14 – Saving: how and where

Describe the different methods of saving. Identify different institutions for saving. Identify the different factors that need to be considered when choosing the way or place to save. Evaluate the alternatives in terms of their costs and benefits.

Hide it – a lot of people hide lots of money in very weird places. They want immediate access to their savings or may not trust banks.

Deposits at a registered bank. Security Interest Cheque accounts Savings accounts Long-term deposit accounts (contractual savings)

Life assurance policies Offered by life insurance companies (contractual savings) Protect dependants from financial loss when you die. You pay a premium. Nothing is paid out of the policy until you die. (term or temporary insurance). Whole life or Endowment (savings)

Superannuation funds Payment made to a retired person. Depends on how much you deposited over the year. Kiwi Saver (2% + 2,4,8%) Sorted.org

Task 1 Define – savings, on-call account, contractual savings, liquidity, term deposit, habitual savings, life insurance, superannuation fund. Explain why some people choose to save money by hiding it. Identify one advantage and one disadvantage of the following – cheque account, on-call savings account, term deposit account.

Task 2 A friend has $2000. He wants $400 kept on hand in case of emergencies and $550 to buy a TV. Advise them how best to invest the balance. Distinguish between contractual and habitual saving. Identify an advantage and disadvantage of each. Research and report on ‘whole of life’ and ‘endowment’ life insurance policies.

Task 3 Explain what happens, in a superannuation scheme, to the interest that would normally be paid directly to the saver. You invest $1000 in superannuation at age 20. The fund pays out 5% every year until you are 65. What is the fund worth when you retire? Explain compound interest.