Understanding financial terminology is vital if you want to become financially literate. Unless you're up to date on all types of financial terms, any time you turn on a news source or pick up a financial article, you might feel overwhelmed and confused.

You might feel intimidated looking at a few of these vocabulary words, but once you master the essentials, you'll be well on your way to becoming financially literate.

• Asset: This involves any resource that holds value, whether it's tangible or intangible. Assets contain a value that you can convert into money, and you might find investments, art, cash, or real estate in this category.
• Credit score: This three-digit number, which ranges from 300 to 850, represents how likely a borrower is to repay a debt. The credit bureaus calculate this number based on the borrower's credit report, and the higher the number, the more likely the borrower is to repay debt obligations. Those with high credit scores usually qualify for lower interest rates.
• Diversification: This is a core principle of investing and involves spreading out investments over different assets that have varying risks. Diversification can help you minimize risks since you're not placing all your funds in one area.
• Interest: You might already know what interest is (the percentage of a loan principle that lenders charge borrowers), but did you know there are two types? Simple interest is calculated only based on the initial borrowed amount, while compound interest is based on the loan principal plus any interest that accumulates during that period.
• Time value of money: Also known as TVM, time value of money is the concept where the money available now is worth more than an identical amount in the future. The reason behind this is that money that's invested has a chance to grow, so the longer it's invested, the more it can appreciate. Money acquired later has less time to grow.

These are just five financial terms that you should add to your vocabulary. Set a goal for yourself to learn a certain number of words each week so you can familiarize yourself with these terms. Also, if you come across any other terms you're unfamiliar with, take note of them and look them up. Before you know it, you'll strengthen your financial literacy vocabulary.

Sources: Fluentu.com, Opploans.com