Download American Finances

American Finances
Saving and Investing
Ch. 11
Snapshots
• According to a poll taken in 2009, 61% of
Americans “always or usually” live paycheck to
paycheck. (Up from 49% in ’08 and 43% in ’09)
• In 1929 only 2% of the homes in America had a
mortgage against them, and by 1962 only 2%
did NOT have a mortgage against them.
• Consumer Reports Money Book says the typical
household has $38,000 in debt and the total
consumer debt has tripled since 1980. In 1980
the total consumer debt was $1.3 trillion and
now is over $3.3 trillion.
Snapshots Continued
• A poll published in USA Today stated that
55% of Americans “always” or
“sometimes” worry about money.
• Nearly half (46%) of Americans have less
than $10,000 saved for retirement
• Student loan debt in the U.S. is climbing at
a rate of approximately $2,843.88 per
second
More snapshots
• According to Automatic Data processing, Inc.,
20% of workers would NOT be able to make a
mortgage, utility or credit card payment if they
missed a paycheck.
• At 36%, USA Today reports personal finance as
the number one personal stress factor in the
workplace.
• 1.41 million Americans filed for personal
bankruptcy in 2009—a 32% increase over 2008
True or False?
• “Money doesn’t always equal happiness.”
• “You spend as much as you make.”
• “I don’t need to save, I can rely on Social
Security.”
• Teenagers do not need to save.
• Saving money is easy.
Saving…
• MUST BE A PRIORITY!!!!
• Saving is about EMOTION and
CONTENTMENT.
• Money is neither good or bad.
– It can be used in good and bad ways.
– Would you say debt is money used in a good
way or bad way?
Dave Ramsey says…
• You should save for THREE things:
– Emergency fund (start with $1000)
– Purchases ($2000 TV at 25% interest)
– Wealth building (discipine, consistently)
– YOU NEED TO START SAVING NOW!!!!!
Ask yourself…
• Why are people NOT saving today?
• Name some ways you can cut spending.
• Do you need an emergency fund now?
Explain.
Savings & the Financial System
(Ch. 11 Section 1)
• Saving money creates capital for other
investors to borrow or use.
• Financial system: Savers, Intermediaries
and Borrowers
• Circular Flow of Funds
• Joe (saver) puts $ in a bank
(intermediary). Jim (borrower) receives a
loan from the bank to start a business.
Compound interest is POWERFUL!
• What is compound interest?
• Compound interest is interest on interest
• Example…say you deposit 100$ in the bank. At
the end of the year you earn 10% on your
deposit. So now you have 110.00 in the bank.
The next year you earn 10% on 110.00 and now
you have 121.00. And it keeps growing!
• Check out Ben and Arthur’s story to see how
compound interest is GOOD for an investor.
Investment Objectives
• Why are you saving?
• Considerations
– Time
– Income
– Pay off debts first
– tax considerations
Things I should know as an
investor/saver…
• Never invest with borrowed money (risk)
– Buying on the margin is investing in the stock
market with borrowed money
• Diversify (“spread around”) your
investments, it reduces the risk
• Consider liquidity (time factor)
• What is return or yield?
What are mutual funds?
• Mutual funds are like “baskets” of stock
• You invest in a Mutual fund along with
thousands of other investors and then the
company invests the money for you and
your mutual fund owners.
• Diversification is greater
• Risk is lower
• Experts do the work for you
Economics in Practice (page
329)
Investment
$1,000 CD
100 shares of
a mutual fund
100 shares of
stock
Corporate
bond
Regular
savings
account
Risk: low
Risk: high
Return: low
Return: high
Ch. 11 Matching exercise
1.
2.
3.
4.
5.
Savings
Financial system
Financial assets
Pension
Mutual fund
a.
b.
c.
d.
e.
Regular payment to provide
income security to someone
who has worked a given number
of years
The dollars that become
available in the absence of
consumption
Company that sells stock in itself
to individual investors and
invests this money other stocks
and bonds
Network of savers, investors,
and financial institutions that
work together to transfer savings
to investors
Claims on the property and the
income of the borrower
Matching Key
1. b
2. d
3. e
4. a
5. c
More questions from Ch. 11
1. Saving is necessary for
a.
b.
c.
d.
A traditional economy
Mutual funds
Financial assets
Capital formation
#2
The financial institutions that bring together
funds that savers provide and then lend
those funds out to others are called
a. Mutual funds
b. Financial systems
c. Financial assets
d. Financial intermediaries
#3
• All of the following are examples of
financial assets EXCEPT
a. Bonds
b. Savings books
c. Mutual funds
d. Certificates of deposits (CDs)
#4
All of the following are examples of NONBank financial institutions EXCEPT
a. Credit unions
b. Finance companies
c. Life insurance companies
d. Real estate investment trusts
#5
•
What sector(s) of the economy provide
the most saving(s)?
a.
b.
c.
d.
The federal government
The public sector
The state and local governments
Households and businesses
Answer Key
1.
2.
3.
4.
5.
D
D
C
A
D