Money talks

What's your net worth? 10 financial terms everybody should understand

Some people believe that, unless you work in the world of finance, there is no need to understand financial terms and concepts. Well, nothing could be further from the truth. Finance is a core part of society, and financial literacy is important for everyone. At the same time, some of these terms are thrown around without fully understanding their meaning. What is a principal? Is compound interest different from normal interest? What is a person’s net worth? Here are 10 financial concepts that everyone should know.

Whether you are investing a sum of money or taking a loan, there is an initial sum of money involved. The principal is the initial amount of money that you invest or borrow. It does not include any interest, fees, or future earnings, and it’s used as a base to calculate the interest that will be added to a loan and the returns from an investment.

We commonly understand interest as the cost we pay for borrowing money, often calculated as a percentage of the principal amount. That is ‘simple interest’, but what about ‘compound interest’? Any accumulated interest from previous periods generates its own interest as well, so compound interest is the sum of the interest on the principal amount and the accumulated interest.

We often hear the media discuss the net worth of celebrities, politicians, and other public figures, but can the worth of a person be calculated? When it comes to finance, it can, and it follows a very simple formula: the value of all your assets minus any money you owe. This simple but effective calculation is a good way to check how healthy your finances are at any point in time.

Paying a loan is never as simple as adding interest to the initial amount. In most cases, there are different fees involved, which means that you might owe more than you think. The Annual Percentage Rate or APR will give you the true cost of a loan —initial amount, interest, and any additional fees— represented as a percentage. With the APR, you can also compare loans to see which one offers better options.

If you own shares in a company, you will receive dividends, a portion of the profit made by the company. How do dividends work? Paid regularly, often quarterly, its value is decided by the company’s board of directors, who will determine an amount to be paid per share. The more shares you have, the more dividends you will receive.

When taking out a loan, we are assuming that we will pay it over a period of time. This is called amortization. While the amortization of a loan gives us the possibility of paying a large sum back in regular smaller installments, it also involves interest (both simple and compound) and fees added to the principal amount.

An asset is an item of value, and this includes cash, but also other valuable things such as objects, properties, bonds, shares, etc. Liquidity refers to how quickly an asset can be turned into cash without affecting its value, which in turn tells us how quickly we could access funds to cover any payment or debt.

If you ever looked into buying a home, you might have heard the term ‘escrow’. An escrow is a legal arrangement where a third, neutral party temporarily controls the funds of a transaction, releasing them once the contract’s terms have been fulfilled. This helps prevent fraud, reduce financial risks, guarantee fairness, and ensure that neither party takes advantage of the other.

If you are a financial delinquent, you might be in trouble, but not in the way you imagine. When taking on a loan, you assume a responsibility to pay it back. If you fail to do so, or fall behind in your payments, you become a ‘delinquent’. While delinquency is temporary, it will hurt your credit score and can eventually turn into default, which allows the lender to take action against you.

We often use the word liability to describe a disadvantage or something that could cause difficulties. In its financial sense, liabilities refer to a responsibility or obligation we assume, such as paying back a loan. In this sense, liabilities —money we owe— are opposite to assets —money we possess.

Heartbreaking truths ahead

Does S.O.S really mean Save Our Souls? Enter the fun world of backronyms!

Most abbreviations really do stand for something. Others only seem to. That's where backronyms come in: phrases invented after a word or name already exists, making it look like the letters always had a hidden meaning. You have probably heard of many of the following examples. Some are official, some are humorous, and some have become so popular that many people mistake them for genuine origins.

Nearly everyone has heard that SOS means "Save Our Ship" or "Save Our Souls." The phrases sound so fitting that they've appeared in books, films, and everyday conversation for more than a century.

The truth is simpler. SOS was never an abbreviation. It became the international Morse-code distress signal in 1906 because its pattern—three dots, three dashes, three dots—was unmistakable. The famous phrases were invented afterward as memory aids, making them classic backronyms. The signal became world-famous during the Titanic disaster in 1912.

One of the best-known language myths claims wealthy passengers sailing between Britain and India booked cabins marked P.O.S.H., meaning "Port Out, Starboard Home," to stay on the cooler side of the ship.

It's an entertaining story, indeed, but historians have never found evidence that shipping companies used those markings. The Oxford English Dictionary rejects the explanation, and linguists consider it a false acronym. The real origin of posh remains uncertain, proving that a good story can sometimes outlive the facts.

