Thursday, March 30, 2017 Objective: Students will be able to identify the types of loans available to consumers and explain the responsibilities and obligations of borrowing money. Purpose: If you need additional money to make a purchase or investment, it helps to know how to get that money.

Banks Bank: A financial institution licensed as a receiver of deposits Two types: Commercial Banks and Investment Banks Banks are heavily regulated by the government Why do you think this is the case?

Commercial Banks

Commercial Banks Main Responsibilities: managing withdrawals and deposits Also supply short-term loans to individuals and small businesses Help customers manage day-to-day transactions Purpose for consumers: Use for basic checking and savings accounts, certificates of deposit and sometimes for home mortgages

Banks earn interest by using the money customers have deposited to lend to businesses and other borrowers.

The Fed requires banks to keep a fraction of their funds on hand and lend the remainder to customers. What could happen if banks kept only 5 percent in reserve?

Impact of Bank Size Large Banks Small-Bank Networks “Big Four” banks: Chase, Citibank, Wells Fargo, Bank of America Advantages: many convenient branch and ATM locations Disadvantages: higher fees and impersonal nature Small-Bank Networks Advantage: more personalized Disadvantages: only regional or local service, fewer ATMs Examples: US Bank, PNC, BB&T

Savings banks and S&Ls have become less common because they don’t differ significantly from other banks. About how many more commercials banks are there in the United States than savings banks?

What lenders look for Stable employment Stable residence Responsible handling of other debts The more money that a banks lends out, and the higher the interest rate, the more profit a bank can make.

Information to know when borrowing money amount borrowed interest rate term (length of the loan) payment schedule (how often are payments due) total payments

Loans Purposes: Help individuals start businesses Help existing businesses grow If an individual fails to repay a loan, that person defaults

Types of Loans Secured loans Unsecured loans a loan that is obtained by offering an asset as collateral to ensure repayment of the loan you lose the asset if you are unable to make the payments examples: Car loan, mortgage/home loan Unsecured loans a loan that is obtained without the use of collateral fines or lawsuits are filed if you are unable to make the payments examples: payday loans, student loans, credit cards

Other Loans Payday Loans Consolidated Loans short-term loans borrowed using your next paycheck have high APRs and can be difficult to pay off Consolidated Loans a loan made in order to consolidate several debts into one loan usually taken out for the purpose of reducing the monthly payments by extending them over a longer time period

Electronic Banking Automated Teller Machines (ATMs) Computers that customers can use to withdraw money from a bank account at their own convenience Costs: no fee if ATM is operated by the bank a customer uses, otherwise, there is a minimal fee (usually between $1.50 and $3.00)

Having a Checking Account Make sure that the bank you use is insured by the FDIC FDIC: a federally sponsored corporation that insures your money up to the insurance limit of $250,000 per account You need an ID and Social Security number to open a checking account Money must also be deposited in your new account before it becomes active

Having a Checking Account Debit Cards money you spend is deducted from your checking account balance also used to withdraw money from ATMs, giving you access to your money 24/7 Direct Deposit allows your employer to deposit your paycheck directly into your bank account An employer may ask for your Social Security number, a voided check containing your bank’s routing number, and your account number

Types of Checking Accounts Basic Checking useful if you have few bills and limited debit card uses monthly maintenance fees may apply unless you retain a minimum balance or enroll in direct deposit Free Checking the free period may only be for the first several months

Online Banking allows you to access your statements, canceled checks, and notices online only automatic bill paying: bill is automatically paid by the bank on a predetermined date You save time, postage, and the possibility of missing a payment and incurring late fees

Follow these tips to develop good habits that will help keep you protected when banking online. Online transactions offer layers of encrypted protection to safeguard your transaction and privacy.

Types of Checking Accounts Checking with Overdraft Protection money is lent to you by the bank in case of an overdraft, up to a preset limit this service comes with hefty fees No matter what type of account you have, your bank will send you a monthly statement that lists all of your transactions Make sure that the statement matches your records

To avoid problems with checks: 1. Write clearly. 2 To avoid problems with checks: 1. Write clearly. 2. Do not cross out or write over a mistake. 3. Tear a check with any errors into small pieces and write “Void” next to the check number in your check register. 4. NEVER write a check for more than your account balance.

How to balance a checkbook Enter all transactions into your checkbook register each day. This includes ATM withdrawals, online bill payments and debit card purchases. Review your account statement as soon as it arrives. Compare the monthly statement to your checkbook register, and place a check mark next to all of the items that match.

How to balance a checkbook Adjust your checkbook register if necessary. Add or subtract items on your register that appear on your statement but were overlooked when filling in your register. If you find errors, double-check everything. It’s easy to make a mistake such as transposing numbers, so it’s a good idea to double-check every entry first. Then, if there are still errors, contact your bank.

Budgets can vary based on lifestyle and income Budgets can vary based on lifestyle and income. Developing a budget that includes all of the categories of spending will help determine how much money to set aside for each category.

Be budget smart! Follow these tips to stay on track with your spending and saving.

Evaluating a Cashless Economy