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Unit 5: Saving &
Investing
Consumer Education
Chapters 8 & 9
Benefits of Saving
 Saving
– trading current spending for the
ability to spend in the future
 What should I save for?
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Save for the Unexpected
Save for Opportunities
Save for Major Purchases
Save for Flexibility
Save to Achieve Your Goals
Saving Strategies
 Pay

Yourself First
Savings is an expense in your budget
 Save

by the Numbers
Save a % of your take-home pay, not a set amount
 Reward

Yourself
Low-cost rewards for saving
 Consider
Your Values
 Enroll in Automatic Saving
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
Payroll Deductions
Checking Account Transfers
 Set
up automatic transfers through online banking
Savings Institutions
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Commercial Bank – a financial institution that serves
individuals and businesses
Savings Banks – financial institutions owned by their
depositors
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
Dividend – a share of the company’s profits
Savings and Loan Associations – financial institutions
that originally specialized in lending money to
customers to buy homes (mortgages)
Credit Unions – financial institutions that offer
memberships to people who share a common bond;
non-profit organizations
Deposit Insurance:
FDIC – Commercial Banks ; NCUSIF – Credit Unions
Savings Options
 Savings
Account – an account at a banking
institution in which you may deposit money, earn
interest, and withdraw your funds at any time
 Certificate of Deposit (CD) – a deposit in a savings
institution that earns a fixed interest rate for a
specific period of time
 Money Market Account – a deposit for which the
interest rate changes over time as interest rates in
the economy change

Annual Percentage Yield (APY) – the actual interest
rate an account pays per year, calculated the same
way by all banks
Government Bonds
 Bond
– a written promise to pay a debt by
a specified date
 Savings Bond – U.S. government bonds
issued for amounts of $50 - $10,000
 Face Value – the dollar value printed on a
bond (the amount it is bought for)
Simple Interest
 Interest
(I) = Principal (P) x Rate (R) x Time (T)
Principal – money on deposit
 Simple Interest – interest paid one time
per year at the end of the year on the
average balance in the savings account
 Compound Interest – interest paid on the
principal and also on previously earned
interest, assuming that the interest is left
on deposit in the account

The Rule of 72
If an asset (money)
grows x% a year, its
value will double in
72 / x years

Annual interest rate: 4%
Date
Interest Compounded: Quarterly
Interest
Jan. 1, 20xx
Balance
$900.00
March 31, 20xx
$9.00
$909.00
June 30, 20xx
$9.09
$918.09
Sept. 30, 20xx
$9.18
$927.27
Dec. 31, 20xx
$9.27
$936.54
Q1:
Q2:
I = PRT
I = $900.00 X .04 X .25
I = $9.00
Balance = $900.00 + $9.00 = $909.00
I = $909.00 X .04 X .25
I = $9.09
Investing Basics
Investing – saving in a way that earns income
 Risk – the chance that an investment will
decrease in value
 Return – income earned on an investment
 The higher the potential rate of return, the
greater the risk
 Diversification – distributing funds among a
variety of investments to minimize overall risk

Investing in Corporations
Corporate Stock – a unit of ownership in a
corporation that you can buy
 Stockholders – investors who own a
corporation because they own its stock
 Stockbroker – a person who handles the
transfer of stocks and bonds between
buyer and seller
 Brokerage Firm – a company that
specializes in helping people buy and sell
stocks and bonds

Investing in Corporations
 Stock
Exchange – a location where
orders to buy or sell stock are sent and
carried out
 National Association of Securities
Dealers Automated Quotation System
(NASDAQ) – an electronic stock-trading
system that links brokerage firms
Types of Stock
 Dollar
Cost Averaging – investing roughly equal
amounts of money at regular intervals
 Preferred Stock – a non-voting share of ownership
in a corporation that pays a fixed dividend
 Common Stock – a voting share of ownership in a
corporation for which the dividend varies, as
determined by the corporation’s board of
directors


Preferred Stock carries less risk because preferred
shareholders receive dividends first
Returns (dividends) are not guaranteed
Stock Classifications
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Blue Chip Stocks – large, well established corporations
Growth Stocks – smaller or younger corporations
Large Cap Stocks – total stock value of $10 billion or
more
Mid Cap Stocks – total stock value $2-10 billion
Small Cap Stocks – total stock value less than $2 billion
Sector Stocks – corporations who operate in a specific
part of the economy
Cyclical and Non-Cyclical Stocks – success linked to the
success of the economy
International Stocks – corporations based in other
countries
Corporate Bonds
 Corporate
Bonds – bonds sold by corporations to
finance business activities, which usually pay a
fixed interest rate and are paid after a specific
term
 Junk Bonds – corporate bonds that are high-risk
investments. Also known as high-yield bonds
 Bond Rating Services:


Moody’s
Standard & Poor’s (S&P)
 AAA
– safest
 C & D – riskiest
Mutual Funds
 Mutual
Fund – a business that accepts deposits
from many people to invest in various ways
 Portfolio – selection of stocks or bonds that a
mutual fund purchases
 Load – a sales fee that you pay when you invest in
a mutual fund
 Front-end load – when you buy
 Back-end load – when you sell
 No-load – no fee because the fund has no sales
people
Retirement and Other Investments
 Tax-deferred
– a main benefit of many retirement
plans; allow you to postpone paying tax on the
income you invest until you retire
 401(k) plans – a tax-deferred retirement plan
offered to employees by their employer

Vested – point at which you can keep employer’s
contributions to your retirement account
 Individual
Retirement Account (IRA) – a retirement
savings plan that has special tax benefits bit is not
employer-sponsored
 403(b) plan – a tax-deferred retirement plan for
teachers, hospital workers, ministers, and some
other public employees
Mutual Fund Classifications
 Index
Funds –
 Balanced Funds –
 Large Cap Funds –
 Mid Cap and Small Cap Funds –
 Aggressive Funds –
 Sector Funds –
 International Funds –
 Bond Funds –
 Tax-Free Funds –
 Exchange Traded Funds –