Title: Saving and Investing
1Chapter 7
2Focus Questions
- Why should you save?
- What is the difference between saving and
investing?
3pay yourself first (a little can add up)
- Save this each week at interest in 10
years youll have - 7.00 5 4,720
- 14.00 5 9,440
- 21.00 5 14,160
- 28.00 5 18,880
- 35.00 5 23,600
- You can buy two fast food meals or one movie
ticket (and a candy bar) or save 7.00 this
week. - You can buy two small cheese pizzas or one
large pepperoni pizza, delivered or one new
CD or save 14.00 this week. - What can you give up to save for your
financial goals?
teens lesson 12 - slide 12-A
4What is Saving?
- Savingthe setting aside of income for a period
of time so that it can be used later. - Results of saving?
- When an individual saves, the economy as a whole
benefits because savings provides money for
others to invest or spend. - FDR created the FDIC (Federal Deposit Insurance
Corporation) to protect all savings after the
Depression.
5Interest is returned to saver/depositor
People deposit savings to get interest.
Businesses pay interest to financial institutions
Businesses use to expand and improve
Financial Institutions loan to businesses
Computers
Trucks
Plant
Equipment
6Where Do You Save?
- Some people save at home
- Financial Institutions
- Savings Plans
- Something with interest.
- Interest is the payment people receive when they
lend money or allow someone else to use their
money.
7Savings Account
- Passbook Savings Account
- Account for which a depositor receives a booklet
in which deposits, withdrawals, and interest are
recorded. - Statement Savings Account
- Account similar to a passbook except that the
depositor receives a monthly statement showing
all transactions. - Money-Market Deposit Account
- Account that pays a higher interest rate and
allows you to write checks. The trade-off is
that you must keep a higher minimum balance.
8Time Deposits
- Time Deposits
- Savings plans that require savers to leave their
money on deposit for a certain amount of time.
The period is known as maturity. - CDsCertificate on Deposit
9How simple and compound interest are calculated
- simple interest calculation
- Dollar Amount x Interest rate x Length of Time
(in years) Amount Earned - example
- If you had 100 in a savings account that paid 6
simple interest, during the first year you would
earn 6 in interest. - 100 x 0.06 x 1 6
- At the end of two years you would have earned
12. - The account would continue to grow at a rate of
6 per year, despite the accumulated interest. - compound interest calculation
- Interest is paid on original amount of
deposit, plus any interest earned. - (Original Amount Earned Interest) x Interest
Rate x Length of Time Amount Earned - example
- If you had 100 in a savings account that paid
6 interest compounded annually, the first year
you would earn 6.36 in interest. - 100 x 0.06 x 1 6
- 100 6 106
- With compound interest, the second year you
would earn 6.36 in interest. - The calculation the second year would look
like this
teens lesson 12 - slide 12-E
10Relating Saving to the Economy
- How can saving benefit the economy?
11Investing
- Taking risks with your savings
- Types of investing
- Stocks
- Bonds
- Mutual Funds
- Real Estate
12Stocks
- Corporations are formed by selling shares of
stock (also called securities). - A stock gives you ownership of a corporation.
Thus you are called a stockholder. - Stockholders make money by dividends and
speculation. - A dividend is money paid to each stockholder
during a time of profit. - Speculation is the money earned by selling your
stock back during a profit time. - Money gained or lost during a stock holding time
is known as capital gains and capital loss.
13Capital Gain/Loss
- Capital Loss Example
- On December 1, you buy 100 shares of Best Buy _at_
45 per share. - You hold on to the shares until July 15 at which
time they are selling for 42 per share. - What is your capital loss?
- 45 x 100 4500
- 42 x 100 4200
- Capital loss 300
- Capital Gain Example
- On December 1, you buy 100 shares of Best Buy _at_
45 per share. - You hold on to the shares until July 15 at which
time they are selling for 52 per share. - What is your capital gain?
- 52 x 100 5200
- 45 x 100 4500
- Capital gain 700
14Bonds
- A bond is a certificate issued by a company or
the government in exchange for borrowed money. - In return it promises to pay a stated rate of
interest over a stated period of time, and then
to repay the borrowed amount (principal) in full
at the end of that time.
15Types of Bonds
- Tax-exempt bonds
- Sold by local and sate governments without
federal, state, or local tax. - Interest is not taxable
- Savings bonds
- Sold by the federal government.
- You receive interest updates every 6 months
- Interest is Taxable
- T-Bills
- Minimum 10,000matures in 3 months to 1 year
- Interest is only taxable by federal govnt
- T-Note
- Minimum 1000-5000matures in 2-10 years.
- Interest is only taxable by federal govnt
- T-Bond
- Minimum 1000-5000matures in 10 or more years.
