Section 1 Deciding to Save Economists define savings as the setting aside of income for a period of time so that it can be used later.savings –A person receives interest on a savings plan for as long as the funds are in the account.

Section 1 Deciding to Save (cont.) Saving benefits the economy as a whole: –It provides funds for others to invest or spend. –It allows businesses to expand, which provides increased income for consumers and raises the standard of living.

Section 1 Deciding to Save (cont.) Some savings plans allow immediate access to your funds but pay a low rate of interest. Others pay higher interest and allow immediate use of your funds, but require a large minimum balance.

Section 1 Options for saving: Savings Accounts and Time Deposits (cont.) –A savings account pays interest, has no maturity date, and allows funds to be withdrawn at any time without penalty.savings account –Money market deposit account (MMDA) pays relatively high rates of interest, requires a minimum balance of $1,000 to $2,500, and allows immediate access to funds.Money market deposit account View: Savings BasicsSavings Basics

Section 1 –Time deposits require savers to leave their funds on deposit for certain periods of time, or maturity.Time depositsmaturity Savings Accounts and Time Deposits (cont.) –Time deposits are often called certificates of deposit (CDs), or savings certificates. certificates of deposit View: Savings ChoicesSavings Choices

Section 1 After the stock market crash of 1929, the Federal Deposit Insurance Corporation (FDIC) was created to protect peoples’ funds. Savings Accounts and Time Deposits (cont.) –The National Credit Union Association (NCUA) is another federal agency that insures most banks and savings institutions.

A.A B.B Section 1 Which type of account will pay you more in the long run? A.A regular savings account B.A CD

Section 2 Stocks and Bonds (cont.) Corporations are formed or can expand business by selling shares of stock. –The person who buys this stock, becomes a stockholder, and is entitled to part of the future profits and assets of the corporation.stockholder

Section 2 Stocks and Bonds (cont.) Stockholders benefit from stock in two ways: –Earn dividends or a return based on the amount of stock invested. –Can sell stock for more than they paid for it.

Section 2 Stocks and Bonds (cont.) Profits made on the sale of stock is referred to as a capital gain.capital gain A decrease in value on the sale of the stock is referred to as a capital loss.capital loss

Section 2 Stocks and Bonds (cont.) Similar to stock, a bond is a certificate issued by a company or the government in exchange for borrowed funds. –Bonds promise to pay a stated rate of interest over a stated period of time, in addition to repaying the borrowed amount in full at the maturity date. –A bond does not make a bondholder part owner of the company.

Section 2 Stocks and Bonds (cont.) Tax-exempt bonds are sold by local and state governments: interest paid on the bond is not taxed by the federal government.Tax-exempt bonds –Interest that you earn on bonds your own city or state issues is also exempt from city and state income taxes. View: Differences Between Stocks and BondsDifferences Between Stocks and Bonds

Section 2 Stocks and Bonds (cont.) Savings bonds are issued by the federal government as a way of borrowing money. Are purchased at half the face value and increase every 6 months until full face value is reachedSavings bonds –These are safe. –Interest earned is not taxed until the bond is turned in for cash.

Section 2 Stocks and Bonds (cont.) The Treasury Department of the US Government sells several types of larger investments. They include: –Treasury bills (T-bills) certificates $1,000 and maturing in a few days up to 26 weeksTreasury bills –Treasury notes (T-notes) certificates $1,000 and maturing in 2 to 10 yearsTreasury notes –Treasury bonds (T-bonds) certificates $1,000 and maturing in 30 yearsTreasury bonds

A.A B.B Section 2 Is the following description of a stock or a bond? These represent ownership, do not have a fixed dividend rate, and do not have a maturity date. A.Stock B.Bond

Section 2 Stock and Bond Markets (cont.) Stocks are bought and sold through brokers or through Internet brokerage firms. brokers Brokerage houses communicate with the busy floors of the stock exchanges. –The largest stock exchange, or stock market, is the New York Stock Exchange (NYSE). Others include the Chicago Exchange, London Exchange and Tokyo Exchange.

Section 2 Stock and Bond Markets (cont.) Stocks can also be sold on the over-the- counter market, an electronic marketplace.over-the- counter market The largest volume of these smaller company stocks are quoted on the National Association of Securities Dealers Automated Quotations (NASDAQ) national market system.

Section 2 Stock and Bond Markets (cont.) Nearly every weekday, news is given about the activity to the stock market indexes.stock market indexes –Dow Jones Industrial Average or “The Dow” is the most well known index. The New York Exchange Bond Market and the American Exchange Bond Market are the two largest bond exchanges.

Section 2 Stock and Bond Markets (cont.) Many people invest in the stock market by placing savings in a mutual fund.mutual fund –Mutual fund is investment company that pools the funds of many individuals to buy stocks, bonds, or other investments –The long-run return from index funds is higher than can be expected from almost any other investment.

Section 2 Stock and Bond Markets (cont.) Money market fund is one type of mutual fund that uses investors’ funds to make short-term loans to businesses and banks.Money market fund –The investor can write checks (above some minimum amount) against their account.

Section 2 Stock and Bond Markets (cont.) Banks and savings and loan associations offer money market deposit accounts (MMDA). The advantage to MMDAs is that the federal government insures them against loss.

Section 2 Government Regulations (cont.) The Securities and Exchange Commission (SEC) is responsible for administering all federal securities laws. It also investigates any dealings among corporations.

Section 2 Government Regulations (cont.) Congress passed the Securities and Exchange Act after the stock market crash of The SEC requires any institution issuing stocks or bonds: –To file a registration statement with the federal government –Give a prospectus (brief description) to each potential buyer of stocks or bonds

Section 2 Government Regulations (cont.) States also have securities laws which protect small investors.

Section 3 Investing for Retirement (cont.) It is important for a person to save for and invest in his or her own retirement. Retirement savings plans can include: –A pension plan is a company supported retirement plan like a 401(k) that is not taxed until used.pension plan –A Keogh plan is a retirement plan for self-employed individuals.Keogh plan –Save a maximum of 15% of their income (tax deductible)

Section 3 Investing for Retirement (cont.) –An individual retirement account (IRA) is a private retirement plan for individuals or married couples.individual retirement account Contributions tax deductible Taxed when taken out.

Section 3 Investing for Retirement (cont.) –A Roth IRA is a private plan for individuals.Roth IRA Taxes income before it is saved. Does not tax interest on that income when funds are used upon retirement. View: Retirement Plan OptionsRetirement Plan Options

Section 3 Investing for Retirement (cont.) Buying real estate, such as land and buildings, is another form of long term investing.

Section 3 How Much to Save and Invest? (cont.) The higher the promised return on an investment, the greater the risk. View: Savings ConsiderationsSavings Considerations

Section 3 How Much to Save and Invest? (cont.) When you have very little income, you should probably put your savings lower risk accounts. It is important to practice diversification to lower your overall risk.diversification Diversification – spreading investments out to lower risk View: Risk and ReturnRisk and Return

VS 1 Saving some of your income allows you to earn interest and put away funds for future purchases.

VS 2 After you have accumulated savings funds, you may want to invest some of it to try to earn greater returns.

VS 3 It is important to diversify your saving and investing, especially when looking toward retirement. In general, the greater the risk involved in any venture, the greater the potential return.

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