This explanation feels almost too perfect, right? Since news comes from every direction, many people assume the word must have been built from the initials of the four compass points.

In reality, news existed centuries before acronyms became common. The word developed from the plural of new, referring to recent events or fresh information. The compass-direction version was invented much later, making it another clever backronym rather than the word's true origin.

Congress was still creating memorable backronyms decades later. The CHIPS and Science Act, signed into law in 2022, was named to emphasize its focus on rebuilding semiconductor manufacturing in the United States.

The word CHIPS was deliberately expanded to Creating Helpful Incentives to Produce Semiconductors, matching the legislation's primary goal. The act provides tens of billions of dollars in incentives for chip production and scientific research, making it one of the largest industrial policy initiatives in recent U.S. history.

Computer enthusiasts have long joked that Yahoo! stands for "Yet Another Hierarchical Officious Oracle," a name that certainly sounds technical enough for an early internet company. Except it's not real.

The real story is literary instead of technological. Founded in 1994 by Jerry Yang and David Filo, Yahoo! borrowed its name from the unruly Yahoos in Jonathan Swift's Gulliver's Travels. The elaborate expansion came later as a humorous backronym embraced by programmers and web users alike.

The AMBER Alert system honors Amber Hagerman, the 9-year-old girl abducted and murdered in Arlington, Texas, in 1996. Her case inspired a faster way to notify the public when children go missing.

The program's name came first, as a tribute to Amber. Officials later created the official expansion America's Missing: Broadcast Emergency Response, giving the system an easy-to-remember backronym. Since then, AMBER Alerts have helped law enforcement safely recover hundreds of abducted children across North America.

"What I Know Is" sounds like the perfect explanation for a website anyone can edit. It's short, memorable, and neatly matches the idea of people sharing knowledge online.

But Wiki has a completely different origin. Programmer Ward Cunningham borrowed the Hawaiian phrase wiki wiki, meaning "quick," when he created the first wiki in 1995. The idea reportedly came from Honolulu Airport's Wiki Wiki Shuttle. The English phrase appeared later as a playful backronym after the technology became popular.

The DREAM Act was introduced in Congress in 2001. It was designed to provide a pathway to legal status for certain undocumented immigrants brought to the United States as children.

Its title was intentionally crafted to produce the hopeful word DREAM, making it another official legislative backronym. Although the original bill has never become law, it gave rise to the widely used term "Dreamers," which remains central to discussions about U.S. immigration policy.

Few brands have inspired more fake acronym stories than Adidas. Variations like "All Day I Dream About Sport" have circulated for years, while others replace "Sport" with "Soccer" or even "Success."

None of them is true. The company, founded in Germany in 1949, was named after its founder, Adolf "Adi" Dassler. The brand name simply combines his nickname with the beginning of his surname: Adi + Das(sler). Every catchy expansion came afterward, making them textbook examples of backronyms.

Unlike most entries on this list, this is an official backronym that serves a practical purpose. Medical students around the world still learn it during their training.

The Apgar Score was introduced in 1952 by anesthesiologist Dr. Virginia Apgar to quickly evaluate newborn babies after birth. The test was originally named after her surname. Later, educators created the mnemonic Appearance, Pulse, Grimace, Activity, Respiration, turning the doctor's name into a memorable teaching tool.

Some backronyms are created not by accident, but by design. The USA PATRIOT Act became one of the best-known examples after the September 11, 2001, terrorist attacks.

Signed into law by President George W. Bush on October 26, 2001, the legislation's lengthy official title was deliberately written so its initials would spell PATRIOT. The memorable name helped define the law's public image, even as its expanded surveillance powers sparked years of debate over security and civil liberties.

Not every backronym begins in a government office. One of the newest started with a joke. Aurora enthusiasts spotted a mysterious purple ribbon in the night sky and jokingly nicknamed it STEVE, borrowing the gag from the animated film Over the Hedge.

As scientists began studying the phenomenon, they later created the technical expansion Strong Thermal Emission Velocity Enhancement to match the already popular nickname. Today, STEVE is recognized as a distinct atmospheric phenomenon related to, but different from, traditional auroras—proof that even serious science sometimes enjoys a little humor.