Learn-The-Terms for Financial Literacy Month: Interest

April is observed as Financial Literacy Month. And fittingly so. Financial literacy is an area that many people are not very knowledgeable about. The term itself might not be one that people are even familiar with. But look at the two words in the term:

  1. FINANCIAL: Having to do with money or general finances
  2. LITERACY: Competence or knowledge in an area

So financial literacy is a person’s ability to use their knowledge and skills to manage money and general finances well. In recognition of this month, we are explaining the meanings of some key terms that you should know for your own personal financial literacy.


BusinessDictionary defines interest as “the fee you pay to use another person’s money. To the borrower it is the cost of renting money, to the lender the income from lending it.”  So, for example, when you take a loan from the bank, for you, interest is the extra money you pay to the bank, different from the loan that you must repay. For the bank, interest is the money they get from you different from the sum of the loan that you repay. To you, this money represents an expense. To the bank, it represents income.

Why should you pay attention to interest?

Interest is an important term to know in your quest for financial literacy. Here are two key reasons:

1. What you can make

Interest is something you should give special consideration to because, when exercised in your favour, it can help you to profit. Look at your savings and investment accounts. What is the interest rate that financial institutions are paying you on these savings and investments? Is it possible for you to get a better interest rate elsewhere? Interest represents the potential to earn money on your money if you are smart about where you put your money, and for how long.

2. What you can lose

Also pay attention to the interest attached to loans and other borrowing instruments from your financial institutions. Go for the lowest rate possible. Credit unions usually offer better interest rates on borrowing than banks, but be sure to do your research before committing to a loan or credit card, to ensure that you do not end up paying way more than you had bargained for. This is also  important for when purchasing items on layaway or higher purchase plans. Watch that interest. IN some cases, you could end up paying two or three times more than the cash price. So watch out.


Sources: EconomicsDiscussion.net