- Interest is only taxable by federal govnt
16Difference Between Stocks and Bonds
Stocks Bonds
All corporations issue or offer to sell stock. That is what makes them a corporation Corporations are not required to issue bonds
Stocks represent ownership Bonds represent debt
Stocks do not have a fixed dividend rate (except preferred stocks) Bonds pay a fixed amount of interest
Dividends on stock are paid only if the corporation makes a profit Interest on bonds must always be paid whether there is a profit or not
Stocks do not have a maturity date Bonds have a maturity date
Stockholders can elect a board of directors who control the corporation Bondholders usually have no voice in or control over how the corporation is run
Stockholders have a claim against the property and income of a corporation Bondholders have a claim against the property and income of a corporation that must be met before claims of any stockholders
17How do you buy stocks and bonds?
- Stocks are bought and sold through brokers on a
stock exchange either at a brokerage firm or on
the internet. - A broker is a go between for buyers and sellers
- NYSENew York Stock Exchange
- Stocks can also be acquired on your own. These
are called over-the-counter stocks. - NASDAQ has the largest volume of over-the-counter
stocks
- Bonds
- Bonds are sold over-the-counter and on the
Internet
18Mutual Funds and Money Market Funds
- Mutual Funds
- Investing in the stock market where your money is
pooled with many other individuals to buy stocks,
bonds, or other investments. - Usually a diversified portfolio of stocks and
bonds. - Most are invested into one of two indexes.
- DJIA
- SP
- Money Market Fund
- A type of mutual fund used to buy the short term
debt of businesses and banks - You may write a check against the amount you have
in that fund.
19Government Regulations
- SEC
- Securities and Exchange Commission
- Regulates brokerage firms, stock exchanges, most
businesses that issue stock. - Investigates any dealings among corporations that
affect the value of stock - Mergers
20Is property the route to wealth?
21Special Savings Plans and Goals
22Special Savings Plans and Goals
- Investing for retirement
- Pension plans are the most popular of the
retirement income plans. - 401K is the most popular
- A portion of your check is withheld and a company
matches that amount to be paid with interest upon
retirement or buyout.
60 Minutes The 401K Fallout
23Special Savings Plans and Goals
- Investing for retirement
- Pension plans are the most popular of the
retirement income plans. - 401K is the most popular
- A portion of your check is withheld and a company
matches that amount to be paid with interest upon
retirement or buyout. - Individuals can set up their own plans
- Keogh Plan15 of your income, deductible for
yearly taxes - Traditional IRASet up for people earning less
than 30,000 a year. You can contribute up to
5000 a year and deduct that amount from your
taxes. - Roth IRAYou can contribute up to 5000 a year.
This amount is not tax deductible now, but rather
later the interest earned is tax deductible.
24IRAs an example of a return on investment
- contributions made only between ages of 2230 (9
years) - 2,000 contributed each year
- Total investment of 18,000
- At an interest rate of 9, by age 65 will have
579,471 - contributions made only between ages of 3165 (35
years) - 2,000 made contributed each year
- Total investment of 70,000
- At an interest rate of 9, by age 65 will have
470,249
teens lesson 12 - slide 12-N
25Real Estate as an Investment
- ways to invest
- Buy a house, live in it, and sell it later at a
profit. - Buy income property (such as an apartment house
or a commercial building)and rent it. - Buy land and hold it until it rises in value.
- advantages
- Excellent protection against inflation.
- disadvantages
- Can be difficult to convert into cash.
- A specialized type of investment requiring study
and knowledge of business. - capital gains profits from the sale of a capital
asset such as stocks, bonds, or real estate.
These profits are tax-deferred you do not have
to pay the tax on these profits until the asset
is sold. Long-term capital gains occur on
investments held more than 12 months. Short-term
capital gains occur on investments held lessthan
12 months.
teens lesson 12 - slide 12-L
26How Much Do You Save?
- Evaluate your amount of risk
- If investing, spread your investments
outdiversification - How much do you value now or later?
27the rule of 72
- How many years will it take to double my money?
- 72 DIVIDED BY
- YEARS TO DOUBLE A SUM OF MONEY
- INTEREST RATE
- At what interest rate will my money double in a
set number of years? - 72 DIVIDED BY
- INTEREST RATE REQUIRED
- YEARS TO DOUBLE
- INVESTMENT
28 Relating Investing to the Economy
- How does investing play a part in the economy?
29Career Opportunity
- Stock Broker
- Job Description
- Relay investors stock orders to the floor of a
securities exchange - Offer financial counseling and advice on the
purchase or sale of particular securities. - Qualifications
- College Degree
- Pass a state licensing exam and the General
Securities Registered Representative Exam - Median Salary38,800
- Job Outlook Above Average