Download Consumers, Savers, and Investors

Consumers, Savers, and
Investors
GDP and Circular Flow of
Money

GDP is the final value of all goods and
services produced in the country in one
year.

Circular flow of money: Consumer (buys
products, provides labor) Business and
manufactures ( sells products and pays
employees)
Consumption as a Percent of
GDP (2004)
Sources of Income






Income from work
Wages
Salary
Income from wealth
Possessions, bank accounts, saving,
investments
Rent and interest
Income is not equal to wealth

Assets

100,000
Net worth=10,000
(wealth)

Liabilities

90,000
Factors that influence wealth
accumulation




Income
Expectations
Current Interest Rates
Taxes
Budget Your Self

Set financial Goals (PYF)

Estimating income

Planning Expenditures
Importance of Investing

Saving


Low risk, short term
Investments

Higher risk, long term
Investment risks

Market risk


rise and fall due to the economy
Inflation risk

Dollar today is worthless tomorrow
Saving and investments

Rate of Return
• percent of interest rate
• amount of dividends paid
REMEMBER: THE GREATER THE RATE OF RETURN
THE RISKIER THE INVESTMENT.
Principal and Compound
Interest

Principal


Initial amount of money you put in
Compound interest

Interest calculated on the principal and the
accumulated interest.
Rule of 72
72
Interest rate =years to double investment
Or
72_____________
Years to double investment= Interest Rate Required
Liquidity
Ease with which any asset, can be
converted to cash easily
More liquidity
Savings
Savings bonds
CD’s
Bonds
US saving bonds
Mutual funds
Stocks
Collectibles
Commodities
Less liquidity
(Low risk)
(High risk)
Savings accounts



Safety and liquidity
Low rate of interest
Low minimum balance
Money Market deposit
accounts


Write limited number of checks in a
defined time period
Your money participates in a money
market fund
Certificate of Deposit (CD)



Fixed rate of interest for a specific
period of time
Pays higher rate of interest
Fairly liquid but pay penalty for early
withdrawal
Corporate Stocks






Shared OWNERSHIP in a corporation
Profits are distributed to stockholders in
forms of dividends.
Capital appreciation
You share the profits and losses
Market risks, the potential decrease in
the value of a stock in the stock market
Inflation risks, general rise on overall
prices
Corporate Bonds


You are a LOANER
Bonds will pay you back a fixed rate of
interest at a specific time
U.S. savings bonds


Debt of the federal government
Issued at a discount rate and redeemed
at face value of bond
Mutual Funds


Pool of money in a portfolio
Company diversifies its investments to
take an advantage of the highs and
lows of the stock market
Pension and Retirement
Funds
Tax deferment
Payment of taxes on interest after the interest is
earned.
• 401 K Plan
Usually maintained by employer
Employer and /or employee may pay into fund
(PERA) vs Social Security
• Employee stock ownership plan (ESOP)
Allows employees to purchase the employer’s stock
at a reduced stock price
Individual retirement accounts

IRA

Roth IRA
Advertising benefits and costs

BENEFITS



Gives consumers information about costs, new
products and improvement
Increases competition among sellers
Pays most magazine, newspaper,TV,
radio costs




Disadvantage
Advertising costs are passed on to the
consumer
Lead to impulse buying
Media which is supported by advertising
are reluctant to criticize products