50 Finance Concepts Explained to Kids (Part 2)
26. Insurance
This is something you buy to protect against losing money or things.
Example: If you have insurance and someone breaks your lemon stand, insurance can help pay for a new one.
This is something you buy to protect against losing money or things.
Example: If you have insurance and someone breaks your lemon stand, insurance can help pay for a new one.
27. Exchange Rate
This is the value of one country’s money compared to another’s.
Example: If you need 1 dollar to buy 3 lemons in another country, that’s an exchange rate.
This is the value of one country’s money compared to another’s.
Example: If you need 1 dollar to buy 3 lemons in another country, that’s an exchange rate.
28. Credit Score
This is a number that shows how well someone pays back borrowed money.
Example: If you always pay back the money you borrow for lemons, you have a good credit score.
This is a number that shows how well someone pays back borrowed money.
Example: If you always pay back the money you borrow for lemons, you have a good credit score.
29. Bear Market
This is when prices of things are falling, and people are selling.
Example: If fewer people are buying lemonades and prices are going down, it’s like a bear market.
This is when prices of things are falling, and people are selling.
Example: If fewer people are buying lemonades and prices are going down, it’s like a bear market.
30. Bull Market
This is when prices of things are rising, & people are buying.
Example: If more people are buying lemonades & you’re selling them for higher prices.
This is when prices of things are rising, & people are buying.
Example: If more people are buying lemonades & you’re selling them for higher prices.
31. Fixed Cost
This is a cost that does not change, no matter how much lemonade you sell.
Example: If you pay $5 every day to rent a spot for your lemon stand, that’s a fixed cost.
This is a cost that does not change, no matter how much lemonade you sell.
Example: If you pay $5 every day to rent a spot for your lemon stand, that’s a fixed cost.
32. Variable Cost
This is a cost that changes depending on how much lemonade you make.
Example: The more lemonade you make, the more you spend on lemons, these are variable costs.
This is a cost that changes depending on how much lemonade you make.
Example: The more lemonade you make, the more you spend on lemons, these are variable costs.
33. Gross Profit Margin
This is the profit you make on selling lemonade before subtracting fixed costs.
Example: If you sell lemonade for $2 a cup and it costs $1 to make, your gross profit margin is $1 per cup.
This is the profit you make on selling lemonade before subtracting fixed costs.
Example: If you sell lemonade for $2 a cup and it costs $1 to make, your gross profit margin is $1 per cup.
34. Net Profit Margin
This is what’s left of your profit after you subtract all your costs.
Example: If you earn $10 from selling lemonade and spend $7 on costs, your net profit margin is $3.
This is what’s left of your profit after you subtract all your costs.
Example: If you earn $10 from selling lemonade and spend $7 on costs, your net profit margin is $3.
35. Return on Investment (ROI)
This measures how much profit you make compared to what you spent.
Example: If you spent $10 to make your lemon stand and earned $20, your ROI is 100%.
This measures how much profit you make compared to what you spent.
Example: If you spent $10 to make your lemon stand and earned $20, your ROI is 100%.
36. Cash Flow
This is the money coming in and going out of your lemon stand.
Example: If customers pay you $10 and you spend $5 on lemons, your cash flow is $5.
This is the money coming in and going out of your lemon stand.
Example: If customers pay you $10 and you spend $5 on lemons, your cash flow is $5.
37. Liquidity
This is how easily something can be turned into cash.
Example: your drinks.
This is how easily something can be turned into cash.
Example: your drinks.
38. Capital
This is money used to start or grow a business.
Example: The money you use to buy lemons, sugar, and a stand.
This is money used to start or grow a business.
Example: The money you use to buy lemons, sugar, and a stand.
39. Inventory
This is the amount of goods available for sale.
Example: The lemonades you have ready to sell are your inventory.
This is the amount of goods available for sale.
Example: The lemonades you have ready to sell are your inventory.
40. Economy of Scale
This means the more lemonade you make, the cheaper it becomes to make each one.
Example: If you buy lemons in bulk, it might be cheaper per lemon, giving you an economy of scale.
This means the more lemonade you make, the cheaper it becomes to make each one.
Example: If you buy lemons in bulk, it might be cheaper per lemon, giving you an economy of scale.
41. Overhead
This is the ongoing cost of running your lemon stand.
Example: The money you pay for the stand space every day.
This is the ongoing cost of running your lemon stand.
Example: The money you pay for the stand space every day.
42. Interest Rate
This is the extra money you pay or earn for borrowing or lending.
Example: If you borrow $10 and pay back $11, the extra $1 is because of the interest rate.
This is the extra money you pay or earn for borrowing or lending.
Example: If you borrow $10 and pay back $11, the extra $1 is because of the interest rate.
43. Inflation
This is when prices of things go up over time.
Example: If a lemon costs $1 today and $2 next year, that’s inflation.
This is when prices of things go up over time.
Example: If a lemon costs $1 today and $2 next year, that’s inflation.
44. Recession
This is when the economy is doing bad, and people are not buying much.
Example: If people are buying less lemonade because they have less money, it might be a recession.
This is when the economy is doing bad, and people are not buying much.
Example: If people are buying less lemonade because they have less money, it might be a recession.
45. Credit
This is the ability to borrow money.
Example: If you can borrow money to buy more lemons, you have credit.
This is the ability to borrow money.
Example: If you can borrow money to buy more lemons, you have credit.
46. Debt
This is money you owe to others.
Example: If you borrow $5 to buy lemons, that $5 is your debt.
This is money you owe to others.
Example: If you borrow $5 to buy lemons, that $5 is your debt.
47. Equity
This is the ownership of a business.
Example: If you own your lemon stand, that ownership is your equity.
This is the ownership of a business.
Example: If you own your lemon stand, that ownership is your equity.
48. Merger
This is when two companies become one.
Example: If you and a friend join your lemon stands together that’s a merger.
This is when two companies become one.
Example: If you and a friend join your lemon stands together that’s a merger.
49. Acquisition
This is when one company buys another one.
Example: If you buy your friend’s lemon stand.
This is when one company buys another one.
Example: If you buy your friend’s lemon stand.
50. Bankruptcy
This is when a business can’t pay its debts.
Example: If you can’t pay back the money you owe for lemons, you might have to declare bankruptcy.
This is when a business can’t pay its debts.
Example: If you can’t pay back the money you owe for lemons, you might have to declare bankruptcy.
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