Personal Finance Unit: Banks, Credit, and Credit Unions

Federal Deposit Insurance Corporation (FDIC): Independent federal agency created in 1933 to promote public confidence and stability in the nation's banking system. Throughout its history, the FDIC has provided bank customers with prompt access to their insured deposits whenever an FDIC-insured bank or savings association has failed.

 Stacy, a college student, gets first credit card to use for study abroad  $1,000 later…  Graduated, moved to Rhode Island  $3,000 later…  Working a LOT, still $3,000  Interest rate: 24.9% APR  $62.25 minimum payment just to keep balance even  Paid off 5 years later  $150 jeans cost $ in the long run Stacy

 Principal: The actual amount borrowed.  Interest: The amount banks charge for the privilege of borrowing.  Example: I bought $150 jeans that, ultimately, cost me $ The principal amount is $150, interest was $

Bank Commercial Bank ▫ Provides transactional savings, money market accounts Credit Union ▫ Financial institution that is non-profit and customers are members

HOW WOULD SHE REBUILD HER CREDIT?! Factors that impact personal credit:  It matters what kind of "financial citizen" you have been  Financial institutions look at your credit history to determine if you are a safe or risky investment.  Good credit=low interest rates  Bad credit=high interest rates Factors that impact interest rates:  If you pay bills on time, establish credit in small increments, and maintain favorable debt/wealth ratio you will pay LESS to borrow money.  If you have bad credit, no credit, or have otherwise shown you are a risky investment, you will pay MORE to borrow money!

 Now, she uses a credit card to make budgeted monthly purchases, and pays the balance off each month  Personal budgets are important for individuals to track spending and income  She has also invested in mutual funds to help grow wealth and save for retirement  A mutual fund is a collection of stocks and/or bonds  Way to diversify wealth

 Stocks: Purchasing a share of a company; you actually become part owner!  Dividends: Quarterly/yearly payments based on company profit  Capital gains: Money made from selling a stock at higher price than paid  Bonds: Loaning money to a company or the government for a specific period of time  Bonds have a maturation date—if you wait until the maturation date, you get the full face value of the loan  Rate of Return: The amount of additional money expected when you make an investment.  The higher the risk, the higher the return!  EX: Savings account (.25%) vs. Junk Bonds (6-8%)