of mounting debt and unpaid bills.  

*A word on insurance* - it's all in the fine print! Insurance is as ‘good’ or as ‘bad’ as the actual, specific definitions in your cover, which sadly most people don’t learn until they go to claim. Deep digging is required! Also, this is not an exhaustive list of all the different types of personal insurance. Just the ones we get the most questions about. Our resident insurance expert, Jess, loves deep diving on insurance (she’s weird, we know) so if you do have extra questions please make sure you reach out to us. You are an asset worth protecting properly lady! 

Tax Terms

Tax brackets: the amount of tax you pay depends on the amount of income you earn. Although we all hate watching our hard-earned cash go straight to the tax office, tax is essential to keeping public services like roads, hospitals and schools working. Tax brackets (or marginal tax rates) are based on the idea that low-income earners should pay lower levels of tax, while high-income earners should pay higher levels of tax.

For anyone over 18 and earning more than $18,200 per annum, the ATO will charge income tax (along with an additional Medicare levy of 2%, for most taxpayers). Curious to see how much tax you might be paying this year? Check out Canstar’s income tax calculator here. 

Tax free threshold: this refers to the annual income amount set out by the ATO on which you don’t have to pay income tax. You can view individual income tax rates via the ATO website here.

Reducing taxable income: the amount that we have to pay tax on varies depending on how much we earn plus any deductions or ‘offsets’ that you claim when it comes around to tax time.  So, by ‘reducing your  taxable income’ in these ways, you end up paying less tax.

Did we miss any money lingo you’re struggling to get your head around? Check out Money Smart’s oh-so-comprehensive glossary, with explainers for hundreds of complicated money terms.

P.S. Do you have a money question or concept you want to learn more about? We’d love to hear from you and perhaps include it in a future Ladies Talk Money conversation! Let us know in the comments or reach out to us at hello@ladiestalkmoney.com.au and be part of creating much-needed change in the finance industry.

The finance info discussed in this seriously fab article is general advice only. You should consider your personal circumstances or reach out if you’d like to discuss your individual needs