Table of Contents
Table of Contents

The ABCs of Money for Kids: P Through T

Key Terms To Help Your Child Stay on the Right Financial Path

pink tax, equity, risk, savings account, taxes

The Balance / Aeri Wittenbourgh

Financial literacy is an important concept to learn at any age. Teaching kids the basics early on can help them develop lifelong positive money management skills. Breaking down some of the key jargon into simpler terms can make teaching personal finance for kids easier.

Pink Tax

A “pink tax” isn't a tax. It's a price increase on products targeted at women. In other words, the pink tax is a form of price discrimination based on gender.

The more expensive products might be the same products men use, only marketed to women. In fact, according to a study from The Balance, everyday products targeted at women cost about 13% more than those targeting men.

Items that often carry a pink tax include:

  • Razors
  • Shaving cream
  • Soap
  • Skincare products
  • Hair care products

Items that are subject to the pink tax often have "feminine" packaging or branding that identifies them as being designed for women and girls, such as pink color schemes.

Why Is This Term Important?

Understanding pink tax is important because it can negatively affect women financially. For example, a box of razors cartridges targeting women might cost  $18.49 while a similar box from the same company designed for men might cost $14.99. Over a lifetime, such price differences can add up to a lot of money.

eQuity

Equity is essentially how much of something you own. That "something" could be a house, shares of stock in a company, or another asset.

For example, when you buy a house, you usually take out a loan called a mortgage. You have to repay that loan to the bank. As you make mortgage payments, the amount you owe the bank decreases. Meanwhile, the value of your house can increase.

Equity is the difference between what you owe on the house and what the house is worth. You can think of it as how much money you would have in your pocket after you sold the home.

For example, say you get a $300,000 loan to buy a house and the house is worth $300,000. Your equity would be zero. After 10 years, you may owe $200,000 on the loan, and the house may be worth $400,000. Then, your equity, or the amount you fully own, would be $200,000.

$400,000 - $200,000 = $200,000

Why Is This Term Important?

Understanding equity is important to creating a healthy financial plan. Equity will play a key role in the value of your assets, especially when you own a home. The more equity you have in something, whether it's a house or stocks, the more of it you own.

Risk

In general, risk means uncertainty. In finance, risk is the potential that you will lose money instead of make money.

Risk is important to consider when you're investing money. Every investment carries some degree of risk.

If you buy 100 shares in a company to earn a profit if the share price increases, you are also taking a risk that you will lose money if the share price declines. You can’t predict with 100% certainty how a stock’s price will change.

Some people are willing to take on more risk than others for the potential for higher returns. Those individuals would be considered to have a higher “risk tolerance.”

Why Is This Term Important?

How much risk you take can determine what happens with your money. If you take on more risk, you have the potential to earn more returns, but you could also lose more of your money. If you take on less risk, you can preserve your money, but you won’t have as much potential for high returns.

Savings Account

A savings account is an account with a bank that safely holds money you don't plan to spend right away.

Savings accounts can pay you interest. The interest can compound over time. This means you earn interest on your interest. Compounding interest can help your money grow faster.

A savings account usually doesn't come with a debit card like a checking account does. That's because these accounts aren't designed for daily spending. You might pay a fee to have a savings account, depending on where you open one.

Online banks often offer higher interest rates on savings accounts than traditional banks.

Why Is This Term Important?

Savings accounts can be good ways to protect money you’re saving for long-term goals or emergency savings. Banks and credit unions can offer savings accounts for kids and teens to help them get started with saving. Establishing a savings habit can help you achieve your savings goals.

Taxes

Taxes are government charges. They are a way for people to pay for the services their government provides. There are different types of taxes people pay, including:

  • Sales tax: A tax on things you buy
  • Property tax: A tax on things you own, such as a house or a car
  • Income tax: Tax on money you earn

In the U.S., the Internal Revenue Service (IRS) implements the federal tax code, which is written by Congress. State, county, and local governments have their own tax codes.

Money that's collected from taxes can be used to fund different services. For example, the federal government provides health programs, education programs, technology investments, and infrastructure, such as roads. State governments can use tax money in similar ways, while county or local governments can use tax money to pay for road improvements, school construction, and funding public safety.

Why Is This Term Important?

Everyone has to pay some kind of tax at some point. When you understand how taxes work, you can better manage your personal finances. For example, when you earn money, you’ll have to pay income taxes. Learning what affects your income taxes can help you save money.

Failing to pay taxes to the IRS or state government could lead to tax penalties.

Article Sources

  1. New York City Consumer Affairs. “From Cradle to Cane: The Cost of Being a Female Consumer.”

  2. Consumer Financial Protection Bureau. “What Is a Home Equity Loan?

  3. Tax Foundation. “The Three Basic Tax Types.”