Money tips for teens: Jargon buster

Credit Score

Your credit score may start to be important to you when you’re over 18. A credit score is a number that reflects how reliable you are when borrowing and repaying money. When you apply for a loan, credit card, or any type of credit, financial institutions check your score to decide if they should approve your application and how much to offer. A good credit score can result in a lower cost of borrowing.

Your credit report is created from your credit history. It includes whether you pay your bills on time, how much money you’ve borrowed and from which lender, how often you’ve applied for credit, any missed payments, and if you’ve had problems repaying loans. Keeping a healthy credit report is important for smart money management.

Direct Debit

A Direct Debit is a request you give to your bank or building society allowing a company to collect money from your bank account automatically. A Direct Debit can be a convenient way to pay bills, helping you avoid missed payments which could hurt your credit score and appear negatively on your credit report.

You can set up Direct Debits for your mobile phone bill, credit card bill, or subscriptions like Netflix. Some companies, like NatWest, even reward customers with schemes like MyRewards when using Direct Debit. This method of bill payment can make money management easier and more reliable.

Income Tax

If you’re employed, income tax is automatically taken out of your wages by your employer and paid to the government. Everyone gets a tax-free allowance of £12,570 in 2025/2026 (this can change each year), you’re only taxed on earnings above that.

Taxes fund government services like the military, police, education, healthcare, and infrastructure such as roads and sewers. Understanding tax is key to managing your finances well in the long term.

Interest

Interest applies when you borrow money or save money:

When you borrow, you’ll have interest charged on the amount. This is common with credit cards, personal loans, and mortgages. You want a low interest rate to reduce your cost of borrowing.

When you save, you may earn interest on your savings. This can grow over time because of compound interest, where interest earns more interest. A higher interest rate is better, but accounts offering this often limit access or include penalties for early withdrawal. Choose your savings account based on your long term financial goals.

Interest Rates

Interest rates determine how much extra you pay when you borrow money or how much you earn when you save. Rates are usually either fixed or variable.

Fixed interest rates on loans or savings accounts do not go up and down but have a set fixed amount. A fixed–rate loan has an interest rate that stays the same for an agreed time period so you pay back the same amount each month. A fixed rate of interest on your savings means that the same rate of interest will be applied to your savings over the agreed period. 

A variable interest rate can change. These rates often follow a benchmark interest rate like the Bank of England’s base rate, which affects the rates offered by central banks and other financial institutions.

Benchmark interest rates are regularly updated interest rates that are publicly accessible. They are a useful basis for all kinds of financial contracts such as bank overdrafts and mortgages. When the variable rates go up and down, it affects how much interest you earn on your savings or pay back on money you have borrowed.

Junior Individual Savings Account (JISA)

You may want to consider opening a Junior Individual Savings Account (a ‘JISA’). A Junior ISA is a tax-free savings account for under-18s. A parent or guardian needs to open it for you. You can save up to £9,000 a year (the tax allowance is subject to change on a yearly basis).

There are two types: cash ISAs and stocks and shares ISAs. Any money invested into one will be locked until you turn 18, making it ideal for long-term saving.

National Insurance

National Insurance (NI) is a tax on earnings for people over 16. Once you earn £242 a week or more (2025/26), you start paying NI, which is automatically deducted from your wages. Your National Insurance contributions are paid into a fund, from which some state benefits are paid. This includes the state pension, statutory sick pay or maternity leave or unemployment benefits.

Nest Egg

You’ve probably heard people talking about having a nest egg, but what does it mean? A nest egg is an amount of money that has been saved or invested for a specific purpose. This could help fund your university education, buy a car or help you to buy your first home.

A nest egg can also refer to saving up for a more expensive one-off purchase, such as a mobile phone or a laptop.

You might also have a rainy day fund, which is money set aside for emergencies like a broken phone or car repair.

Shares

Shares are units of ownership in a company. When you buy shares, you become a shareholder, a part-owner of that firm. You may also have rights to vote on decisions made by the company such as the election of the directors who will decide how the business is run.

Owning shares is a way to invest your money for the long term, and although it carries risks, it can be part of a smart money management strategy.

Standing Order

A standing order is a regular payment from your bank account to another account. You can use it to transfer money into your savings account each month, helping build your nest egg or save for a long-term goal.

Unlike a Direct Debit, you control the amount and date of a standing order, and the amount stays the same unless you change it.

Value Added Tax (VAT)

Value Added Tax (VAT) is added to most goods and services you buy. Prices usually include VAT, so you pay it automatically, although there are some goods or services that are exempt from VAT, including children’s clothing, books and magazines. 

Knowing how VAT works is part of better money management, especially when budgeting for regular or large purchases made with debit cards or bank accounts.