What financial term describes the difference between a person’s assets and liabilities?

Prepare for the Accredited Financial Counselor Exam. Study using flashcards and multiple-choice questions, each equipped with hints and elaborate explanations. Equip yourself for success!

Net worth is the financial term that represents the difference between a person's assets and liabilities. It is a fundamental measure of an individual's financial health and indicates what remains after all debts have been paid. Essentially, it reflects what a person would have if they sold all their assets and paid off all their debts, providing a snapshot of their overall financial position.

Assets include everything of value owned, such as cash, real estate, investments, and personal property, while liabilities encompass all debts and obligations, including loans, mortgages, and credit card balances. The calculation of net worth is crucial for personal finance management, as it helps individuals understand their financial standing and track changes over time in response to savings, investments, and debt repayment.

In contrast, cash flow refers to the income and expenses within a specific period, while equity is often related to ownership in an asset, particularly in real estate or business contexts. Gross income represents total earnings before any deductions like taxes or expenses, which does not directly indicate net worth. Thus, while all these terms are crucial in financial discussions, net worth specifically encapsulates the relationship between assets and liabilities.

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