Saving and Investing

Why People Save Large purchases, emergencies, college, retirement People save money in order to make down payments on large purchases they make on credit, like homes and automobiles No down payments = larger monthly costs, small down payments = higher interest

How People Save Various ways to save money Regular savings accounts Certificates of Deposit (CDs) are issued by banks and other financial institutions Savers invest a certain amount of money for a specific period of time The longer the money is put into and kept in the CD, the more interest you will be paid on it

Stocks and Bonds Stocks and bonds are two of the most popular investment techniques Bonds- certificates of debt issued by the govt. or a corporation to people who lend them money When the bond reaches maturity, you get the money back plus interest Safe form of investment and regularly earns you interest Interest rates on bonds may not be as high as other forms of investment because of the low level of risk

Stocks and Bonds Business organizations who buy and sell stocks for their customers are known as brokerage houses Each brokerage house is a member of a stock exchange Millions of shares of stocks are bought and sold every day at a stock exchange Stock prices depend on expectations of how well a company is or will perform, which make stocks a risky investment You should have a good working knowledge of the stock market before deciding to invest in stocks

Stocks and Bonds Common stocks often pay small dividends, or sometimes none at all Value of the stock may fall on the stock market, costing you money To reduce these risks, people buy shares in mutual funds that are managed by people familiar with the stock market Buying a share in a mutual fund means you own a small piece of a large number of different stocks

Money Market Funds Money market funds work similarly to mutual funds by buying stocks individuals could not purchase alone Savers can withdraw their money at any time Money market funds do not guarantee a specific rate of interest These savings are also not insured by the government

Savings in the Economy Money in savings accounts, bonds, stocks, etc. etc. is used to help expand the U.S. economy Economic growth occurs when producers are continually expanding Expansion requires capital to pay for new factories, machines, workers, etc. Capital used for expansion come from individuals’ savings Banks use the money you deposit in savings to make loans to businesses

Raising Capital Saving and investing are NOT the same Money in a piggy bank is saved, not invested Money you put in a savings account is both saved and invested When you invest, you turn your money into capital- used by companies to produce goods and services Ability of American businesses to raise large amounts of capital helps keep our country prosperous Therefore, your saving habits contribute to the economic well-being of the country

Raising Capital Businesses also save money to raise capital Put aside a certain portion of profits before paying dividends to stockholders Money is reinvested into the business in the form of new capital New machines, factories Open up new branches New lines of products This new capital is in addition to the money set aside for maintenance and replacement expenses

Protecting Savings Federal and state government have passed laws to regulate the activities of institutions that handle the money/savings of others Government only charters banks that are properly organized and have enough capital After banks are chartered, they are inspected regularly by state and federal officials Directors are responsible for ensuring that their banks obey all banking laws But what happens to the savings that people have deposited into a bank that fails?

Insuring Savings Most savings are now protected by the federal government FDIC and the NCUA If any member bank or credit union of the FDIC or NCUA fails, depositors will be paid the amount of their deposits up to $100,000

Regulating Stock Exchanges Securities and Exchange Commission (SEC) ensures all offerings of stocks and bonds on the stock exchanges are honest Regulations of SEC designed to stop fraud and deception on the stock exchange Does NOT mean all stocks are safe investments or that all brokers are honest

Regulating Savings Organizations All of the country’s savings organizations come under state or federal supervision Banking practices are closely monitored Savings and loans associations are regulated Company credit unions must allow govt. accountants to examine their records and operations Congress is also considering new regulations for retirement plans Savings are important to the prosperity of the U.S.- very important individual savings be protected

? How do bonds work? What determines the value of a stock? How are individual savings connected to business capital? What is the difference between saving and investing? What is the role of the FDIC and NCUA? What is the role of the SEC?